This book was inspired by the resilience of the victims of the earthquake that hit the country of Haiti on January 12, 2010, and all the nonprofit organizations that dedicated themselves to assist its victims. I also would like to acknowledge the victims of all the recent tragic natural disasters in New Orleans, Chile, Japan, and the Philippines, just to name a few. I am grateful for all the nonprofit organizations and volunteers in the United States and around the world who wake up every day, thinking and doing things to contribute to making the world a better place for the neediest citizens. My hope is that they can use the contents of this book to strive for the financial sustainability of their nonprofit enterprises.
A special "thank you!" to Stephanie Drew, acquisitions editor at Springer Publishing Company. Her support was simply invaluable.
Finally, I owe special thanks to several cohorts of students from Springfield College and the University of Wisconsin, Oshkosh, who provided their input in various aspects of this book through their interactions in my class.
The Nonprofit Organization Universe
Nonprofit organizations have existed for many centuries, especially through religious groups or religious-based activities. During the early American colonial period, the churches were basically the first nonprofit organizations. They played key roles in the health, well-being, education, culture, artistic diversity, and community-service areas. Talking about his travels throughout the United States, the French sociologist Alexis de Tocqueville (1966) noted in his book Democracy in America,
Americans of all ages, all conditions, and all dispositions, constantly form associations. ... The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools, (p. 114)
Tocqueville's comments represent an acknowledgment that nonprofit organizations are part of the American tradition and are used as a strategy to address community issues. Until the late 18th century, corporations were considered public entities and included churches and institutions of higher education (Scavoy, 1982; Whitehead, 1976). Lubove (1975) reported that most U.S. nonprofit organizations had offices in most American cities by 1900. It is important to underscore that they were self-governing groups, associations, or agencies that had no owners and were exempt from taxation. Nonprofit organizations faced suspicion in some conservative states, because of the social aspect of their activities. Miller (1961) and Dabney (1981) explained that while the New England states encouraged the creation of charitable organizations during the 19th century, the Southern states were very suspicious and even discouraged private charity activities. However, the post-Depression era facilitated the emergence of new nonprofit organizations. Despite some historical challenges, nonprofit organizations continue to provide services to those in need, advocate on behalf of the disadvantaged, and enrich and empower the lives of children, families, and communities throughout the United States.
ABOUT THE TERM "NONPROFIT ORGANIZATION"
The concept "nonprofit" includes the prefix "non" and thus may refer to what is "not for profit" or what is "not profitable." Does the term "nonprofit organization" imply one of these two meanings or both? Consider first the meaning of "not for profit." A not-for-profit organization is an organization whose purpose is not to make a profit from the activities that it conducts. This is in contrast to a "for-profit" organization, whose purpose is to make a profit for the owner(s). On the other hand, a "not profitable" organization is an entity (organization) whose activities do not generate a profit. In that context, profit refers to a positive balance when subtracting total expenses from total revenues or income.
Because many nonprofit organizations indicate they exist for educational, cultural, and charitable purposes, they can be labeled certainly as "not-for-profit organizations." However, many of these organizations that are called "not for-profit" or "nonprofit" generate a profit that they report on their annual financial reports. Therefore, they will not fit the definition that considers them "not profitable" organizations. A question emerges: Is "profit" incompatible with the status of a nonprofit organization? If the answer is "yes," there are no real nonprofit organizations, because most effective nonprofit organizations report a profit. If the answer is "no," one may ask, "Why do many nonprofit organizations make a profit?" In fact, the answer is "no," which means profit is not incompatible with the status of nonprofit organizations. In other words, nonprofit organizations do exist, and they do a lot of good for people and communities around the world. To the question, "Why do many nonprofit organizations make a profit?" the answer is simple: Effective nonprofit organizations must generate a continuing profit to be sustainable. Profit helps maintain appropriate resources that enable them to continue to serve their target population in unforeseen financial hardship. The question is not whether nonprofit organizations can generate profit, because they can. The Internal Revenue Service (IRS) recognizes 28 types of tax-exempt organizations, which is another label for nonprofit organizations. This categorization does not distinguish whether an organization makes a profit or not. These organizations are exempt from taxation of their profit, except for "unrelated business income," which is "income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption" (IRS, 2014b, para 1).