What is a nonprofit organization?

In its simplest form, a nonprofit organization is a legal entity the provides services or goods to people in need for the public good, resulting in the benefit of the entity not having to pay taxes. Now, wasn’t that dull!

Let’s try to answer this in a different way by looking at its function, influence, abilities, and purpose. If you strip down the parts of the organization that best distinguish a nonprofit such as its tax status, reporting, actions, donors, etc., you are left with people, mission, and purpose. Now we’re onto something.

A nonprofit organization is a business for doing public lives and must have a clear reason for being in existence (mission), must have unique skilled people who are trained to affect lives, and the organization must have purpose (vision) to drive the direction and goals of the business.

But there’s more. Much more. Nonprofits exist for two additional reasons that provide clarity on their purpose. Originally, they were created to fill the gap between something that society needed and found valuable but was outside the scope of the US government funding, such as specific or niche research or faith support. However, as society became more complex and the people within it had more and more adjusting to the times to keep up, we found that some people did not have the ability to adapt or carry the same responsibilities of others, so many were cast aside with no place to go or any way to care for themselves. So, nonprofits were created to fill in these important social gaps within society but had no traditional funding source to meet the social obligation, so a type of business was created that turned to the people and private sector businesses for donations to provide the funding. You’d be hard pressed to find an American citizen that does not rely upon, or are grateful for, a nonprofit for something they need, or to make their lives better.

“Nonprofits are more than a unique type of business, they are part of what defines of our society as a successful republic and a place that has as much emphasis on people and caring as it does on economy.”

Because nonprofits don’t make business decisions to grow a profit for shareholders as private sector businesses do, they aim to spend roughly the same amount of money each year that they raise. The tricky part of this formula is donations need to be earned so you can’t expect them to be received on the 1st day of the new budget year. The nonprofit business needs to plan and forecast revenues for staffing, programs, fundraising, materials, and utilities, but one can’t be confident in executing the plans until the revenues are received which may not be until months later. This is the weird part of running a nonprofit business because you have to rely upon faith of future revenues and a keen business acumen for nonprofit management, a practice that no businessperson is entirely comfortable with. Nonprofits need to walk a tightrope between accurate future expenses and the exact revenue to match it, then be prepared to alter budgets to account for unanticipated shortfalls. Try doing this at home with your family budget and you’ll see a lot of unexcellence in how your household income is managed. Nonprofit leaders would share that managing an organizational budget is every much an art as it is a science, and few have this skill.

Perhaps one of the most important defining characteristics of nonprofits is the message of care and love they carry to donors, people in need, volunteers, the community in which it operates, and with its staff and board. We have come to rely upon nonprofits to carry the soul of the communities we live in. Look at any nightly news channel in your community and so much of it is driven by nonprofits and people doing good in ways that inspire us. Without nonprofits, where would people go to help others and receive that validating feeling of being a worthwhile human that many people need to feel fulfilled? What would happen to causes that serve all of us if nonprofits didn’t exist? We’d find ourselves living in unbalanced capitalist society with few outlets to altruism while those who are vulnerable and in need surround us with few opportunities to support them.

Nonprofits are so much more than tax status and social function to help the public. They are institutions of care and goodness that weave the best of Americans together for something other than ourselves. They create and build talent that is often highly empathic and compassionate beyond the average person without their training and the world around us is better because of their ability and drive to care. Nonprofits are reservoirs of giving that dramatically change things in our world for the better while providing a sense of meaning to those who give unselfishly. They provide a relief to the government to fund important issues to society that the government would be unable to fund without raising our taxes exponentially.

Nonprofits are more than a unique type of business, they are part of what defines of our society as a successful republic and a place that has as much emphasis on people and caring as it does on economy.

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Let us know what you thought of this post. You can reach Crossroads of Michigan President and CEO Bill Sullivan at bsullivan@crossroadsofmichigan.org.