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> Even charities have to operate at a profit. Without this they would not have people, offices, marketing and the means to perform their stated charitable obje

> Even charities have to operate at a profit. Without this they would not have people, offices, marketing and the means to perform their stated charitable objectives. This is factually incorrect. Charities (at least in the UK) are legally prohibited from making a profit.

robomartin 5y ago
How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? They take a percentage of their income and use it to cover these expenses. Right? Well, this is semantics. A conventional business does exactly the same thing. They take a percentage of their income and use it to cover the cost of doing business. Laws for non-profits generally allow for such things. Which makes sense, because they would not be able to survive without being able to slice off some "profit" to stay alive and grow. If you've ever seen the massive church campuses in Texas you'd get a sense of the idea that this is, in fact, profit. The range a typical nonprofit spends on administrative or operating expenses is wide. I would say that 40% isn't rare, with 25% being fairly common. This tracks with the profit margin of small to medium for-profit businesses. In fact, there are millions of for profit businesses that do not enjoy such margins. The key legal distinction (at least in the US) seems to be that nonprofits cannot exist for the benefit of shareholders (no distributions). Other than that, they can easily spend 40% of what comes in on operations, grow cash in the bank and more.
- ceejayoz 5y ago
  > How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? They take a percentage of their income and use it to cover these expenses. Right? Sure. Revenue minus expenses = profit/loss. "Net income", "bottom line", etc. Make more than you expend, and you've got a profit. Spend more than you make, and you've got a loss. Equalize them, and you've got no profit and no loss. Businesses can optimize for profit. Charities are allowed to have a profit, but they don't get to distribute it to shareholders like a business can; it stays with the charity. It's legal for a charity to have a rainy day fund and a positive bank balance, but their legal purpose is not to run it up. Churches in the US get funky at times, and I'm of the opinion that the IRS should be empowered to crack down the abuses of the non-profit status you highlight, but if they're spending their revenue on buildings, staff, etc., they're eating into their profits when they do so.
  - robomartin 5y ago
    Absolutely on point. My argument is simply that, as you put it, making more than you spend is a necessary element for any organization to exist and grow. In the case of a conventional business everyone calls this profit. Somehow, magically, in the case of "nonprofits" we don't. The term "nonprofit" is a misnomer that might be the reason for this distinction, at least in the US. The term implies the idea of zero profit, which could not be farther from the truth. You are right to highlight churches. I remember the first time I went to Texas on a sales call at one of the mega churches. The only way I can describe it was a campus with several buildings the size of a Home Depot and more. You do not do something like that without profit. People might want to bury their heads in the sand and pretend that it isn't, because we legally call them "nonprofits". All we are doing is lying to ourselves. They make a ton of money. And we don't tax them. I am sure there are churches and religious organizations who do a lot of great value for their communities. I also know there are tons who are there for "management" to live the life of the rich and famous. Not to go too far, my wife's mother worked for a church for a while. The head pastor owned several luxury cars, went on amazing trips to expensive resorts all over the world --all paid by the church-- and more. Profit. Note I am not saying profit is inherently bad. We would not have most of the things we enjoy in modern life without profitable business pursuits. From clothing to medicine and everything in between, without profit, it would not exist. Can it be abused and misused? Of course. That is true for almost anything that is part of the human experience. We abuse food, power, the environment, other people, position, etc. All good things until they are abused, including profit.
    - regularfry 5y ago
      Your definition of "profit" doesn't seem to match anyone else's. If an organisation spends what revenue it has on its own operations, that is not profit. You might not agree with the way that money is spent, but that does not change the technical definition of a well-understood and widely agreed accounting term.
      - robomartin 5y ago
        Rather than repeat myself, I'll refer to a comment I just posted and then ask you a couple of questions: https://news.ycombinator.com/item?id=29404841 https://news.ycombinator.com/item?id=29404841 Do you think the Vatican is profitable? Do you think that a nonprofit that pays their CEO 36% --yes THIRTY SIX PERCENT-- of revenue is profitable? Do you think that the American Petroleum Institute, which pays their CEO $11MM in salary (4.5% of revenue on $238MM in receipts) exists with a real non-profit objective despite what their balance sheet might say? You see, we get lost in this legal "nonprofit" classification and fail to understand that a lot of these organizations exist for the profit (the enrichment) of either the individuals running them, associated commercial enterprises (oil companies) or both. If we refer to them as "X4132 organizations" (made-up name) we would have no emotional attachment or a mental model to go against what they actually do. When people hear "nonprofit" they think something like "feed the X" scrappy entities with idealistic workers and managers all eating ramen noodles to conserve every dime for their worthy cause. That is FAR from reality. Very far. And that's why I tend to call it "profit". Yes, sure, this does not fit the technical definition of profit, but it is hard to argue that a CEO taking 5%, 10%, 30%, 40% of revenue isn't actually the profit element of the organization. I give the example of the lavish cars and trips for the pastor and management paid for by the church my mother in law used to work for. That's profit. We might classify it some other way, but it isn't charity.
- regularfry 5y ago
  > How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? > They take a percentage of their income and use it to cover these expenses. Right? > Well, this is semantics. A conventional business does exactly the same thing. They take a percentage of their income and use it to cover the cost of doing business. Yes, and in neither the case of the charity nor of the conventional business is that profit. That is operating costs, and gets deducted from revenue before tax is paid on what's left precisely because it is not profit.

robomartin 5y ago

How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? They take a percentage of their income and use it to cover these expenses. Right? Well, this is semantics. A conventional business does exactly the same thing. They take a percentage of their income and use it to cover the cost of doing business. Laws for non-profits generally allow for such things. Which makes sense, because they would not be able to survive without being able to slice off some "profit" to stay alive and grow. If you've ever seen the massive church campuses in Texas you'd get a sense of the idea that this is, in fact, profit. The range a typical nonprofit spends on administrative or operating expenses is wide. I would say that 40% isn't rare, with 25% being fairly common. This tracks with the profit margin of small to medium for-profit businesses. In fact, there are millions of for profit businesses that do not enjoy such margins. The key legal distinction (at least in the US) seems to be that nonprofits cannot exist for the benefit of shareholders (no distributions). Other than that, they can easily spend 40% of what comes in on operations, grow cash in the bank and more.

ceejayoz 5y ago
> How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? They take a percentage of their income and use it to cover these expenses. Right? Sure. Revenue minus expenses = profit/loss. "Net income", "bottom line", etc. Make more than you expend, and you've got a profit. Spend more than you make, and you've got a loss. Equalize them, and you've got no profit and no loss. Businesses can optimize for profit. Charities are allowed to have a profit, but they don't get to distribute it to shareholders like a business can; it stays with the charity. It's legal for a charity to have a rainy day fund and a positive bank balance, but their legal purpose is not to run it up. Churches in the US get funky at times, and I'm of the opinion that the IRS should be empowered to crack down the abuses of the non-profit status you highlight, but if they're spending their revenue on buildings, staff, etc., they're eating into their profits when they do so.
- robomartin 5y ago
  Absolutely on point. My argument is simply that, as you put it, making more than you spend is a necessary element for any organization to exist and grow. In the case of a conventional business everyone calls this profit. Somehow, magically, in the case of "nonprofits" we don't. The term "nonprofit" is a misnomer that might be the reason for this distinction, at least in the US. The term implies the idea of zero profit, which could not be farther from the truth. You are right to highlight churches. I remember the first time I went to Texas on a sales call at one of the mega churches. The only way I can describe it was a campus with several buildings the size of a Home Depot and more. You do not do something like that without profit. People might want to bury their heads in the sand and pretend that it isn't, because we legally call them "nonprofits". All we are doing is lying to ourselves. They make a ton of money. And we don't tax them. I am sure there are churches and religious organizations who do a lot of great value for their communities. I also know there are tons who are there for "management" to live the life of the rich and famous. Not to go too far, my wife's mother worked for a church for a while. The head pastor owned several luxury cars, went on amazing trips to expensive resorts all over the world --all paid by the church-- and more. Profit. Note I am not saying profit is inherently bad. We would not have most of the things we enjoy in modern life without profitable business pursuits. From clothing to medicine and everything in between, without profit, it would not exist. Can it be abused and misused? Of course. That is true for almost anything that is part of the human experience. We abuse food, power, the environment, other people, position, etc. All good things until they are abused, including profit.
  - regularfry 5y ago
    Your definition of "profit" doesn't seem to match anyone else's. If an organisation spends what revenue it has on its own operations, that is not profit. You might not agree with the way that money is spent, but that does not change the technical definition of a well-understood and widely agreed accounting term.
    - robomartin 5y ago
      Rather than repeat myself, I'll refer to a comment I just posted and then ask you a couple of questions: https://news.ycombinator.com/item?id=29404841 https://news.ycombinator.com/item?id=29404841 Do you think the Vatican is profitable? Do you think that a nonprofit that pays their CEO 36% --yes THIRTY SIX PERCENT-- of revenue is profitable? Do you think that the American Petroleum Institute, which pays their CEO $11MM in salary (4.5% of revenue on $238MM in receipts) exists with a real non-profit objective despite what their balance sheet might say? You see, we get lost in this legal "nonprofit" classification and fail to understand that a lot of these organizations exist for the profit (the enrichment) of either the individuals running them, associated commercial enterprises (oil companies) or both. If we refer to them as "X4132 organizations" (made-up name) we would have no emotional attachment or a mental model to go against what they actually do. When people hear "nonprofit" they think something like "feed the X" scrappy entities with idealistic workers and managers all eating ramen noodles to conserve every dime for their worthy cause. That is FAR from reality. Very far. And that's why I tend to call it "profit". Yes, sure, this does not fit the technical definition of profit, but it is hard to argue that a CEO taking 5%, 10%, 30%, 40% of revenue isn't actually the profit element of the organization. I give the example of the lavish cars and trips for the pastor and management paid for by the church my mother in law used to work for. That's profit. We might classify it some other way, but it isn't charity.
regularfry 5y ago
> How do they pay for salaries, operating expenses, building rent, vehicle purchases, electricity, marketing, etc? > They take a percentage of their income and use it to cover these expenses. Right? > Well, this is semantics. A conventional business does exactly the same thing. They take a percentage of their income and use it to cover the cost of doing business. Yes, and in neither the case of the charity nor of the conventional business is that profit. That is operating costs, and gets deducted from revenue before tax is paid on what's left precisely because it is not profit.