Raul Larios

PART 2 – Should Nonprofits Strive to be Profitable?

Columbia University 2In Part 1, I talked about the importance of small nonprofits managing their finances as if they were for-profit and using some or all surpluses to build an endowment fund, if they are to survive what appears to be the beginnings of a long-term trend in “under-funding” (100% to mission, 0% to administration).

Profitability, however, is no easy feat if your organization is small (whether you’re a for-profit or a non-profit). I was struck by a recent statistic claiming that of the 28 million for-profits tracked by the Small Business Administration in 2013, only 6 million (21%) were actually profitable. Only 21%!!

As difficult as it is to be profitable if you’re small, many large nonprofits do a phenomenal job at it. Consider my wife’s alma mater Columbia University (CU) here in New York City. CU posted an operating profit of over $230 million in its most recent filing (period ended June 30, 2014) on gross revenues of $3.8 billion. The market value of Columbia’s endowment funds now exceed $9 billion, which generated nearly $350 million in unrestricted income. In keeping with one of its nonprofit missions, CU awarded just over $200 million of non-government University money in financial aid grants to deserving students with great potential, but who were unable to afford the tuition (current needs). And most telling for the purposes of this blog post, CU transferred $17.4 million of its 2014 operating surplus back to its endowment funds (future needs). Way to go Columbia!

Here is a random sampling of other large nonprofits that are highly profitable (as measured by their operating surplus in their most recent filings):

National Resources Defense Council, $17.4 million profit

Environmental Defense Fund, $18.2 million profit

Smile Train, $28.4 million profit

Feeding America, $14.4 million profit

Habitat for Humanity, $15.3 million profit

Smithsonian Institution, $193 million profit

Planned Parenthood, $127.1 million profit

Boy Scouts of America, $37.7 million profit

Clearly, many large nonprofits know how to make a profit, so I’m not worried about them. But I do worry for the hundreds of small nonprofits with wonderful causes that make our communities so much better, yet struggle month to month.

That’s why you should really pay attention to how the large tax-exempts do it. If you dig into their financials, you’ll notice their “for-profit mentality” at work: robust fundraising departments to drive current (and future) revenue; continuous expansion of their endowment funds for future revenue; and an unrelenting focus on cutting expenses wherever possible.

If you are a small struggling nonprofit, perhaps you should emulate the large ones — drop that nonprofit “deficit mentality” and really strive to be profitable.

Good luck, and thank you for making our world a better place!

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April 20, 2015 - Posted by | New York | , , , , , , , , , , , , , ,

32 Comments »

  1. Source — The ‘Alliance for Nonprofit Management” LinkedIn Group:

    RICHARD L. P. SOLOSKY, MNM (Strategy Architect | Optimizing Nonprofit Impact) — “While I understand your message, I hate that the question has to be asked. How else do you build a sustainable organization?”

    Comment by Raul Larios | April 24, 2015 | Reply

  2. Source — The ‘Alliance for Nonprofit Management’ LinkedIn Group:

    N SKYE McCLOUD (President at ML Information Group LLC) — “I think most people misunderstand the nature of the organizations due to the name. Specifically it means that monies that are raised that are directly related to the mission of the organization are not taxed. Monies that are raised that are not related are taxed under the Unrelated Income statutes. An example would be: when the Chamber of Commerce that I worked for sponsored a Beach Boys concert for a fundraiser, that income was taxable. Another would be: local small associations have been invited to sell refreshments at the local NFL football stadium and then split the profits. Even though the monies would then be spent to help the association perform it’s mission, the money is not exempt (unless the association was The Hot Dog and Soda Association). To stay afloat, you must take in more than you spend, in order to be able to withstand unforeseen expenses.”

    Comment by Raul Larios | April 24, 2015 | Reply

  3. Source — LinkedIn:

    MICHELE AMENDOLARI (Arts, Development + Relationship Building Professional Open to Opportunity in Donor Relations + Fundraising) — “Enjoying your posts. Are you open to sharing your source regarding the list of profitable nonprofits?

    I’ve always preferred ‘social profit’ to nonprofit and believe the more “profitable” we are – the greater impact we can have.”

    Comment by Raul Larios | April 26, 2015 | Reply

    • Michele, I don’t have a “source” per say. I literally just pulled financial statements at random (well, mostly from nonprofits to whom I have donated in the past or to whom I’m thinking of donating). I was gratified to find (for the reasons I explain in Part 1 of my article) that all of them were profitable. By the way, I like your term “social profit” instead of nonprofit. Thanks for your comment, Michele.

      Comment by Raul Larios | April 26, 2015 | Reply

  4. Source — The ‘Nonprofit Controller’s Network’ LinkedIn Group:

    JOSEPH SCARANO (CEO at Araize, Inc.) — “Excellent points, especially the idea that nonprofits need to drop the deficit mentality. With that mindset, instead of being nonprofit, they will be nonexistent.”

    Comment by Raul Larios | April 28, 2015 | Reply

  5. Source — The ‘Nonprofit Controller’s Network’ LinkedIn Group:

    DAN WEISS (CPA/Attorney, leading a team of flexible, part-time CFO’s who help organizations solve their financial puzzles) — “‘Great article, Raul!”

    Comment by Raul Larios | April 28, 2015 | Reply

  6. DAVID J. ARMSTRONG (Principal at Inventory Curve, LLC) likes your discussion in the ‘Nonprofit Controller’s Network’ LinkedIn Group.

    Comment by Raul Larios | April 28, 2015 | Reply

  7. JIM CAMPBELL, CPA, MBA (Experienced financial executive | Auditing | Financial Reporting | Budgeting | Financial Statement Analysis) likes your discussion in the ‘Nonprofit Controller’s Network’ LinkedIn Group.

    Comment by Raul Larios | April 28, 2015 | Reply

  8. Source — The ‘Nonprofit Controller’s Network’ LinkedIn Group:

    MARK HOOVER (Director of Finance/Controller at Southwest College of Naturopathic Medicine) — “I will also add to the chorus on this article. Many good points in here. I will add that although some of the “larger” nonprofits are successful, there are many that are not. We have seen many get in trouble with finances especially if they have struggles in other areas that diminish their public image. I will also say that I have seen many smaller nonprofits that are run in a financially sound method although without the articles’ focus on creating a reserve for future use which I do find worth keeping in mind. Keep up the good work!!”

    Comment by Raul Larios | May 4, 2015 | Reply

  9. JAMES BLAKE (High-Energy Healthcare Technology Executive, Donor Recognition Enthusiast and Non-For-Profit Evangelist at Lusens Inc.) likes your discussion in the ‘Nonprofit Donor Retention Best Practices’ LinkedIn Group.

    Comment by Raul Larios | May 7, 2015 | Reply

  10. Source — The ‘Nonprofit Controller’s Network’ LinkedIn Group:

    MARCIA SAULO, CPA (Director of Finance at The School District of DeSoto, Florida) — “Good use of Columbia University as an example. My guess is many people understand the practice of universities building endowments, but don’t connect that idea or needs to other types of non-profits as easily.”

    Comment by Raul Larios | May 10, 2015 | Reply

  11. I agree for the most part with the for profit mentality. A lot of times, managing your overhead is a key difference between operating at a surplus and a deficit. However, for some nonprofits that do a good job of building up reserves, they also need to make sure that reserves don’t build up too much. 501(c)(3)s that have built up huge reserves can discourage future contributions. I usually advise a lot of my nonprofit clients to shoot for having between 6 months and 12 months of operating expenses in reserves. If you have less than 6 months, you may not be able to handle an unforeseen decrease in funding or unexpected expenses. If your reserves exceed total operating expenses for 12 months, some donors may feel like the organization no longer needs their assistance and may look to donate money somewhere else. Once a nonprofit approaches 12 months of reserves, the organization should start looking into ways to either expand current services or look for new ways to provide services to the public, provided it is in line with the overall mission of the nonprofit.

    Comment by ROB SCHNEIDER (CPA at Stancil & Company) | May 10, 2015 | Reply

  12. Source — The ‘Nonprofit Controller’s Network’ LinkedIn Group:

    DEBRA WARD (Principal, Care Collaborator) — “Great thought provoking article especially for those CEOs that run Not for Profit organisations (agree, Not for Profit term needs to change). It just makes total sense for any business to make a profit in order to survive, whether they are For Profit or Not for Profit. It’s not even just okay to break even as you need extra funds to replace capital that is past it’s use by date.

    This is a difficult concept for Not for Profits as they have come to rely on government funding and fundraising income however these funding streams are drying up in some cases with more competition. Having said that, I believe the thinking on this is definitely changing especially as Boards become more educated by attending courses such as those provided by the Australian Institute of Company Directors.

    The fact is, you have to live within your means if you want to survive and that may involve cutting back expenditure, maintaining assets with preventative maintenance so they last longer or even increasing your funding streams by various methods such as partnering with like organisations. Budgeting is key to knowing what you expect to happen in the next year, although it is only an estimate and things can quickly change along the way which means it is essential to forecast after the first few months of your budget period to provide your organisation with a more likely year end result.

    The major take-away point is that you have to live within your means if you want to survive.”

    Comment by Raul Larios | May 11, 2015 | Reply

  13. DOROTHEA MARTZ (Financial Controller at Première Urgence – Aide Médicale Internationale) likes your discussion in the ‘Nonprofit Controller’s Network’ LinkedIn Group.

    Comment by Raul Larios | May 13, 2015 | Reply

  14. JORDAN EMERSON (Problem Solver | Business Process Analyst & Consultant | Entrepreneur | Director of Awesome/Partner at The IT Guys) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | May 20, 2015 | Reply

  15. LINDA BOUGHTON (Executive Vice President & CFO at Cultural Vistas) likes your discussion in LinkedIn.

    Comment by Raul Larios | May 20, 2015 | Reply

  16. ANTHONY CORDOVA, MBA (Chief Financial Officer at Christian Community Action) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | May 21, 2015 | Reply

  17. JEFFREY MASON, MBA, CPA, CGA (Corporate Accountant at the College of Physicians and Surgeons of Ontario) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | May 21, 2015 | Reply

  18. DINA HOLINKA (Senior Manager at Macias, Gini & O’Connell CPA’s) likes your discussion in LinkedIn.

    Comment by Raul Larios | May 21, 2015 | Reply

  19. Having worked in several small non profit organizations, the ones that are going to be successful are the organizations that run as a business. No profit, no program, I once heard. Funding is tight in some of the organizations, so they can build up their cash reserve with any profit to ease the cash flow issues.

    Comment by Chris Bettridge (Controller at Waukesha Ozaukee Washington Workforce Development Inc.) | May 24, 2015 | Reply

  20. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    JOHN A. LEHUE (Accounts Receivable, Cash Application, Reconciliation, Accounting Software, ERP, GAAP, Research, Analysis) — “Any business whether for-profit or non-profit has an obligation to their stakeholders to be as efficient and profitable as possible.”

    Comment by Raul Larios | May 26, 2015 | Reply

  21. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    TONIA PAPKE (President at MDI Consulting, Providing financial management services to nonprofits and small businesses since 1985) – “Nonprofits must have a surplus or they will not survive and be able to carry out their mission.”

    Comment by Raul Larios | May 26, 2015 | Reply

  22. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    CHRISTINE BETTRIDGE (Controller at Waukesha Ozaukee Washington Workforce Development Inc.) — “I agree with Tonia. No profit, no program.”

    Comment by Raul Larios | May 26, 2015 | Reply

  23. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    ROBERT L. WAMBOLT, MBA (Consultant Specializing in Helping Healthcare Providers, Vendors and Non-Profit Organizations Reach “Peak Performance”) — “Here is another one: No margin, no mission.”

    Comment by Raul Larios | May 26, 2015 | Reply

  24. Source — The ‘Non-Profit Accounting’ LinkedIn Group:

    MARK HARTONCHIK, CPA, CGMA (Controller at Crossroads Rhode Island) — “Absolutely – yes – nonprofits should strive to be profitable. You cannot sell a dollar for ninety cents and stay in business or existence. When I was in public accounting I would constantly remind my not-for-profit Clients to lose the ‘nonprofit’ mentality. Remember, the mission of the organization may be ‘not-for-profit’ but without good stewardship of funds and profitable operations the great works of mission driven causes would be severely diminished if the organization ceases to exist.”

    Comment by Raul Larios | May 31, 2015 | Reply

  25. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    SCOTT BRENNAN, JD, CFP (Principal, Schooley Mitchell of Denver / Delivering Telecom and Credit Card Processing Savings of 23%-34% With No Up-Front Cost or Risk) — “Couldn’t agree more. In fact, with most non-profits the biggest stakeholder is God, since its really all his money to start with, so efficiency and cost savings at all points along the way are critical and should be seen as obligatory.”

    Comment by Raul Larios | June 2, 2015 | Reply

  26. Source — The ‘Non-Profit Accounting & Grant Management’ LinkedIn Group:

    KAREN VINES (Compliance Specialist at Public Strategies, Inc.) — “A healthy nonprofit will be clear about its purpose, scale and scope. If the organization hasn’t reached scale, it will need excess revenue to get there. But knowing when you are there is just as important as knowing when you aren’t. How does an organization know if it has overshot “reaching scale” and moved into “more than it needs to meet its mission”? I have my ideas on what that looks like, but I would love to hear everyone else’s!”

    Comment by Raul Larios | June 2, 2015 | Reply

  27. KINSEN TALUKDER (Finance and Admin Manager at Abt Associates Inc.) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | June 2, 2015 | Reply

  28. LESLIE M. McKINLEY (Donor Services/Finance/Database Manager for Non-profits) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | June 2, 2015 | Reply

  29. DELORES MOYER (Project Manager at Apara Consulting) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | June 2, 2015 | Reply

  30. CARLA SINGLETON (Senior Marketing Manager at L.A. Care Health Plan) likes your discussion in the ‘Non-profit Accounting & Grant Management’ LinkedIn Group.

    Comment by Raul Larios | June 2, 2015 | Reply

  31. Source — The ‘Nonprofit Professionals Advisory’ LinkedIn Group:

    ROBERT GRABEL (Cycling and Endurance Events Coordinator at The National Psoriasis Foundation) — “Excellent points which move in the direction of the newer non-focus on overhead. Nonprofits need to move beyond the impoverished mentality i.e. we need to act like we’re starving or donors won’t support. Moving towards a surplus approach leans into more robust marketing, fundraising and other thought processes which while are atypical of nonprofits. And that’s a good thing.”

    Comment by Raul Larios | June 8, 2015 | Reply


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