Academic insight: Professor Elizabeth Searing
- First of all, for nonprofit organizations, there is a huge variety of different types of financial sources, eg government grants, foundation money, individual donations, or even earned revenues – for example when an organization is selling t-shirts. Whereas the financing in for-profit organizations is more straightforward, dependent on the market and private investment.
- Secondly, to handle markets and private investors is a lot easier for for-profits. An example Searing provides is: someone is buying a cheeseburger for $3 US in McDonalds. In a nonprofit finance, this person is likely to add: ‘You can only use this money to buy meat, but not for the salaries of the managers and any other administrative expenses. This kind of donor stipulation is very common in nonprofits, but not in for-profits.
- When it comes to nonprofit organizations, in many countries – especially Germany, Italy, England, and the US – there is a certain ‘asset lock’. It is not possible to tempt investors by offering them ownerships of parts of the company because they are publicly owned. The fact that there are no technical owners makes it more difficult to raise capital for nonprofit compared to for-profit organization.
- Last but not least, the incentives when trying to convince someone to invest in a nonprofit or a for-profit organization are different. For nonprofits it is more difficult, since they have to pull on both, the business and the charity side. And the task of explaining that money is needed to start off is not the easiest for a nonprofit, whereas for the for-profit it is only the business side, meaning profit maximization, they can concentrate on.
Entrepreneurship in Nonprofits
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