It is a myth that non-profits cannot make money – revenue – income.

Nonprofits not only can make money, they do.[1] In 2008, the non-profit sector generated approximately $980 billion dollars through the sale of goods and services.[2]

Examples abound. Hospitals and universities charge fees for services. Goodwill Industries retail sales total $2.69 billion in revenue.  The Girl Scouts has been in the cookie business since 1917, generating about $715 million in revenue annually.

The “non-profit = no profit” myth comes up in conversations with social entrepreneurs who will often ask how to form a hybrid organization for their revenue-generating venture that solves a social problem (ex. selling cakes made by the homeless). They say that in addition to a non-profit organization, they need a for-profit arm.  The assumption within such a statement is that only a for-profit can make money. To put it simply and bluntly, the assumption is just wrong.

The word “non-profit” can be a misnomer because it implies that an organization does not or cannot generate income. It may be helpful instead to consider an alternative word “not-for-profit.” A “not-for-profit” may generate income, but that is not its ultimate objective. Its mission is its top priority, and any money generated circles back to achieve the mission.

So if you have a revenue-generating idea, don’t assume you are limited to a for-profit form, still go through the steps outlined in my previous post, and know that tax-exempt status may still be an option for you.

One important caveat: the IRS does place certain limitations on certain profits a non-profit may make. These limits will be discussed in a later post.

[1] Official IRS language: “An exempt organization is not taxed on its income from an activity substantially related to the charitable, educational, or other purpose that is the basis for the organization’s exemption. Such income is exempt even if the activity is a trade or business.”