For Profit vs Nonprofit Organizations

 

For-Profit vs Nonprofit Organizations Differences

As the name suggests, there is a big difference between for-profit vs nonprofit organizations as per their scope and purpose.

Many individuals believe that nonprofit organizations don’t make any profit. And only for-profit organizations make the profit. This is a myth. The actual difference doesn’t lie in making profits; rather it lies in handling the profits.

• For nonprofit organizations, society comes first; personal motives come next. For-profit organizations, it’s just the opposite. Other than the purpose of handling the profits, these two organizations are different in scope also.
• For nonprofit organizations, the sources of revenue are subscription, membership fees, donation, etc. For-profit organizations, the sources of revenue are selling of goods and services. Even the seed capital for nonprofit organizations come from the government grant, donations from HNI (high net-worth individuals), etc. Whereas, for-profit organizations, the seed capital is usually provided by the partners or the owners of the business.
• If we talk about financial statements, for nonprofit organizations, cash flow statement, income statement, and balance sheet are used. And if we think about nonprofit organizations, we use receipts & payments account, income & expenditure account, and balance sheet as well.
• In regards to taxes, for profit organizations needs to pay taxes. Nonprofit organizations are exempted from paying any taxes. Since the profit-making organizations make profits for their own benefits, Government levy taxes on them. But because nonprofit organizations make profits to help the society at large, they’re given the benefit of no tax payment.
• The culture of these two types of organizations is also quite different. In the case of profit-making organizations, the culture is all about deadlines, finishing projects as quickly as possible for clients, adhering to different KPIs (key performance indicators). On the other hand, for nonprofit organizations, the organizational culture is quite different. The culture values contributions of the members and how much each member can contribute even beyond the daily schedule of work.
• In the case of profit-making organizations, the ideal buyers are targeted. Otherwise, the motto of selling to the right audience will not be achieved. On the other hand, nonprofit organizations have a broad view of the audience. In most cases, people can join, contribute, become members voluntarily.

For-Profit vs Nonprofit Organizations Infographics

Here are the top 7 difference between For profit and nonprofit organizations

For Profit vs Nonprofit Organization Key Differences

Here are the key difference between for profit and nonprofit organizations –

• Profit organization is built to serve the business owners. The nonprofit organization is built to serve the society at large.
• Profit organizations can be in the form of a company or a sole proprietorship or partnership company. Nonprofit organization can be in the form of trusts, clubs, society, committee etc.
• Profit organizations make the profit by directly/indirectly selling goods or services. Nonprofit organizations can sell goods/services, but they mainly source revenue through donations, subscriptions, or membership fees.
• The financial statements prepared for profit organizations are the income statement, the balance sheet, and the cash flow statement. The financial accounts prepared for nonprofit organizations are the receipts & payment account, the income & expenditure account, and the balance sheet.

So, as you can understand there are many difference between for profit and nonprofit organizations.

For Profit vs Nonprofit Organizations Head to Head Differences

Let’s have a look at the head to head difference between for-profit and nonprofit organizations

Basis for comparison between for profit vs nonprofit	For profit organizations	Nonprofit organizations
Purpose	To make profits for one’s personal fulfillment.	To make profits for serving society.
Types of organizations	The organization can be a company, a partnership entity or a sole proprietorship firm.	The organizations that are of nonprofit types are clubs, trusts, society, etc.
People that manage	Business owners, sole proprietor or partners.	Trustees, governing bodies, or committee members.
Revenue source	The revenue source of this type of organization is selling goods and services.	The revenue sources of this type of organization are a donation, subscription, grants, etc.
Seed capital arranged by	In the case of this type of organization, seed capital is arranged by the business owners or founders of the company/proprietorship firms.	In the case of a nonprofit organization, seed capital is arranged by sourcing government grants, asking for donations, etc.
Financial statements/accounts prepared	For-profit organization, the income statement, the cash flow statement and the balance sheet are prepared.	For a nonprofit organization, the receipts & payments account, income & expenditure account, and balance sheet are prepared.
Profit transferred to	Capital account.	Capital fund account.

Final Thoughts

For-Profit and nonprofit organizations are run on different values and motives. Even if profit organizations keep the profit for their own benefit, For-profit vs nonprofit organizations serves a lot of people through their products and services. And at the same time, even if nonprofit organizations are created to serve the society, For-Profit vs nonprofit organizations which pay a salary to the chairman of the trust.

Recommended Articles

This has been a guide to the top difference between For-Profit and Nonprofit Organizations. Here we also discuss the For-Profit vs Nonprofit Organizations key differences with infographics, Examples and comparison table. You may also have a look at the following articles –

• Difference Between Leading vs Lagging Indicators
• What is Cost Center Accounting?
• Expense vs Expenditure – Similarities
• Bid vs Ask – Similarities
• Current Account vs Capital Account – Similarities
• Profit vs Revenue
• Differences Between Profit vs Income
• Accounting Profit vs Economic Profit
• Cost Center vs Profit Center Differences