What Are the Advantages & Disadvantages of Profit & Nonprofit Organizations?

A profit-making organization is a company in business to make money for its owners or shareholders. A nonprofit organization is a company that does not intend to earn a profit but typically needs funds to provide services or support to the public to meet various needs. Each business type has advantages and disadvantages.

A main advantages that a profit-making business enjoys is that if it is successful it earns money for its owners. Profit-making businesses also have the ability to generate income from a wide array of business activities, including the sale of many types of products or services. Leaders of profit-making businesses also typically have more control over the business and investment decisions they make for their companies while trying to make money.

One of the major disadvantages of a profit-making business is that it must pay taxes on its profits. This is why many businesses are diligent in trying to utilize all available business income tax deductions. Profit-making businesses must make tough decisions such as whether to reinvest earnings in further growth or to distribute it to shareholders through dividend payments. Profitable businesses also have to deal with heightened 21st century expectations that they balance profits with social and environmental responsibility.

Nonprofit organizations are generally in operation to provide funding or services not typically available from other sources to the people they serve. As they are not intending to earn a profit, nonprofits usually have significant tax advantages over for profit-making businesses. Nonprofits are generally perceived by the public in a more positive light. Opportunities to get grant funding and lower costs on such things as postal service fees are also advantages.

Nonprofits sometimes sell products or services to generate revenue, but often, they rely heavily on fundraising and private donations to provide services and resources. Raising funds is an ongoing challenge that is especially tough when the economy is poor. Nonprofits typically must report how they use their funds. In general, the government and donors like to see most funds go to services and not administrative expenses. Nonprofits often have a harder marketing battle as they must motivate people to donate or volunteer when they likely get no tangible benefits in return.