How Are Nonprofit Businesses Different Than for-Profit Businesses?
I do a lot of work with not-for-profit businesses in addition to for-profit businesses and there are some distinctions.
For-profit businesses aren’t really regulated by the government. You have to adhere to the tax laws. Other than that, for most businesses, [there are] no real rules that apply.
A not for-profit-business, that’s not really the case. Because you’re using other people’s money and not your own, you have to report to the government on how you’re using that money. You have to have a specific category for which you are approved to operate and you have to stay in that category unless you tell the government you’ve changed it. You have to really watch the money that goes to insiders so there are salary caps and limitations.
There are limitations on other kinds of transactions you can do with individuals with insiders so that they have to be market-based. Sometimes people think, “I can’t deal with an insider at all,” and that’s not true. But it has to be approved by people who are disinterested and then it has to be at least competitive with other third-party alternatives or more favorable to the not for profit, then they can get in the marketplace.
And other than those constraints, a not-for-profit business is very, very much like a for-profit business. It’s very important to control your costs. It’s very important to have a plan. It’s very important to treat your employees. You’re not exempt from any of the employment laws. You’re not exempt from any of the lending laws and no one is exempt from the realities of managing your business for cost control.