How do Nonprofit Businesses Make Money in This Era and Age?
“Nonprofit” and “earning” are two contrasting words. Most people associate a nonprofit with no rewards at all, but that is not entirely true. Some people misinterpret nonprofit organizations as a tool to evade paying huge taxes to the government. But, if they operate properly, then their functionality must be dependent on some sort of ROIs (returns on investments). Hence, it is important to understand the concept of how nonprofit businesses make money.
There is a lot of fluff available on the internet telling half truth about nonprofits that they operate like businesses but we all know that businesses are functional on the basis of attaining decent profits. If that is the case, the speculated hypothesis about nonprofit businesses not earning profits may be deemed incorrect.
These questionnaires are essential assets in the validity of nonprofit businesses. You will have a better understanding of how nonprofit businesses operate, considering you can be the employer, employee, or the one donating to the cause of nonprofit businesses.
In the blog post we will talk about the key matrix about how nonprofit businesses make money to counter the narrative that nonprofits are not real businesses.
Understanding the Vitals of Nonprofit Businesses
The Definition of Nonprofit
The word itself refers to “no profit” and it accounts for charitable work and collaborating with people or onboarding masses for the cause of humanity, community or locality.
The normal businesses and by normal does not mean an average or ignored business, make money, earn profits and pay taxes. Nonprofit businesses make money and in return they promise the government that they will reinvest the same in the organization. They get the tax exemption as a souvenir.
Benefits of Owning a Nonprofit Entity
If you don’t make money then why establish a nonprofit business and expect it to reap a reward. But, you can never discount special economic benefits that you get after registering the nonprofit businesses.
You Get a Tax Exemption Status
Being an owner of entities you least care whether your nonprofit businesses make money or not. However, your ears will stand upright after listening to the news that your one-third hard earned money has been taken away by the government for the sake of federal taxes.
Therefore, you will find ways to protect your income legally and running a nonprofit business will help you seek tax exemption from the federal government.
You Can Obtain Grants
Running a nonprofit business certainly helps you establish connections and they can help you get special grants from the government as well as private entities.
You Get the Debts Approved Easily
Imagine running a nonprofit business and you apply for a debt to run your nonprofit organization. Being a founder, director, employee or member you will not be personally responsible for the debts. However, the meaningful work done by the workers putting in efforts to drive the nonprofit businesses make a difference and build trust among the people.
Nonprofit Businesses Make Money: Myth or The Truth
| Common Myth | Reality (Research-Based Insight) | Sources / Notes |
|---|---|---|
| Nonprofits don’t make any money | Nonprofits do generate revenue through donations, fundraising, earned income, and grants. The difference is they reinvest all surplus into their mission. | IRS guidelines on 501(c)(3) entities state that nonprofits can make money but cannot distribute profits to individuals. |
| All revenue comes from donations | While donations are important, over 50% of nonprofit revenue in the U.S. comes from earned income like fees for services, product sales, or memberships. | Urban Institute (2023): Most U.S. nonprofits rely more on service fees than on donations. |
| Fundraising is just asking for money | Fundraising includes strategic campaigns, events, partnerships, and donor engagement tactics—often requiring professional planning and marketing. | Fundraising professionals use data-driven methods (e.g., donor segmentation, A/B testing) to maximize returns. |
| Nonprofits can’t invest money | Many nonprofits invest in low-risk portfolios, endowments, or donor-restricted funds to build long-term sustainability. | National Council of Nonprofits: Investment income is common but must support the mission and comply with IRS regulations. |
| Nonprofit leaders work for free or very low pay | Nonprofits pay competitive wages to attract qualified staff, especially in sectors like healthcare, education, and international aid. | Bureau of Labor Statistics: Nonprofit sector employs over 12 million people in the U.S., with many earning market-rate salaries. |
| Tax exemption makes nonprofits financially privileged | Tax exemption is a trade-off: nonprofits forgo profit-sharing and must adhere to strict compliance, reporting, and reinvestment rules. | Nonprofits must file annual IRS Form 990, disclosing finances and program effectiveness publicly. |
| Nonprofits can use any funds however they want | Donations and grants often come with restrictions; misuse can result in legal action or loss of nonprofit status. | Charity Navigator and GuideStar track nonprofit accountability and fund usage to maintain donor trust. |
| They rely only on public generosity | Nonprofits diversify income through corporate partnerships, grants, government contracts, social enterprises, and earned income streams. | Many global nonprofits (like Red Cross or World Wildlife Fund) have product lines or offer paid consulting services to support their mission. |
Nonprofit Businesses Make Money by Fundraising
One of the ways to make money is by fundraising. With the aid of selling items in the name of fundraising can help the nonprofit businesses make money. Similarly, fundraising options can be utilized to create awareness and during such events, people who are willing to donate can help the nonprofits filling in their accounts.
Selling Gifts Help the Nonprofit Businesses Make Money
People who award gifts to the company can be sold for the sake of functioning as a nonprofit organization. For instance, the items that were paid for but never really retrieved even after the fundraising event was over. Bear in mind that the minimum gift items should be there to avoid losing the tax-exempt status.
Donations Coming From Wealthy Donors
There have been several circumstances where wealthy donors have donated millions of bucks to nonprofit organizations. The Bill Gates’ foundation collaborates with the World Health Organization in eradicating polio from the world and they work together on several other health related projects in remote areas of South Asia and African continent. Therefore, WHO receives a lot of support from the US government.
Tax Exemption
We already talked about the tax exemption which can help you and your business get rid of sharing your wealth with the government.
They Earn Money by Generating Income
Most nonprofit businesses make money by putting emphasis on donations and fundraising but there are some that make money through earned income. Their capability to generate income and contribute to the cause of maintaining their budget help the organization operate smoothly.
However, any nonprofit businesses can make money for a number of reasons, for instance, merchandise sale, service charges, membership fees, etc., if their mission is not jolted and their real purpose remains intact.
Online or Stock Contributions
Individual donations are also the driver of the nonprofit organization. They may stack up, in this era and age, people like to stay anonymous when contributing to the social cause. Some people send stocks to nonprofits.
In-Kind Donations or Contributions
These types of donations are the gifted items instead of the direct money or cash, however, according to the law, their inherent value must be recorded at the time of donation in your system.
Nonprofit Businesses Make Money With Grants
As a nonprofit business, you can apply for grants to your local bank or the government directly. In some cases, grants are provided by private entities, donors, organizations or rich people. The only thing that the grantor wants to make sure is that their fundings need to be utilized in the better cause.
Nonprofits Make Money By Investing
Not every nonprofit organization takes this route to invest to earn money. But this is the best way they can gain highs. For this purpose, they can open a brokerage account like a normal investor and take gains. Most importantly, their tax-exempt status can help the nonprofit businesses make money and that too without income tax.
Some other options can be through endowment–the investment type, restricted by the donor so as the nonprofit receives a dividend from that account as a contribution. Dividends provide sustainability to the organization.
How to Maintain the Nonprofit Status
Maintaining the nonprofit status is critical, considering that they agree to register as a nonprofit organization, then there are certain areas that need careful consideration.
Reinvest All Their Funding inthe Organization
When you get the funding or profits, you agree to give them back to the organization. If you fail to do so then your nonprofit status can be ceased. Therefore, stay in compliance with federal laws to avoid any discrepancies.
Avoid Tax-Exemption Abuse
The government has given an advantage for the nonprofit organizations to save money on taxes. However, don’t take it as a cover or a tool to do illicit activities.
File the Annual Tax Returns
Filing the annual tax return and declaring the assets is key to staying in compliance with the federal laws and obligations. Include details like how your organization used those funds over the year.
Never Break Rules or Cross Lines
People may run political campaigns, but they don’t serve as a viable option since others often perceive them as favoritism. As a result, these efforts fall under political advertising—which doesn’t reflect well on any nonprofit organization
Consult a Lawyer or a Nonprofit Accountant
When nonprofit businesses make money then they need professionals to manage it. One way or the other, the management is key. It will help the organization pay attention to every detail and file the annual return to stay in compliance with local state laws.
FAQs
How do nonprofit businesses manage to pay staff?
That is quite a tricky question, particularly coming from a community that knows little about how nonprofit businesses make money. In reality, the money comes from donors, fundraising, investments, and contributions to the cause of nonprofit staff being paid.
What are the top grant options for nonprofit businesses?
Nonprofit businesses make money with grants coming from either the government, donors, public entities or rich people.
Can nonprofit businesses invest the donor money?
Nonprofit businesses can invest the donor’s money if he allows them. In some cases, investors only share investment on a dividend basis. Investment is oftentimes get used in some projects for these types of cases.
Why are nonprofit businesses income tax-free?
It can be due to several reasons and is not limited to one. For instance, nonprofit businesses make money through investments, fundraising, grants, donations, etc.
The Bottom Line
Nonprofit businesses make money, but not as much as the other private entities do. Furthermore, nonprofits do not return added funds to the owner or stakeholders. If you maintain a positive cash inflow and avoid the red zone, the loss territory, you fulfill the purpose of a nonprofit
Moreover, they are created for the sake of continuous services for the people at a fair rate, free or subsidized way. Nonprofit businesses pay good wages to their employees thanks to the support they get from donors, grants, funding or another financial source.
Similarly, organizations do not throw money into executive accounts; instead, they rely on continuous cash inflow from fundraising and other platforms to keep services running.
