Now, it can be that you have a clear idea about it. Some business notions are definitely “for profit”. For example, if you want to sell insurance, or stocks, then that is undoubtedly a for-profit small business. On the other hand, if you would like to raise money for research into a cure for juvenile diabetes, then that project will probably best be served by forming a non profit job board.
1 difference between non-profit and for-profit organizations is that grants funding is generally reserved for non-profits. Some grants are available to for-profits (and to individuals), such as government grants to promote affordable housing or job creation in economically depressed neighborhoods. Most creditors, however, and especially grants from foundations, are awarded only to non-profit corporations designated by the Internal Revenue Service as 501(c)3 corporations.
In many cases it isn’t so simple to determine into which category a business idea should drop. 1 question to ask is: would my planned project provide a service to customers? A beauty store located in Beverly Hills, catering to wealthy ladies, is certainly a service business. The customers, however, aren’t needy. They can easily cover the service without help.
A beauty shop situated in a Medicaid-supported nursing home will serve clients in real need – customers who couldn’t pay for this service from their own resources.
What are the benefits of a for-profit business design? Well, to start with, the owner of the for-profit company holds personal (or corporate) title to the business and all its resources. Any money that’s produced by the company can be used according to the discretion of the proprietor. The owner can borrow against the business, or market it and keep the profits. When the owner dies, he or she can leave the business or its assets to their heirs.
So if you’ve got a business idea that has the capability to build wealth for you, I suggest that you stick with the for-profit company model. By way of instance, if you’ve designed a widget that is apt to revolutionize its market niche, and you hold the patent, then by all means produce and market it through a for-profit small business. That widget could make you wealthy, while offering a great benefit to your clients.
Does this imply that non-profits can not earn money? Not whatsoever. In fact, I always encourage my non-profit customers to look for ways to become self-supporting. Many non-profit agencies generate income via contracting with other businesses to provide services. Other agencies operate companies such as thrift shops.
The distinction is that the earnings generated by a non-profit firm always belongs to the non-profit bureau, not to the organization’s founder. If the non-profit organization makes the decision to cease operations, its resources, by law, should be contributed to a different non-profit agency.
While a non-profit organization may not generate wealth for its creator, a nonprofit can be a car that offers a very good ongoing income. Many people make non-profits to do work that they love, and to create a project for themselves. The creator of a non-profit company can become the agency’s Executive Director, and draw a salary that’s comparable to wages in the for-profit business. Sometimes, the founder may choose to occupy another staff position and turn ongoing management over someone else who acts as Executive Director.
There is also a third possibility, one I predict a dual for-profit/non-profit structure. In case you’ve got a business which supplies a service which could potentially be made available to clients in need, this structure may work for you. By way of instance, if you teach painting, then you may choose to bill some customers a high fee for art lessons. But you could also teach painting to disadvantaged kids, and use grant funds to reimburse yourself for the job.