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

   

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