Of all the terms used to refer to business in the United States, nonprofit may be one of the most misunderstood. While nonprofits represent 10.3% of private employment in this country, few people know what distinguishes a nonprofit from a for-profit or charity organization. This confusion may stem from the misleading name which has been given to Nonprofits; after all, they do in-fact generate profit, and explicitly strive to do so.
The main factor that sets them apart from for-profits involves there allocation of revenue. A nonprofit generates income for the sole purpose of reinvesting that income into the organization, as opposed to for-profit organizations that will many times distribute profits to executive salaries or shareholders. Furthermore, the average or “expected” ratio of overhead spending for most nonprofit businesses according to GuideStar USA, Inc., an information service specializing in reporting on U.S. nonprofit companies, estimates that less than 30% of nonprofit revenue will go towards Administration and Fundraising. At Homes 4 Families, our ratio of overhead spending that goes to administration and fundraising is only 2%.
The reinvestment of profits into the organization assures that nonprofits are functioning for their explicit purpose, to serve the public interest. They do this by providing a service that helps alleviate a social issue. This is a broad purpose and for good reason. There is a range of nonprofit organizations in this country, all of which serve a spectrum of what would be considered “social issues”. Problems facing education, health, literacy, and access to resources are all fair game for nonprofit organizations. This is why seemingly unrelated organizations, like the YMCA, Red Cross, and World Wildlife Fund, can all peacefully coexist under the banner of nonprofit.
Nonprofits can also have a broad range of services. For example, the nonprofit ‘Homes 4 Families” provides veterans with services that help to build resiliency, economic growth, neighborhoods, and homes for veteran families. As one could imagine, this goal requires a broad range of services from construction and neighborhood development to education and therapeutic workshops. While these services seem to be very different from one another, they are all performed to serve the goal to assist low-income veterans. Homes 4 Families, like any company, requires a number of diverse and specialized employees and volunteers to meet their goal. What sets these organizations apart from for-profit companies is that all resources received will go directly to solving a social issue that needs to be addressed.