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How do nonprofits stay in business if they aren’t allowed to turn a profit?

Question: "How do nonprofits stay in business if they aren’t allowed to turn a profit?" - Wondering Dear Wondering,

The term “nonprofit” can be confusing. Nonprofits can and do earn a profit—they wouldn’t be able to survive otherwise. However, unlike for-profit businesses, nonprofits don’t distribute their profits to their members as personal income.

Instead, a nonprofit’s excess revenue goes toward furthering the organization’s mission, whether that’s growing the organization, supporting fundraising, or supporting other nonprofits. Additionally, as long as you don’t violate any rules against self-dealing by overpaying yourself or by commingling your personal assets with those of the nonprofit, one of your organization’s expenses can include paying yourself a salary to run the nonprofit.

A nonprofit works to serve a public purpose, as opposed to serving for the financial benefit of a particular person, entity, or corporation. As such, traditional nonprofits are organized around a shared mission, social cause, or community need, and they work to provide some public service.

As your Family Business Lawyer™, we can ensure your nonprofit has the proper legal, insurance, financial, and tax systems, so you can do the most good for the most people, and you can have a business you truly love. This article is a service of Hanson Legal and Milan Hanson, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us at 541-776-3405 today to schedule!

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