Not for Profits – Key Differentiators !!

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Non Profit

Unlike for-profit businesses that exist to generate profits for their owners, nonprofit organizations pursue missions that address the needs of society. Nonprofit organizations serve in a variety of sectors, such as religious, education, health, social services, livelihoods, environmental concerns, and the arts.

Nonprofits do not have commercial owners and must rely on funds from contributions, grants, membership dues, program revenues, fundraising events and investment income.

NGO’s in India are typically constituted as Trusts, Societies, and Sec 8 Companies. The top management of NGO’s are Trustees, Governing Councils, the Management Committee or a Board of Directors. All of whom are in a sense Volunteers coming together to oversee the pursuit of the common mission and build the organization/institution.

There are several fundamental differences between a for-profit and an NGO. These are broadly summarised in the table below.

Sr.No Criteria/Parameters For Profits Not for Profits
1. Mission Market share and earn profits for the owners Provide services for society
2. Organisation Method Sell goods or services To ensure that revenues exceed expenses so that the services can be maintained and expanded.
3. Owners Shareholders, Partners, Proprietors’ None
4. Taxability Applicable Usually tax exempt
5. Sources of Income Sale of Goods, Service Incomes, Investment Income, Capital Gains Donor Contributions, Grants, Program Funds, Membership Fees, Income from Events & Sponsorships, Investment Income.
6. Accounting Method Mercantile & Accrual system Usually Cash System. For Sec 8 Companies it is Mercantile & Accrual System
7. Reporting of Financial Statements Balance Sheet

Profit & Loss Account

Cash Flow Statement

Balance Sheet

Income & Expenditure Statement

Receipts & Payments Statement

Functional Revenues and Expenditure Statement

Program Statements

8. Classification of NGO Expenses Program Expenses

Fund Raising Expenses

General  & Administration Expenses

9. Total Assets minus Liabilities reported as Networth Net Assets
10. Asset & Resource Allocation influenced by The owners based on business strategy Management Committee based on a combination of drivers viz mission, Donor & Grantors stipulations, and regulatory restrictions. Funds require to be classified under Restricted Funds, Unrestricted funds etc

Thanks to NGO’s and those who donate, govern, participate and volunteer, they fill in so many gaps that Governments and for-profits are unable to fully address and make our societies so much more livable. However, to govern NGO’s the aforesaid differences need to be borne in mind in order to enable the discharge of their responsibilities of stewardship in their organisations. The above differences is to convey a simple delineation of the two types of motivations in an organisation and not meant to be a comprehensive study  on the subject.

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