The follow blog is by Jay Haapala
Whether you’re in the nonprofit sector because it’s your career goal or because you stumbled into it, congratulations and welcome. In my experience, the differences between working in a nonprofit or a for-profit are sometimes misunderstood, if not misrepresented. Being able to recognize and articulate the differences between sectors is a vital skill. Let me take a moment to map them out for you.
Key differences between nonprofits and for-profits:
- Reinvestment vs. Dividends—Nonprofits must reinvest their revenue into the organization, even if their profit exceeds the budget. For-profits can pay their investors in dividends.
- Tax-Free Operation—There is a heavy incentive for nonprofits to operate as 501(c)(3) organizations—no taxes!
- Shares vs. Chairs—Nonprofits and for-profits are both actually corporations, which means that their stockholders, directors, and officers are not personally liable for the company’s debts in the way a sole proprietor is. Both are directed by boards, but in a for-profit, voting rights are determined by the number of shares one holds. In a nonprofit, voting rights are delegated to each chair of the board.
- Quarterly Earnings vs. Mission-Related Outcomes—For-profits seek to make money for their shareholders. Nonprofits seek to generate mission-related outcomes for their stakeholders.
- Resource Constraints—Nonprofits work with fixed resources and focus on top priorities. For-profits can invest in opportunities to gain market share and profit.
- Benefits—In general, nonprofit professionals enjoy more flexible work schedules and have more access to professional development opportunities. For-profit employees get paid more.
Positions that exist in for-profits don’t exist in nonprofits.
Nonprofit employees earn just as much in wages as for-profit employees.
Some for-profits offer the pros of nonprofits
Key similarities between the two sectors:
- Market Niche—Whether your organization is a for-profit or nonprofit, it must serve a particular market of customers, clients, patients, visitors, members, etc. If your clients don’t need or get value from the product or service you provide, your organization won’t be successful.
- Accountability to Stakeholders and Stockholders—Both nonprofits and for-profits must be accountable. Whereas nonprofits depend on the support of their stakeholders, for-profits must prove their continued profitability to stockholders.
- Christopher J. Ruhm and Carey Borkoski, "Compensation in the Nonprofit Sector," The Journal of Human Resources, autumn 2003, pp. 992-1021
- Laura Leete, "Whither the Nonprofit Wage Differential? Estimates from the 1990 Census," Journal of Labor Economics, January 2001, pp. 136-170
- Amy Butler of the Bureau of Labor Statistics, Wages in the Nonprofit Sector: Management, Professional, and Administrative Support Occupations, October 2008 http://www.bls.gov/opub/cwc/cm20081022ar01p1.htm#8