Introduction to Non-Profit Organizations – A Comparison to Profit Driven Businesses

This article is about the characteristics of a non-profit organization as compared to those of a profit driven operation. What are the differences? Actually there are NO DIFFERENCES between the two types of operations. Think about this for a moment, both have to make enough money to continue to exist. Without funding, a non-profit will go out of business, and there have been many that cease to exist because of the lack of funding. The same goes for a profit driven operation. Without a profit, you will go bankrupt and cease to exist.

Why is there all this misunderstanding? The answer is keyed to the order of the primary objectives for the business/organization. The best way to understand this is to look at a regular business operation. What are the primary objectives? Let’s take a look:

1. The number one objective or primary characteristic of any business is MAKE A PROFIT; this is why capital was originally invested. This is why somebody came up with an idea and decided to sell this idea. It doesn’t matter what it is, it’s driven by profit. You’ll hear about some companies that don’t state this as the first objective, but the reality is that the investors, current stockholders, and even the owner want the company/business to succeed. It is driven to make money.

2. The second objective is to sell or make a product/service that is desired by as many people as possible. Whether you sell widgets or dig a ditch, you want to the best and for your customers to talk about you in a positive light. PRIDE is at stake here, you want your company to be the best.

3. The third characteristic of all business operations is to provide for the security and long term employment of the folks that support you, i.e. your employees. They work hard for you to make that profit and for you to enjoy that pride that comes with owning and operating a successful business. You want to take care of them. It benefits you and it is good for our society for people to work somewhere where they make a good living and provide for their families.

Now in the non-profit world, the same three characteristics or primary goals are exactly the same. The difference is the order in which they exist.  For the non-profit organization it flows as follows:

1. The number one objective matches their mission statement, to do some type of good for our society. Notice this is the number two objective for the profit driven company. For a non-profit, making money isn’t its primary goal; to SERVE is the primary purpose.

2. Unlike the profit driven business, non-profits believe that it is best to provide for the security of the folks that work for the organization over making a profit. This makes sense because they generally don’t pay as well as the profit driven business, so it is important to have staff that care about the primary goal of serving the community at a lesser wage. The staff know that the organization will do everything in its power to continue and provide security in this job. They need the employee to stay for as long as possible. Again, this helps to achieve the primary goal of service to the community.

3. Finally, the non-profit needs to make money to continue in operations. Now they don’t call it a profit, they use the term – Revenues in Excess of Expenses. Notice this is semantics at the end of the day, but we accountants use this terminology to identify what type of operation we refer to when discussing financial reports. I can’t stress the importance here, a non-profit MUST MAKE A PROFIT to survive. Without a profit, ultimately the organization will cease to fulfill the primary objective.

In summation compare the two types of entities:

                             For Profit                                Non-Profit
# 1 Goal             Make a Profit                            Serve Society
# 2 Goal             Sell a Service/Product               Employee Security
# 3 Goal             Employee Security                    Make a Profit

This area of Business Economics is dedicated to helping the non-profit achieve ALL three objectives. As you learn more, Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

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