One of the biggest misconceptions about nonprofits is that they aren't companies and don't make profits.
The misconception comes from the word nonprofit, which makes it sound like we aren't supposed to make money. But "nonprofit" is primarily a tax and legal designation. It does not mean the organization is exempt from business fundamentals, cultural issues, and good management.
It simply means the organization does not distribute profits to private owners or shareholders like for-profit companies do. Any surplus is reinvested back into the organization and its mission. We still have to generate more revenue than expenses if we want to deliver on our mission.
The fact that so many people don't consider nonprofits businesses does the industry a severe injustice, because with that comes the assumption that they should be managed dramatically differently. They shouldn't be. I'll get into management in a different post, so let's set the record straight.
Nonprofits are companies.
The most basic definition of a company is "a legally-recognized organization designed to provide goods or services to consumers in exchange for payment." Thanks, Google.
I'm not sure how that disqualifies nonprofits as companies, but here we are.
This is really important, because if we aren't running our organizations like businesses, we will fail. We may use different language, but the underlying business realities are the same.
Nonprofits have customers, even if we call them members, donors, sponsors, or attendees. Someone is still deciding whether the organization creates enough value to justify their money, time, and participation.
We also have the hallmarks of all businesses: business models, management teams, cash flows, and balance sheets. We hire, fire, budget, forecast, and make decisions with incomplete information like every other company.
If it looks like a duck and quacks like a duck ...
Treating nonprofits as something other than companies does not make them more mission-driven. It usually makes them less disciplined, less financially resilient, and more dependent on heroic staff effort instead of strong systems.
The point is not that nonprofits should behave exactly like for-profit companies. They have different purposes, different stakeholders, and different obligations.
But they are still companies, and they deserve to be managed that way.