Eli5: How do non-profits make money & pay their employees?


Eli5: How do non-profits make money & pay their employees? Recently saw a video on YouTube where this random dude working for a non-profit for homeless, earns upwards of $200k every year. Where’s the money flowing from? Besides donations of course.

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Non profits can still sell goods and services to make money. But if they don’t, then basically donations. People can make bank if run a successful non profit, like churches, since theres really no limit on employee pay or employee expenses. Wanna go on a free vacation overseas? Just write it off as a missionary trip.

A non-profit is still able to pay their employees and earn money, it’s just that if they earn extra money, they can’t give it to the owners as profit, but instead need to reinvest it into the non-profit, such as buying new equipment, or doing more of its charitable work, or just putting in savings.

Non-profits are allowed to have business expenses, such as paying their employees.

non-profit doesn’t mean they don’t make money. Non-profit means the money all goes back to the company instead of to shareholders and investors.

For an ELI5, non-profit organizations operates the “same” as a for-profit organization. The reason they’re called non-profit is that they don’t have “owners” and profits are not accrued or returned to these owners.

A non profit can do “business” (ie buy and sell stuff), employ people, have organization structures, salaries, bonuses, benefits and set up operations much like any other corporation. Any excess they obtain through donations or their operations (after costs) must be reinvested or held for the benefit of the non-profit.

This is a very simple overview and there are a number of other things related to tax, financial reporting, oversight etc specific to non-profits for them to qualify as non-profits (this is in context of the US but is generally true).

Any organisation or whatever can be non-profit. It just means that no dividend or profit can ever paid out from the organisations. The owners of the company can for example just take normal pay or salllary from their company (Im nott from USA, which has it’s special little things so I can’t speak for them).

Nonprofit means that all money made stays in the company. It can sell and do things for profit, just can’t pay profits out. So even if they gave millions of profit from last year, it’ll just stay in within the company’s control, the owners of the company can’t take it out for their personal use.

And yes, every now and then a rich person or corporation is caught abusing non-profits for tax reasons. Particularly popular with owning expensive art for example. Buy expensive art, give it to nonprofit, write the value off taxes, and still keep that art on your wall for small rental fee to the Nonprofit you control and save money in taxes overall. This Nonprofit then pays the money as wage to your son or friend. It works very well until you get caught, then you just pay your taxes correctly.

So in summary. Nonprofit can sell and get profit, just can’t pay it out. I myself buy art supplies from a nonprofit art collective (because they make brightest watercolours and blackest black pain in the world). Their prices for their special paints are bit cheaper because they don’t need to make profit, just cover the costs. They ask for a small voluntary payment during checkout for the running of the company, but you don’t have to; the prices are set to cover the cost of making that.