What is a Nonprofit?


Maria Thalassinou - Be the Change (Unsplash)

So what exactly is a nonprofit?

Read below for answers to four commonly asked questions about nonprofit organizations.


How are Nonprofit Organizations Different From Businesses?

Nonprofit organizations are not created to generate profit. Instead, nonprofits are started to serve a social good and meet needs within the community. Often these organizations help to fill a gap that is left between the private (business) and public (government) sectors.


What is a 501(c)(3) Designation?

Nonprofit organizations are tax-exempt. Before operating as a nonprofit, an organization must apply for a 501(c)(3) designation from the Internal Revenue Service (IRS). This designation allows organizations to be exempt from sales tax, property tax, and it allows for donations to be tax-deductible. To be granted this designation from the IRS, an organization must exist for charitable purposes. Examples include nonprofits, churches, libraries, and foundations. A 501(c)(3) designation is not the only 501(c) designation but it is the most common for nonprofits.


Where do Nonprofits Get Funding?

Nonprofit funding comes from multiple places.

Most nonprofits have several streams of revenue that they depend on to carry out their important work. It is best practice for a nonprofit organization to diversify their funding, this ensures that even if one source, such as a grant, is not received, there is still money coming in. Diversifying funds is nonprofit for not putting all your eggs in one basket. Some sources of funding for nonprofits are private donations, trusts, grants, service and program revenue, events, and on occasion, government funding.


Do Nonprofits Have Paid Staff

Yes! Nonprofits have paid staff.

Occasionally you may see a small nonprofit that runs completely on volunteer labor, but most of the time nonprofit organizations have a paid team to do most of the heavy lifting within an organization. Nonprofits run lean and team members sometimes wear many hats. For this reason, it is important for them to hire staff members that are skilled and reliable. To attract qualified candidates, it's important for nonprofits to be able to provide competitive salaries and benefits to its team. To execute the crucial work that nonprofits perform in our society, it's crucial for them to secure a devoted and focused team, this requires compensated staff.


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