Various reasons drive a person or group to enter into a business. The primary ones include profit-making, providing necessary services to the needy, to gain some experience in the field, or just for interest. Likewise, different organizations have different goals they aim to accomplish. That is why they are put under the two primary categories of organizations: nonprofit and for-profit organizations.
A for-profit organization is a business formed by an entrepreneur, not necessarily for the welfare of the public, but for the core purpose of generating returns/profits (James, 2007). They have a manager who takes care of their operations, and entrepreneurs who are characterized by their passion and motivation, flexibility and adaptability, self-belief, and list taking abilities. The profits made are exclusive for the business players, who are the owners and the employees.
Nonprofit organizations are formed not for the purpose of generating income, but to provide services that are of benefit to the public (Hansmann,1980). They do not have specific owners, and they try to maximize their revenues while at the same time minimizing their costs. Based on their goals, they are either grouped as community-serving or member serving. Community-serving is an organization that puts its focuses on serving the general community. Its aim is to conduct medical research and deliver human services projects and other activities such as health and education services (Hansmann, 1980). Member serving is the organization that provides services to a particular group or members of an organization. They include sports clubs, credit unions, cooperatives, mutual societies and trade unions.
Although nonprofit organizations make some profits, they ensure all the revenues generated are used properly, and toward a particular goal that can benefit a group, rather than for individual gains. It is the responsibility of the manager to be aware of all the charitable activities to be undertaken and make sure the organization accomplishes its purpose at a particular time. Management in these organizations is very different from that of for-profit one since here some of the services providers are volunteers who dedicate their free time to serve the community. They are self-driven individuals, who are passionate about the mission of the organization, and there are no agreements or contracts between them and the organization (Gary, 2011).
It is the responsibility of the owners of the for-profit organizations to pay tax. In the case of partnerships or sole proprietorship, the Internal Revenue Service treats their income as personal income, and so it is their responsibility to pay the debts they owe the state. Moreover, any donations that these businesses receive are also subject to some tax policies. On the other hand, a nonprofit organization can take an initiative of registering for income tax exemption, which is under section 501(c) 3 of the tax code. The state will then exempt them from some form of taxes, but will have to be responsible for those deductions that are secondary to their scopes. They include real estate tax or sales tax. In addition, contributors to these charitable organizations will also be offered tax incentives for their help (Gary, 2011).
For-profit organizations are very keen in their balance and income statement management, and they usually prepare them every quarter. The information about what the organization owns, it owes others, and its present asset is crucial in its operations. The management will also require be aware of the company’s expenses, losses, and gains so it can assess its financial position and performance over time. In the case of nonprofit organizations, things are very different. They do not prepare balance sheets or income statements (James, 2007). A document that only stipulates the assets, liabilities, and the plans and activities to be undertaken in each quarter is just enough. All assets in a nonprofit organization belong to the business and those in a for-profit organization to the owners.
Conclusion
The goals and purpose of these two organizations are the primary factors that differentiate the two. A for-profit organization is formed for the purpose of making profits for the owners, is responsible for all debts and taxes, prepares balance sheets and income statements, and owns its assets. A nonprofit organization offers beneficial services to the public, enjoys tax exception, only prepares the activity to be undertaken, and the operators do not own its assets.
Entrepreneurs whose focus is to generate profits can have a hard time investing in a nonprofit organization. They enjoy investing in activities where they act as bosses, they own the assets, and there are no restrictions.
Since nonprofit organizations have few resources and cannot offer attractive intensives to their workers, it is hard for them to retain their employees, unlike for-profit organizations.
References
Gary, M. G. (2011). The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization (6th Edition). Harrisburg: White Hat Communications
Hansmann, R. B. (1980). The role of nonprofit enterprise. Yale law journal, 835-901.
James, G. (2007). The Major Accounting Differences Between Profit & Non Profit Organizations. Retrieved April 26, 2015 from smallbusiness.chron.com
