Nonprofit Doesn’t Mean“No Profit”

Stephen Newland
Jun 17
3 min read

Every nonprofit should aim for profitability…but a lot of people have different definitions of what that means.

You probably didn’t start your organization to provide services for a few years and then ride off into the sunset, right?

Think about if your organization is still driving your mission forward years after you decide to step away.

That would mean that you’ve built an organization that does great work and has been built on a foundation of financial sustainability.

Being financially sustainable means putting some money aside each year for investing back into the organization.

That might mean new software, paying employees more or exploring new programs to launch.

It also means building up your reserves because your expenses have increased.

For most leaders, the challenging part is that means those funds aren’t used to provide direct programs for their cause this year.

It’s a trade-off of short-term help vs. being able to help for decades to come.

The term nonprofit is confusing because it sets some internal and external stakeholders up to assume organizations can’t set aside funds they need to build a sustainable organization.

And I fully recognize that some donors don’t like the “we need the money so we can put it in the bank” story.

But some donors do understand this!

At the end of the day, people misunderstand what “nonprofit” actually means. Some people think profitability is off-limits or unethical so they overspend and end up operating from a place of stress and scarcity.

Being a nonprofit means your profits don’t go to shareholders. It doesn’t mean your organization shouldn’t hold back some of the funds it brings in to create a sustainable foundation.

Let's Dispel Some Myths About Profit

“Nonprofit” is a legal status - not a business plan.

The IRS defines a nonprofit based on purpose and ownership. Your organization exists to serve a mission, not to enrich shareholders.

But that doesn’t mean your finances should break even every year. It just means any profit you generate must stay in the organization.

Profitability ≠ greed. It equals breathing room.

Profit in a given year is your revenue minus your expenses. If that number is positive, you’re profitable for that period.

Running a surplus allows you to build reserves, invest in infrastructure, retain staff, and handle emergencies without panic. That’s ethical stewardship of the resources given to your organization!

Reserves are a necessity for long-term impact

As your organization grows, so does the amount of money that you should keep available.

Imagine trying to run a household with $0 in savings. One broken water heater and you’re in trouble. Nonprofits are no different. Whether it’s a delayed grant, a canceled fundraiser, or Covid, a lack of reserves can put your mission at risk.

If your organization has cash in the bank it can continue serving your mission and the community it benefits.

You don’t have to spend every dollar you bring in.

Some nonprofits rush to “zero out” the budget by year-end, fearing what donors or board members will think if there’s money left over. But being responsible with funds doesn’t mean spending it all. It means aligning your spending with the stage of your organization. Sometimes, that means saving.

My experience has been that when explained in the greater context of creating financial sustainability most donors don’t have any issue with this. Where it can come into play is if you have 12+ months in reserves unless there’s a capital campaign for growth.

Language shapes mindset.

Words like “profit” or “margin” can make some people uncomfortable in the context of a nonprofit. That’s okay. But reframing it as “financial health”, “mission capacity”, or “strategic surplus” can help shift the conversation from guilt to growth.

On the surface, it can feel bad to know that you could serve more people this year with additional funds. A good way to re-purpose that thought is what happens if stretching yourself thin now means people who need help five years from now won’t have the benefit of getting the services your organization offers because it had to shut down.

Why This Matters

Organizations who get this right see profit as a tool for mission growth.

When that happens everything changes.