What does 'not-for-profit' actually mean?
“The meaning of life is to find your gift. The purpose of life is to give it away.” – Pablo Picasso
This article is part of the Training Workshops series. Find the list of posts here and the video playlist here.
I’ve spent most of my career working in the third sector and supporting not-for-profit organisations…and then trying to explain what that actually means!
When I started my business, I knew that in order for it to feel authentic and aligned to my values it would need to be set up as a not-for-profit organisation.
But that decision raises a lot of questions too – both from the participants of our workshops and the other organisations we work with.
As I currently split my time between running my own not-for-profit and helping other people to start up and grow theirs, I get asked a lot - ‘what exactly is a not-for-profit?’.
There is a lot of confusion about what a not-for-profit organisation is and does, which can be confusing if you’re trying to research how to start one, as many of my clients are when they come to me.
So, I’m going to aim to clearly define what a not-for-profit organisation is and what it isn’t as well as what a not-for-profit is set up to do.
If we think of a traditional business, it’s set up to sell its products or services to make a profit for its directors, members or shareholders.
In contrast, a not-for-profit organisation is a business that aims to do something other than make a profit for its owners.
Usually that 'something other' is to do good, make a positive difference, create a social impact.
It is independent, meaning it is not owned by the government or any statutory services. It also means that in most cases it is not owned by shareholders.
However, one of the most common misperceptions I hear is that if you run a not-for-profit organisation, you can’t make a profit.
That’s not actually what not-for-profit means.
It doesn’t mean you can’t or shouldn’t make a profit, instead it’s a way of doing business that dictates what you do with your profit.
You only need to see the headlines about a national charity’s new CEO appointed on a 6-figure salary to get an idea of the misunderstanding about charities.
One of the biggest reasons that new not-for-profit organisations fail, or don’t make it past the first year is that the founders believe they shouldn’t make a profit, and instead they aim to break even, because that feels like the most ethical way to run a not-for-profit.
But that’s just not viable, and it’s definitely not sustainable.
It can help to remember that a not-for-profit organisation is a business.
A charity is a business.
A social enterprise is a business.
And the first rule of business is to bring in more income than you spend.
The majority of people who start a not-for-profit do so either to raise awareness of an issue they feel strongly about, fix a problem in their community, or to do something positive and meaningful in the world. These are all good and valid reasons, but unless they are paired with some business knowledge and strategy it’s difficult to gain any traction and make any real impact.
So please be assured that if you are starting or running a not-for-profit organisation you are supposed to make a profit.
The difference is that you commit to using that profit to sustain and build on the impactful work you do.
You can charge for services. You can pay your staff. You can buy a building.
Then, after all of that, any profit that remains is reinvested back into your organisation, back into the work you set your organisation up to deliver, back into the community.
It’s used for delivering more, helping more people, creating a bigger impact.
Remember also, that none of the terms ‘not-for-profit’, ‘charity’ or ‘social enterprise’ are actually legal structures in themselves, so in order to set one up, you will need to choose from one of the following:
Unincorporated Association
Charitable Trust
Charitable Incorporated Organisation
Company limited by guarantee - usually a Community Interest Company or Charitable company
Community Benefit Society
Cooperative Society
You can find more training on starting and running a not-for-profit here.
You might find the following free online courses useful:
Thanks for reading, Rachel x