Difference Between Nonprofit and For Profit
Nonprofit Organizations are those organizations which are incorporated not for earning some income from its activities rather their primary motive is to enable activities which are generally for aiding or advancement of the society at large and are not required to pay taxes whereas For Profit Organizations are those entities which are incorporated with a primary objective of earning economic and monetary benefits either directly or aiding in that process.
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.
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Source: Nonprofit vs For Profit Organizations (wallstreetmojo.com)
- 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 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 statements, income statements, and balance sheets 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 the 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
Let’s see the top differences between For-profit vs nonprofit organizations.
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Source: Nonprofit vs For Profit Organizations (wallstreetmojo.com)
Key Differences
- The for-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. A nonprofit organization can be in the form of trust, 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.
For-Profit vs Nonprofit Comparative Table
| Basis for comparison | 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 proprietors 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 donations, subscriptions, 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 statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more 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
Even if profit organizations keep the profit for their own benefit, it 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, they may pay a salary to the chairman of the trust.
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This has been a guide to Nonprofit vs For-Profit Organizations. Here we discuss the top differences between For-Profit and Nonprofit Organizations with infographics and comparative table. You may also have a look at the following articles –
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