Common Misconceptions Surrounding Nonprofit Organizations

While nonprofits exist all around us, many people don’t understand exactly what a nonprofit organization really is and how they function. Whether setting up private family foundations for philanthropic work in your community or to help meet the needs within a specific segment of society, nonprofit organizations are commonly misunderstood. Here are some of the most common things people don’t understand about how nonprofit organizations work.

Nonprofit Doesn’t Mean You Can’t Earn an Income

One of the most common misunderstandings is that anyone who establishes a nonprofit organization can’t earn an income. Actually, most nonprofits do have paid help. From the board of directors to the people who actually do the day-to-day work, everyone has the legal right to earn a living. A nonprofit means that the organization doesn’t keep the profits above and beyond operating expenses, which of course, includes payroll for your staff and for yourself.

The 3 Ds of Nonprofits

A nonprofit typically has a board of directors who ensure that the organization abides by all legalities. These are often summed up as being the 3 Ds of Nonprofits. These would include:

  1. Duty of Care
  2. Duty of Loyalty
  3. Duty of Obedience

Whereas in Duty of Care each member of the board must participate in making sound decisions on behalf of the nonprofit, in Duty of Loyalty the members must seek to avoid conflict of interest. This means that they put the needs of the nonprofit before any personal or professional consideration. Finally, in the Duty of Obedience, the board members must work diligently to abide by any legalities as set forth in local, state and federal regulations while remaining true to the mission statement of the nonprofit.

Ways to Fund Nonprofits

Also, it is a common misconception that nonprofits sell goods or services to raise funds for their group. While some nonprofits actually do fund their own organization in this way, the majority of not-for-profit groups seek charitable donations from the community, government or business entities around the world. Some nonprofits have staff members who donate their time and the money saved on payroll is donated back into the fund. It’s complicated, but the ways in which nonprofits can be funded are greater than the average person understands.

A Mission Statement Is an Absolute Must

While any business entity establishes a mission statement as part of their business plan or business model, for a nonprofit organization, a mission statement is an absolute must. Consider the fact that you are applying for various tax exemptions, consequently, the IRS will want to know who you are serving and why you are qualified to be classified as a not-for-profit entity. This is all detailed in your mission statement which also helps the greater community to understand who you are and what it is that you do and hope to accomplish.

Even so, the most common misconception is that the founder of a nonprofit isn’t able to draw a salary. Unless the founder was financially independent with resources to sustain themselves, it would be impossible to survive without an income. If you are interested in philanthropic works, you may wish to consider setting up a Family Foundation aimed at serving a need that has special meaning for you. In this way, you can earn a living while doing acts of charity that you are passionate about.