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Profit for a nonprofit – a good problem to have

Many nonprofit organizations’ fundraising activities are so successful that they generate a surplus of profit. To maintain nonprofit status, what the organization does with the surplus is critical. It is especially important that profits not be distributed to individuals associated with the organization, regardless of the amount. Options include reinvesting the surplus into the organization’s tax-exempt purpose, creating an endowment, building up savings, or revising your pricing structure for events or activities.

For reinvestment, take a look at projects that can expand your mission within your stated tax-exempt purpose.

Endowments are a way to ensure financial stability and let the money work for you with investments that generate revenue. An endowment is also attractive to certain types of donors – those who want to build into an organization for the future as opposed to short-term needs. Your organization is able to plan for future physical needs or mission-related opportunities.

Before you get too excited about surplus income, make sure that your income sources are proportional. Too much income from activities outside of your tax-exempt purpose (such as rental property) generates unrelated business income. This income can endanger your tax-exempt status.

 

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