As a Consultant, I am often asked different questions about the nonprofit sector. Often from people who are running a nonprofit organization. The next several blogs will focus upon common myths about the Nonprofit sector.
One of the biggest misnomers is nonprofits should not make a profit. This is not so. Nonprofits, by definition, are exempt from income tax from their “profits”. These “profits” are not taxed or given to owners for their benefit but reinvested into the mission. If nonprofits did not have “profit” or preferably called reserves; there would be no taxes to be exempted from in the first place.
Peter C Brinckerhoff, Nonprofit Expert, often states that if a nonprofit organization does not have a reserve seven out of ten years, you are not a sound organization. Let’s face it, it takes money to drive the mission. Having sufficient reserves allow the organization to address mission opportunities or pay the bills during lean times.