Nonprofit vs For-Profit: Which should I start?


at a very high level the difference
between a non-profit and a for-profit a non-profit any of the assets that are in
the nonprofit have to stay in the nonprofit space assets in the for-profit
business can exit the business and go into shareholders hands so at a high
level that’s gonna be what it is if you as a non-profit are donated a million
dollars and then your nonprofit it has a building and then you cease to exist as
a non-profit you decide you’re gonna get rid of this nonprofit it’s dissolving
that million dollar asset has to stay in the nonprofit space so you have to give
it or sell it and give the money to another nonprofit so the money is
trapped basically not in a bad way but it’s in the nonprofit space sometimes
you’ve got an idea you’re not sure if you should do it as a non-profit or a
for-profit or why or maybe you know what to do there I think in reality there are
some specific differences and in reality you can likely pursue either path with
just about any idea it really is a matter of what are the motivations and
then maybe there’s some strategics around picking one versus the other
so if you’re looking to get donations in order to pursue this thing then being a
non-profit 501c3 nonprofit you can offer a tax deduction to those that donate to
you so there’s like a good reason to go this path because you’ll be able to get
donations and give tax write-off and then you can go pursue this thing it
gets a little tricky for the nonprofit’s that don’t need to
raise money so there are a lot of nonprofits that don’t raise money a
thrift store now they’re given goods but let’s say it’s a coffee shop or they
where they are actually buying and you know wholesale coffee beans and they’re
selling coffee it’s like their mission as far as why they want to be a non
profit might be we’re buying these beans from overseas
and it’s an impoverished area and they grow opium crops and we’re getting them
to convert opium crops to coffee crops but the reality is you’re buying
the beans and then you’re selling beans so should that be a for-profit or
nonprofit it really can be either it if you’re not
looking to raise any donations then it really could be either you know there
was one nonprofit that I was you know I helped that was actually a for-profit
that we took or I’m sorry it was a nonprofit that we took to for-profit
that did just that and did coffee and one of the reasons there was the
business motivations around being a business it’s not about hey I can pocket
money the reality is is for profit to for the difference between a for-profit
or nonprofit there has to be a profit in the first place before that ever even
comes into the equation as far as do those profits stay in the entity or do
they get distributed to the owners if I make my business makes a hundred
thousand dollars and I spend a hundred thousand dollars there’s zero dollars to
distribute anyways if I make a hundred thousand dollars I spend eighty thousand
there’s 20 thousand left a lot of businesses just leave that money in the
business so they can spend it the next year so the money still was not
distributed it all just stayed inside this mission that you’re pursuing to try
and grow this big thing so if there are no profits if all
profits are just reinvested then essentially they’re still operating very
similarly you can also set your compensation as a non profit you can
choose what your compensation is or your board can so this is an example of maybe
a non profit that might behave inappropriately but it’s still is legal
where my business makes a million dollars we spend a hundred grand there’s
nine hundred thousand profit we distribute it all it goes to me I made
nine hundred grand alternatively I could form a non-profit my business is now and
non profit we made a million dollars and so I’m gonna set my salary at a million
dollars so we spent a million dollars and there is no profit so we’re a non
profit there is no profit to distribute to owners because we’re you know chasing
this good thing but I made a million dollars in both cases I’ve made a
million dollars in this case I did it as salary and in this case if it is a
distribution so I think ultimately consider the energy structure as a as a
a tool to try and accomplish what you want to accomplish if it’s a you want to
collect donations you may want offer tax deductions if you on the example where
we took a coffee company from a non-profit to a for-profit the nonprofit
was losing it was losing a hundred thousand bucks a year we would buy these
beans from Thailand we would pay staff they would sell the coffee once it’s
roasted and at the end of the day at the end of the year we would be a hundred
thousand dollars in the hole so they would do a fundraiser they would raise a
hundred thousand dollars and then we do it again the next year and so every year
the thing is upside down by a hundred thousand dollars we’re donors have to
come out of pocket or choose to come out of pocket donate money to keep this
thing afloat to pursue this mission sometimes in the nonprofit space you can
end up thinking not needing to analyze the
business side of things in an entity that runs like a business you’re buying
beans you’re selling beans you need to weigh what your unit economics are how
much am i buying them for how much should I sell them for so there’s enough
money to buy the next shipment of beans if you blend that with we’re a
non-profit we’re per we we can raise money we can raise donations then a lot
of times you don’t have to it’s a it’s a the ability to not have to calculate
that stuff it’s a well we have a golf tournament fundraiser coming up at the
end of the year we fall short we can just raise the money we need just raise
more donations or we need to raise more money if you’re a business and it’s a
entrepreneur that’s running it then you don’t sell enough you don’t have enough
money you don’t get a paycheck you don’t get food so we moved a nonprofit to a
for-profit for that exact reason there’s never been a dollar of profits
distributed to the owners but the fact that it’s a for-profit there is no
ability there is no we burn the ships there is no ability to raise money at
the end of the year and give tax write-off if there’s not enough money to
pay all the bills so you are forced to live every month by did we make enough
money to pay the bills or not if not we need to cut a salary we need to cut an
expense or we can’t do by this other thing so in my opinion I I think they’re
both tools you can pursue the same exact mission whether it’s through a
non-profit or for-profit it’s pick which one you want to ride to pursue the
mission the financial impact in either path it does not mean that they’re
different they can be the same depends on who’s running it and what their
motivations are and why they’re doing it but you can have a profit if we ever do
turn a profit we’re just gonna buy more beans the mission is the mission
statement essentially for this Kabhi Gham means by as many beans as possible
so if we turn a profit or buy more beans and that’s what it’s going to be so
there will never be dollars to distribute to the owners even though
it’s a for-profit you

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