Finances have to be sustainable, and able to support the core work of the organization. This basic principle applies equally to for-profit and non-profit enterprises. Funding sources and financial structures, however, are quite variable.
Non-profits are typically funded by a number of vehicles. The majority of funding comes from fee-for-service or product. They also can access donations and gifts, corporate and foundation grants and gifts, government grants, and some interest income from estate gifts and investments. It is typical to have less than 50% of the annual operating budget from sources that are grant or gift based, as these funding sources are time-limited.
When working for or starting a non-profit, it is worthwhile to think carefully about how one feels about money and fundraising. Many people involved in the work of non-profits find themselves working at fundraising activities on a regular basis. Successful fundraisers consider money as a tool, one that has no intrinsic power or worth other than what it can be used for. This is not the typical view of money in the modern world.
We give money the power to give a thumbs up or a thumbs down to our dreams. We let money tell us who we are, and our identity is formed, in part, by our access to money. In its most basic form, however, money is a tool. Just like a good shovel, how effectively it works depends entirely on the person wielding the shovel.
For fundraisers, allowing foundations and corporations and individuals the ability to participate in the grand adventure of your non-profit is a way they can use their money for something that will give them great joy and pride.
So non-profits spend more time dealing openly and directly with money, and how to get enough to do the core work of the enterprise. Resources are spent for grant writers and those who need to complete the extensive reporting that accompanies government grants. Recently, the FASB, the Financial Accounting Standards Board, updated required accounting practices for non-profits, so the paperwork burden remains significant for both types of organizations.
A non-profit is not constrained from making a profit. For many organizations, making a profit for fees for service or product means less time spent fundraising or writing grant proposals. The difference is that non-profits turn the profits back to the organization– to employee salaries, to new services, to emergency funds. For-profit enterprises are not constrained by how they manage their profits. They can turn the profit toward a social enterprise, or into building the business, or however, they choose.
Non-profits have governing boards, with requirements for regular meetings, voting on decision making, and other cooperative management practices. For different types of organizations, the corporate governance structure is different. For example, a large state university system will have a different organizational and decision-making structure than a small community food bank. But they all need a group of people who serve to make decisions in concert.
Non-profits can be community service organizations, such as hospitals, universities, or large foundations and trusts; they can be smaller as well, but the requirements for governance and record keeping has meant that small charities and service organizations tend to group together under an umbrella organization that can provide the structure needed to meet tax and regulatory requirements.
A for-profit enterprise can be started and managed by one person, and that person can use the work of the enterprise, and profits, in any way. Businesses can be sole proprietorships, partnerships, LLCs, or other business legal models.
A business structures their finances so the core work of the business is supported by revenue, and profit can be allocated for business growth or a social enterprise. The lack of constraints on a for-profit business structure means an enterprise is agile and can respond quickly to opportunities and change.
Many businesses with social enterprise at heart are for-profit businesses, and they support their particular cause with a vigorous and sound business model.