Importance of Nonprofit Organizations

The Importance of Nonprofit Organizations

Most nonprofits start with an idea or a desire to help others that are at-risk or underserved. Nonprofits perform services or produce products that the government cannot readily supply.

The impact and importance of nonprofit organizations is so pervasive in the United States that many have been and will be affected by such organizations. A prime example is that a person who has donated time or money to a charitable organization like the American Red Cross has made an impact on society. If a person has received any benefits from such an organization, then the impact may be even more obvious. The goals of non-profit organizations (NPO’s) are charity and service driven. The most important aspects of non-profits involve accountability, representation, economics, supervision, and management. Nonprofit organizations are vehicles that address social problems.

The complex relationships among a nonprofit organization’s stakeholders require management that is especially skilled in negotiation and comprises, with a high tolerance for ambiguity. In corporations and in government agencies, the flow of authority from the top down is generally clear but not in the nonprofit sector.

Many business schools’ courses and programs relevant to the nonprofit sector are identified by the term “social entrepreneurship” (Worth, 2017, pg. 10).

Throughout most of history, management scholars pursued a generic approach, believing that management in companies, government agencies, and nonprofits shared similar principles. But nonprofit management is a distinct profession because of the unique characteristics, mission, and culture of nonprofits. Since the 1980s, this uniqueness has been recognized in the development of research centers and academic programs that focus on the nonprofit sector and nonprofit management.

By 2006, there were more than 400 programs in nonprofit management at colleges and Universities. There continues to be a discussion about whether such programs should be in business schools, in schools of public policy and administration, or in other academic units.

Many nonprofits perform a service that otherwise would come from the government, or offer a service, such as religion or art, that society considers important to support without government intervention. Through tax exemption, the government provides a direct subsidy to nonprofits and receives a direct benefit in return. Most nonprofits fall under section 501 (c) of the Internal Revenue Service (IRS) code. There are many myths regarding nonprofits or Nongovernmental Organizations (NGO). One such myth states that nonprofits cannot make a profit. “Defined as simply an excess of revenue over expenses, nonprofits can and do earn profits. But these profits must be retained within the organization and be used to further the programs rather than enrich those individually for personal gain” (Worth, 2017, pg. 23).

It never occurs to many people who are not involved with non-profits how integral these organizations can be to the overall functioning of the economy. To many, non-profits are just innocuous little entities existing in their own isolated corner of the economy. They do not hurt the economy, but they certainly do not carry it, either. Non-profits serve one distinct purpose – bettering the world while zeroing out their books. Non-profits do much more. Discussed below are three ways non-profit organizations enhance and bolster the economy.

3 Benefits of Nonprofits

  1. Non-profit organizations are a steady source of employment. Just because non-profits are not allowed to carry forward does not mean their operation does not require specialized jobs to be filled. In fact, in terms of day-to-day operations, non-profits run very similarly to for-profit corporations. Non-profits, like for-profits, rely on computer programmers, accountants, graphic designers and other specialized workers to ensure smooth operation.
    “Non-profits are businesses. They simply receive preferential tax treatment,” Sean Stannard-Stockton said in a piece for The Chronicle of Philanthropy. The piece was a response to a remark by Mexican billionaire Carlos Slim in which Slim expressed distaste for non-profits. “Like all businesses, non-profits employ people. A lot of people.”
    A 2012 report prepared by Johns Hopkins University showed that 10.7 million people were employed in the non-profit sector in 2010 – 10.1 percent of total employment in the United States.

  1. Non-profit organizations, like any other business, consume third-party goods and services in their day-to-day operations. They require computers, internet and phone services, building materials, and utilities in order to run. This generates revenue for the companies that manufacture and distribute these goods and services, thereby providing added economic stimulation.

  1. By providing employees with a source of income, non-profits, just as for-profits, indirectly stimulate endless other facets of the economy. When people have money, they spend it. They pay mortgages, utility companies and car payments. Discretionary income goes to restaurants, theaters and other luxuries and entertainments.
    Even the most cursory economic impact study demonstrates the indispensable value of non-profit organizations in any economy. The jobs they provide help sustain the economy in the same way any properly functioning for-profit organization does. The same Johns Hopkins report mentioned above even seems to indicate that non-profits have a certain resiliency in economic downturns that for-profit organizations do not have. According to the report, employment in the non-profit sector had an average annual growth rate of 2.1 percent from 2000-2010 – a period in which the United States experienced two separate recessions. On the other hand, for-profits saw employment reduced by 0.6 percent annually across those 10 years.
    Non-profits’ vast economic contributions are evident in the United States’ GDP. According to The Independent Sector, non-profits account for 5.5% of the GDP – the equivalent of $805 billion.
    The impact of non-profit organizations is indisputably far-reaching and vital to the United States’ economic well-being.

Source: The Borgen Project

Now that we have discussed the importance of nonprofit organizations and the 3 benefits of nonprofits, lets get your nonprofit set up the right way.

Become A Nonprofit Corporation (501)(c)(3)

Dr. Eva Johnson created this nonprofit certification course to help individuals interested in starting or reorganizing an enterprise understand the basics. This introductory nonprofit training course is the best place to start if you’re looking to obtain official (501)(c)(3) status.

Learn More About The Importance of Nonprofit Organizations and how to start:

4 Qualities You Need If You Want To Start A Nonprofit

The Importance of the Nonprofit Board of Directors and The Nonprofit Agent for Service of Process

5 Steps to Nonprofit Grant Writing

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