{"id":5610,"date":"2016-06-07T16:25:14","date_gmt":"2016-06-07T16:25:14","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=5610"},"modified":"2019-01-05T01:41:17","modified_gmt":"2019-01-05T01:41:17","slug":"reading-making-a-profit-2","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/reading-making-a-profit-2\/","title":{"raw":"Reading: Profits and Purpose","rendered":"Reading: Profits and Purpose"},"content":{"raw":"A\u00a0nonprofit <\/strong>or not-for-profit<\/strong>\u00a0business<\/strong>\u00a0is one that provides goods or services to consumers, but its\u00a0primary goal\u00a0is not to return profit to the owners of the business (as is the case with a for-profit business). Instead, it uses those profits to provide a public service, advance\u00a0a cause, or assist others. The American Red Cross, the local SPCA, and the American Cancer Society are all examples of nonprofit businesses. They use any\u00a0revenue generated from operations to support the continued mission of the organization. In addition, most nonprofits also rely on donations from individuals and businesses, grants, and government funding to help fund their work, since\u00a0the revenue they raise\u00a0rarely covers all their\u00a0operating costs.\r\n\r\nMuch of what differentiates a for-profit business from a\u00a0nonprofit business goes on\u00a0behind the scenes and isn't very visible to the customer. For example,\u00a0a nonprofit organization is subject to government regulation and oversight in ways that differ significantly from a for-profit business: Nonprofits do not pay\u00a0taxes on their revenue, but how\u00a0their funds are\u00a0disbursed and their operations are managed is\u00a0tightly regulated.\r\n\r\nDespite their differences, nonprofits and for-profits\u00a0have some fundamental business principles and practices in common. Let\u2019s explore these shared aspects\u00a0by comparing\u00a0two businesses\u2014one for-profit and one nonprofit.\r\n\r\n[caption id=\"attachment_5577\" align=\"aligncenter\" width=\"400\"]\"Photo<\/a> Molly's For-Profit Lemonade Stand[\/caption]\r\n\r\nMolly opens a lemonade stand in front of\u00a0a local museum and intends\u00a0to use her profits to purchase a new bike at the end of the summer. There are expenses associated with Molly's\u00a0business such as lemons, sugar, cups, and ice. She also spends\u00a0money on advertising when she prints up flyers and makes directional signs to alert customers to her location. She hires Jamie to help her on busy weekends and pays her a percentage of the stand\u2019s revenue on the days she works. She has T-shirts printed at a local shop with her slogan on the back: \u201cWhen life gives you lemons, Molly makes\u00a0lemonade.\u201d She sells the shirts\u00a0at her stand\u00a0for $10 each. \u00a0A local bakery owner sees that Molly\u2019s business is thriving and asks if she can sell her cookies at the lemonade\u00a0stand. Molly arranges\u00a0to sell the cookies for the bakery and keep 25 percent of the revenue generated from cookie sales.\r\n\r\nMolly is running a for-profit business and generates revenue from several sources (lemonade, T-shirts, and cookies). Every\u00a0day, after packing up her stand,\u00a0she\u00a0goes home and calculates her profit by subtracting her expenses (wages to Jamie, advertising, T-shirts, and supplies) from her revenue. She takes the profit and deposits it in the bank account her father helped her open.\r\n\r\nAt the end of the summer, Molly can\u00a0withdraw the money from the bank account and buy\u00a0the bike she wants. If she has profits left\u00a0after she buys the bike, she can do whatever she wants with that money. As a for-profit business owner, she owns all the profits.\r\n
\r\n\r\n[caption id=\"attachment_5577\" align=\"aligncenter\" width=\"400\"]\"Photo<\/a> Emma's Nonprofit Lemonade Stand[\/caption]\r\n\r\n<\/div>\r\nEmma\u00a0opens a lemonade stand in front\u00a0of a local museum and intends to donate\u00a0her profits to the local Humane Society to support their Feline Hope program. Besides that difference of purpose, Emma's\u00a0business is nearly identical to Molly's: There are expenses associated with Emma's\u00a0business such as lemons, sugar, cups, and ice. Emma\u00a0spends\u00a0money on advertising when she prints up flyers and makes directional signs to alert customers to her location. She hires Linda\u00a0to help her on busy weekends and pays her a percentage of the stand\u2019s revenue on the days she works. She has T-shirts printed at a local shop with her slogan on the back: \u201cWhen life gives you lemons, Emma\u00a0makes\u00a0lemonade.\u201d She sells the shirts\u00a0at her stand\u00a0for $10 each. \u00a0A local bakery owner sees that Emma's\u00a0business is thriving and asks if she can sell her cookies at the lemonade\u00a0stand. Emma\u00a0arranges\u00a0to sell the cookies for the bakery and keep 25 percent of the revenue generated from cookie sales.\r\n\r\nEmma\u00a0is running a not-for-profit business and generates revenue from several sources (lemonade, T-shirts, and cookies). Like Molly, after packing up her stand,\u00a0she\u00a0goes home and calculates her profit by subtracting her expenses (wages to Linda, advertising, T-shirts, and supplies) from her revenue. She takes the profit and deposits it in the bank account her father helped her open.\r\n\r\nAt the end of the summer, Emma can\u00a0withdraw the money from the bank account and deliver a check to the Humane Society. If the business\u00a0has profits in excess of what she promised\u00a0to donate to the Humane Society, Emma can\u00a0pay herself a small<\/em> wage for running\u00a0the business all summer, but the majority of the profits will\u00a0either need to stay\u00a0in the bank account to fund\u00a0future causes or be used to expand the business to support charitable or social causes later on. Emma isn't really\u00a0a business \u201cowner,\u201d because she doesn't own the profit generated by the business. We'd expect to hear\u00a0Emma say that she's\u00a0running<\/em> a not-for-profit (or nonprofit) organization<\/em>\u2014in contrast to Molly, who would probably say that she owns a business.\r\n\r\nAlthough these\u00a0may be very simple examples, they show\u00a0that, from a customer\u2019s perspective, there is virtually no difference in the way the two businesses operate. Emma might\u00a0decide to advertise that her proceeds support an important\u00a0cause (the Humane Society's Feline Hope program) as a way of attracting\u00a0customers. If not, the two lemonade stands would\u00a0seem nearly identical from the outside.\r\n\r\nIt's not until you look behind the scenes that you will see the differences between a for-profit and nonprofit business. The following table compares the attributes of for-profit and not-for-profit businesses and highlights some of the\u00a0\"hidden\" differences.\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
For-Profit<\/strong><\/td>\r\nNot-for-Profit\/Nonprofit<\/strong><\/td>\r\n<\/tr>\r\n<\/thead>\r\n
Incurs expenses for operations<\/td>\r\nIncurs expenses for operations<\/td>\r\n<\/tr>\r\n
Provides goods and services customers<\/td>\r\nProvides goods and services customers<\/td>\r\n<\/tr>\r\n
Generates revenues from sales<\/td>\r\nGenerates revenues from sales and\/or contributions<\/strong><\/td>\r\n<\/tr>\r\n
Owned\u00a0by individuals, partners, or shareholders<\/strong><\/td>\r\nOperated by board of directors, trustees, or managers<\/strong><\/td>\r\n<\/tr>\r\n
Profit is used to pay owners, partners, or shareholders<\/td>\r\nProfit is used to further the mission of the organization<\/td>\r\n<\/tr>\r\n
Pays salaries to employees and managers<\/td>\r\nPays salaries to employees and managers<\/td>\r\n<\/tr>\r\n
Profits are subject to taxation by local, state, and federal authorities<\/strong><\/td>\r\nProfits are NOT\u00a0subject to\u00a0taxation by local, state, and federal authorities<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n ","rendered":"

A\u00a0nonprofit <\/strong>or not-for-profit<\/strong>\u00a0business<\/strong>\u00a0is one that provides goods or services to consumers, but its\u00a0primary goal\u00a0is not to return profit to the owners of the business (as is the case with a for-profit business). Instead, it uses those profits to provide a public service, advance\u00a0a cause, or assist others. The American Red Cross, the local SPCA, and the American Cancer Society are all examples of nonprofit businesses. They use any\u00a0revenue generated from operations to support the continued mission of the organization. In addition, most nonprofits also rely on donations from individuals and businesses, grants, and government funding to help fund their work, since\u00a0the revenue they raise\u00a0rarely covers all their\u00a0operating costs.<\/p>\n

Much of what differentiates a for-profit business from a\u00a0nonprofit business goes on\u00a0behind the scenes and isn’t very visible to the customer. For example,\u00a0a nonprofit organization is subject to government regulation and oversight in ways that differ significantly from a for-profit business: Nonprofits do not pay\u00a0taxes on their revenue, but how\u00a0their funds are\u00a0disbursed and their operations are managed is\u00a0tightly regulated.<\/p>\n

Despite their differences, nonprofits and for-profits\u00a0have some fundamental business principles and practices in common. Let\u2019s explore these shared aspects\u00a0by comparing\u00a0two businesses\u2014one for-profit and one nonprofit.<\/p>\n

\"Photo<\/a><\/p>\n

Molly’s For-Profit Lemonade Stand<\/p>\n<\/div>\n

Molly opens a lemonade stand in front of\u00a0a local museum and intends\u00a0to use her profits to purchase a new bike at the end of the summer. There are expenses associated with Molly’s\u00a0business such as lemons, sugar, cups, and ice. She also spends\u00a0money on advertising when she prints up flyers and makes directional signs to alert customers to her location. She hires Jamie to help her on busy weekends and pays her a percentage of the stand\u2019s revenue on the days she works. She has T-shirts printed at a local shop with her slogan on the back: \u201cWhen life gives you lemons, Molly makes\u00a0lemonade.\u201d She sells the shirts\u00a0at her stand\u00a0for $10 each. \u00a0A local bakery owner sees that Molly\u2019s business is thriving and asks if she can sell her cookies at the lemonade\u00a0stand. Molly arranges\u00a0to sell the cookies for the bakery and keep 25 percent of the revenue generated from cookie sales.<\/p>\n

Molly is running a for-profit business and generates revenue from several sources (lemonade, T-shirts, and cookies). Every\u00a0day, after packing up her stand,\u00a0she\u00a0goes home and calculates her profit by subtracting her expenses (wages to Jamie, advertising, T-shirts, and supplies) from her revenue. She takes the profit and deposits it in the bank account her father helped her open.<\/p>\n

At the end of the summer, Molly can\u00a0withdraw the money from the bank account and buy\u00a0the bike she wants. If she has profits left\u00a0after she buys the bike, she can do whatever she wants with that money. As a for-profit business owner, she owns all the profits.<\/p>\n

\n
\"Photo<\/a><\/p>\n

Emma’s Nonprofit Lemonade Stand<\/p>\n<\/div>\n<\/div>\n

Emma\u00a0opens a lemonade stand in front\u00a0of a local museum and intends to donate\u00a0her profits to the local Humane Society to support their Feline Hope program. Besides that difference of purpose, Emma’s\u00a0business is nearly identical to Molly’s: There are expenses associated with Emma’s\u00a0business such as lemons, sugar, cups, and ice. Emma\u00a0spends\u00a0money on advertising when she prints up flyers and makes directional signs to alert customers to her location. She hires Linda\u00a0to help her on busy weekends and pays her a percentage of the stand\u2019s revenue on the days she works. She has T-shirts printed at a local shop with her slogan on the back: \u201cWhen life gives you lemons, Emma\u00a0makes\u00a0lemonade.\u201d She sells the shirts\u00a0at her stand\u00a0for $10 each. \u00a0A local bakery owner sees that Emma’s\u00a0business is thriving and asks if she can sell her cookies at the lemonade\u00a0stand. Emma\u00a0arranges\u00a0to sell the cookies for the bakery and keep 25 percent of the revenue generated from cookie sales.<\/p>\n

Emma\u00a0is running a not-for-profit business and generates revenue from several sources (lemonade, T-shirts, and cookies). Like Molly, after packing up her stand,\u00a0she\u00a0goes home and calculates her profit by subtracting her expenses (wages to Linda, advertising, T-shirts, and supplies) from her revenue. She takes the profit and deposits it in the bank account her father helped her open.<\/p>\n

At the end of the summer, Emma can\u00a0withdraw the money from the bank account and deliver a check to the Humane Society. If the business\u00a0has profits in excess of what she promised\u00a0to donate to the Humane Society, Emma can\u00a0pay herself a small<\/em> wage for running\u00a0the business all summer, but the majority of the profits will\u00a0either need to stay\u00a0in the bank account to fund\u00a0future causes or be used to expand the business to support charitable or social causes later on. Emma isn’t really\u00a0a business \u201cowner,\u201d because she doesn’t own the profit generated by the business. We’d expect to hear\u00a0Emma say that she’s\u00a0running<\/em> a not-for-profit (or nonprofit) organization<\/em>\u2014in contrast to Molly, who would probably say that she owns a business.<\/p>\n

Although these\u00a0may be very simple examples, they show\u00a0that, from a customer\u2019s perspective, there is virtually no difference in the way the two businesses operate. Emma might\u00a0decide to advertise that her proceeds support an important\u00a0cause (the Humane Society’s Feline Hope program) as a way of attracting\u00a0customers. If not, the two lemonade stands would\u00a0seem nearly identical from the outside.<\/p>\n

It’s not until you look behind the scenes that you will see the differences between a for-profit and nonprofit business. The following table compares the attributes of for-profit and not-for-profit businesses and highlights some of the\u00a0“hidden” differences.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
For-Profit<\/strong><\/td>\nNot-for-Profit\/Nonprofit<\/strong><\/td>\n<\/tr>\n<\/thead>\n
Incurs expenses for operations<\/td>\nIncurs expenses for operations<\/td>\n<\/tr>\n
Provides goods and services customers<\/td>\nProvides goods and services customers<\/td>\n<\/tr>\n
Generates revenues from sales<\/td>\nGenerates revenues from sales and\/or contributions<\/strong><\/td>\n<\/tr>\n
Owned\u00a0by individuals, partners, or shareholders<\/strong><\/td>\nOperated by board of directors, trustees, or managers<\/strong><\/td>\n<\/tr>\n
Profit is used to pay owners, partners, or shareholders<\/td>\nProfit is used to further the mission of the organization<\/td>\n<\/tr>\n
Pays salaries to employees and managers<\/td>\nPays salaries to employees and managers<\/td>\n<\/tr>\n
Profits are subject to taxation by local, state, and federal authorities<\/strong><\/td>\nProfits are NOT\u00a0subject to\u00a0taxation by local, state, and federal authorities<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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Candela Citations<\/h3>\n\t\t\t\t\t
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CC licensed content, Original<\/div>