Can a Nonprofit Business Earn an Income?

Nonprofit businesses may earn income to finance their social missions.

Nonprofit corporations must fulfill a charitable, educational, religious, scientific or literary activity recognized by federal law. This type of corporation does not exist to make a profit, but federal and state governments do allow nonprofits, or 501c organizations, to earn income. This income funds designated projects, personal salaries, board salaries and operating expenses. A nonprofit business can earn income in a number of ways, including fees for service, social enterprise, individual donors and government funding.

Fee for Service

Nonprofit businesses may charge service fees for administrative or professional education classes, babysitting or other organizational value-added services. This income is then used to the fund other 501c free services and their operational costs. Museums, zoos and art schools may lease artifacts or art and require animal stud fees to generate income. Nonprofit business leagues such as trade associations, professional associations, chambers of commerce and boards of trades often charge membership fees and seminar fees to create income to cover the organization’s operational expenses.

Social Enterprise

Social enterprise is another way for nonprofit corporations to generate income. 501c organizations often use the sales from merchandise to finance other avenues of their social mission. Nonprofit ventures such as religious organizations, veteran’s organizations and social service organizations often sell food, clothing and other items to generate income. Nonprofit businesses may open social enterprises such as thrift stores to finance other social services such as free health care. They may sell branded food products or host rummage sales to generate income.

Individual Donors

Nonprofit businesses earn income from the charitable contributions given by individual donors. Individual donors relate to a nonprofit’s environmental, religious, international and medical research mission. They believe in the social benefits derived from the nonprofit’s organizational activities and are willing to fund their continued existence. The Komen Foundation is an example of individual donors networking to eradicate breast cancer. The Komen Foundation uses donations to fund research grants and develop education, screening and treatment projects. Individual donors are encouraged to participate in local social events for the foundation such as running marathons and hosting fundraisers.

Government Funding

Government funding through grants and earmarks provides additional income to finance programs the government believes are more effective and less expensive than existing government programs. Nonprofit businesses often submit grants applications and lobby congress for funding. HELP USA is an example of how an innovative method to address social issues was initially financed by federal and state government grants. Andrew Cuomo gained his initial support by positioning his nonprofit solution to provide transitional and low-income housing as more effective and less costly than New York’s solution of paying hotels to house the homeless.

References

• "Inc." Magazine; Nonprofit Corporations Can Do Good Works and Make Money, Too; Oct 22, 1999
• Washington State University; Nonprofit Fundraising Basics; Patrick Malone
• "Stanford Social Innovation Review"; Ten Nonprofit Funding Models; William Landes Foster, et al.; Spring 2009
• Internal Revenue Service: Requirements for Exemption - Business League
• California State Board of Equalization; Publication 18 – Nonprofit Organizations; August 2008
• Help USA: About Us