Breaking-Even is Breaking Bad
“Oh, we don’t want to make money. We just want to break-even,” is a comment I’ve heard from many non-profit board members and executive directors. Whether referring to a special event, programs, or service, “breaking-even” seems to be the rally-cry of many worthwhile organizations.
My experience is that a budget designed to “break-even” is a project that will lose money.
Many well-meaning volunteer board members treat “profit” as though it were a four-letter word and something to be ashamed of. They are often also operating under the mistaken notion that be a non-profit means they cannot make a profit.
Making a profit is essential to your organization’s survival. Profit is what allows you to plan for the future. Just “breaking-even” doesn’t allow for funds to be set aside for emergencies, downturns in the economy, or for errors in forecasting. Breaking-even can also prevent a non-profit from securing critical grant funds. Donors want to know that your non-profit is financially healthy. They want to see organizations with a healthy reserve set aside. So yes, you can make a profit.
Non-profit is simply an IRS status that allows the organization to receive certain tax breaks to those designated as operating for the public benefit (vs for-profit that operates on behalf of its shareholders, owners, founders).
With that said, there are restrictions. For example, an organization can compensate staff or contractors, but they cannot pay board members or promise shares of the organization. Board members wanting to apply for a staff position should ethically resign from the board first. Board members who want their company to bid on a project need to declare their conflict-of-interest. Boards should use caution, though, in hiring the services or purchasing goods from a company associated with their non-profit. Make sure they go through the same screening as all other applicants or show that they are the sole-source available.
In short, all budgets should plan for a profit, though you might use other terms to identify it. For example, a line item called “reserves.” Whether it is the organization’s annual budget or the budget for special events, services, or projects.
Council for Non-Profits
First Nonprofit Sources
IRS Life Cycle of Non-Profits