What is difference between a profit and non profit business organization which in your opinion is easier to manage?

Written by Frank Connolly | Jul 9, 2019 2:04 PM

The most significant difference between nonprofits and for-profit organizations lies in their purpose: nonprofits have a social mission, while for-profits aim to offer products and services that are valuable to consumers and generate revenue. Nonprofits also receive certain tax breaks. Check out these seven key differences between nonprofit and for-profit organizations in our latest infographic.

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By Indeed Editorial Team

Updated April 1, 2022 | Published January 5, 2021

Updated April 1, 2022

Published January 5, 2021

Businesses can have different ownership structures, like partnerships or corporations. They can also have different goals and funding uses, which often differentiates a for-profit company from a non-profit organization. Understanding the differences between for-profit and non-profit entities can help you make an informed career decision. In this article, we explain what a for-profit business is, describe what a non-profit business is and offer nine key differences between the two types of organization.

Related: 140 Non-Profit Job Titles to Consider

What is a for-profit business?

A for-profit business is a company whose primary goal is to earn income and profit for its founders, leaders and employees. The business shares out any revenue the company makes after paying its expenses and debts to various company stakeholders in a predetermined way.

Related: How to Create a Nonprofit Resume (With Template and Examples)

What is a nonprofit business?

A nonprofit business is an organization whose key focus is to provide a charitable benefit to the community. Rather than take profits and distribute them to company stakeholders, any profits earned by the organization are reinvested in the nonprofit and used to further the organization's mission for the benefit of the community it serves.

Related: What Is the Difference Between Revenue and Profit?

The differences between for-profit vs. nonprofit

Besides the use of profits, there are a number of functional and idealistic differences between for-profit and nonprofit organizations. Review this list of the nine biggest distinctions between the two types of businesses to learn more:

1. Funding

One of the biggest differences between for-profit and nonprofit organizations is the manner in which they raise capital for their ventures. Traditionally, for-profit companies seek investors to help start their company and keep it growing. Usually, these investors receive a share of any profits made in return for their investment. Nonprofits, by contrast, seek donations rather than investments. Any individual, organization or institution that gives money to a nonprofit will not receive a share of profits. It's a pure donation rather than an investment.

2. Purpose

Another key difference between a for-profit and nonprofit organization is the institution's purpose or mission. Generally, for-profit companies seek to provide a product or service to consumers and make a profit by doing so. A nonprofit organization's purpose is to provide a service or benefit to the community with no intention of earning a profit. Instead, they're fully focused on improving the social aspect of their community and not on making money.

3. Audience

In most cases, for-profit companies have a very specific, defined audience they target with their product or service. Many for-profit businesses perform extensive research and analysis to find their ideal customer and then devote resources to ensuring that a segment of the population knows about the company's product or service. Nonprofits usually have a much broader audience. Most must appeal to a market that includes potential donors, the community the nonprofit serves, consumers who will purchase the nonprofit's service or product and volunteers or other stakeholders who work with the organization.

4. Leadership

The leadership committee that oversees the operations of the company differs substantially from a for-profit company to a nonprofit organization. In a for-profit business, often the top leaders have a firm and substantial financial stake in the company's success. This group of leaders may be a single owner, a group of owners or a compendium of stockholders. These leaders are concerned primarily with increasing the company's profits.

In a nonprofit organization, the leadership committee is often a board of directors who gain no financial benefit from their affiliation with the company. Instead, they guide the organization by considering how well the company meets the outlined mission and find ways to improve community outreach, recognition and donations.

5. Culture

The company culture in a for-profit company is often focused on how to best improve sales and profits. Most organizational discussions and the overall group mindset centers on the best ways to meet financial goals. In a nonprofit organization, by contrast, the culture is often more community-minded. Instead of discussing ways to make more money, employees, volunteers and leaders spend time brainstorming ways in which they can further benefit their community and increase the social effectiveness of their organization's efforts.

6. Taxes

Tax law differs substantially between for-profit companies and nonprofit institutions. In most cases, for-profit businesses must pay taxes on their business endeavors and profits as stipulated by the federal and state government. Nonprofit organizations must receive a special tax designation from the government, usually by registering as a 501(c)3, but once they've done so, they receive tax benefits not available to for-profit companies. When considering the implications of taxation, it's always best to consult a tax professional for the most up-to-date and applicable information for your situation.

7. Staff

Generally, the staff for a for-profit company is made up of paid employees, and potentially a few unpaid interns. The employees who work for a for-profit business often do so in order to earn a living for themselves rather than singularly for a commitment to the company's cause or mission. Nonprofits, however, often operate with a team of volunteers and a few paid employees. These volunteers give their time with no compensatory benefit because they believe in the work the organization does and want to provide a service to their community.

8. Ownership

Another key difference between a for-profit and nonprofit organization is ownership. For-profit companies can have a number of different ownership models, but the physical and intellectual property the company uses is technically owned by whoever maintains control of the company. In a nonprofit organization, there are no true owners. It's a publicly owned entity, and none of the physical or intellectual property the organization uses can be taken by a member of the organization as compensation for their work with the institution.

9. Accountability

Since most nonprofit organizations are tax-exempt, they're required to file information about their financial and business practices with local and federal organizations for accountability purposes. Usually, nonprofits do this annually with a document called IRS Form 990. For-profit institutions are not required to file accountability information since they pay taxes on their earnings and profits. As always, it's best to consult with a tax professional when determining how to maintain compliance.