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Starting a Nonprofit Organization? There is No Personal Profit in a Nonprofit

While there are plenty of good reasons to start a nonprofit, improving your own finances is not among them. Legitimate nonprofit corporations are given special status by the IRS because of the purposes they serve – they solve societal problems that are beyond the scope of government and private industry. The hook is that all financial activities of the exempt organization must make sense for working toward the stated purpose. Any transaction that even appears to provide personal profit to an individual is suspect, and can place the exempt status of the organization at serious risk.

One reason this is often misunderstood is that the executive directors and staff of some major nonprofits earn high salaries, so people figure they can launch a nonprofit and pay themselves a good salary as well. The idea sounds great – contribute to improving society while creating a good job for yourself. Unfortunately, it is just not that easy. The professionals making $100k or more at the top level of major nonprofits are akin to the executives of huge for-profit corporations. Their responsibilities are immense, their knowledge of nonprofits expansive, and their experience vast. Very few had anything to do with launching the organization, but are skilled managers and business professionals who have proven the ability to effectively run a large-scale corporation.

The ability to pay high salaries is also obviously dependent on the income of the organization. In order to pay high wages while accomplishing the goals of the organization, income must be high and consistent. In many cases, nonprofits are launched with the best of intentions, but the reality of raising enough cash to cover the overhead becomes the primary focus. Without a primary focus on the actual purpose of the organization, contributions and grant funding are even harder to come by, and these nonprofits tend to fail very quickly.

In other cases, nonprofit founders are looking to boost their own for-profit business through a new nonprofit. Whether through leasing equipment, selling goods or services, or even providing consulting to the nonprofit, some figure that selling to a nonprofit under their own control will be an easy way to boost sales in their for-profit venture. While this may sound like a good idea on the surface, the reality is not so great. First, once a nonprofit is launched, it is “owned” by the public, not by the founder. Thus, the decisions made by the board of directors must be in the best interest of the public. Second, the quickest way for a nonprofit to lose its exempt status is to allow the personal enrichment of any individual, especially one closely associated with the organization.

Starting a nonprofit is no easy task. It requires a selfless commitment of time, desire, and resources to launch an organization that actually makes a difference. There is no legitimate, direct way to increase your personal wealth by starting a nonprofit. In fact, the only personal gain you can expect is the good feeling that comes with giving back to society.

About the Author

LaunchX.com is dedicated to training entrepreneurs to turn their good ideas into great companies. The LaunchX System provides step-by-step education in the mindset and skill set entrepreneurs need to succeed. Our program includes intensive seminar training, key business software, and specialized workbooks that teach you the fundamental skills you need to achieve your financial and worklife goals through entrepreneurship. Register today for our introductory course and see what LaunchX can do for you!