March 15, 2022 • 13 mins
Business Expert Asha Wilkerson speaks with Money Moves to break down the differences between Non-Profit & For-Profit businesses.
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Episode Transcript
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Speaker 1 (00:00):
Hey, Money Movers, Welcome back to Money Moves, the daily
podcast determined to give you the keys to the Kingdom
of financial stability, wealth and abundance. Hey money Movers, Welcome
back to the Money Moves podcast powered by Greenwood. In
(00:23):
our community, everyone is aspiring to do good, make good,
not just for them their families, for others, and entrepreneurship
has been the buzzword of the decade. So today we
want to dive into our Business Moves segment and talk
about what's the difference between nonprofit businesses and for profit
(00:43):
businesses and who better to help us out than our
passionate business attorney Asha Wilkerson. Asha, welcome back to the podcast.
Thank you, happy to be here. All right, money Movers,
have we got a session for you today. I have
often wondered about the difference between nonprofits for profits doing
good making money and how all these things are mutually
(01:06):
exclusive or perhaps not, And so actually I want to
dive in and how you explained to me the difference
between nonprofits and for profits. Yeah, So the basic difference
is that a nonprofit organization is not allowed to retain
a profit year over year. So what does that mean?
It means that all the money that a nonprofit makes
needs to be reinvested into the business, whether that's into
(01:29):
salaries for the people who run in, into programming for
the work that needs to be done, into i don't know, operations,
things like that. But with a for profit company, then
as soon as the operating expenses are paid, the owners
and the operators of the company can take all the revenue. Right,
there's no cap on how much you can earn in
a in a for profit, but a nonprofit you cannot
(01:52):
earn more than what the industry standard is because the
mission is to be a business for the community. It's
a social good company, and so the priority is on
the community, not on the people who have started the business. Okay,
So I don't mean to be pardon upon the devil's
advocate here, but we always hear about crazy stories about,
for example, the number one social impact um nonprofits, the church. Right,
(02:18):
We'll hear about people talking about the church and how
they have these exorbitant budgets and planes and this, that
and the other. So how does that really work? And
like why is that the first thing that comes to
mind when we're having this debate over nonprofits and how
they spend their money. Well, because nonprofits I won't say
it's a stereotype, because it is actually written in the
law that they're supposed to do social good. But I
(02:38):
think most people don't know about churches and stuff though.
Is that a lot of times there are multiple business
entities that are operating at the same time as the church.
So if you're looking at like a fame, I won't
call any names because I don't want to get in
any trouble. But like a famous pastor, let's say, who
has written a number of books, they have their own
(02:59):
business in to tea that is housing their public speaking engagements,
they're publishing engagements, or when churches have choirs and put
out CDs, that's often terms run under a different business
and that gets taxed because even though we listen to
music in the church, it's not really essential to the
work that the church is doing. And if it's under
(03:22):
the same umbrella of the nonprofit, that for profit venture
is paying taxes on that for profit venture, which is
separate from like the public good that it's doing in
the community. Okay, that makes sense. Okay, So there is
this ability to sort of do good, have social impacts,
but also make money um, and it's completely legal. It's
(03:45):
totally fine. People have been very forthright about doing that
from the very beginning. Can you give me some examples
of that? Sure? So you know, one of the first
thing that comes to mind, Well, let me let me
back up a little bit. People come to me all
the time, and it happens more, I think with black
and brown oaks, because we have such a heart for
our community, and there's this there's there is this pool
of if I made it out and I was successful,
(04:07):
there's this pressure on us to go back and to
help the next generation, to save the next generation. And
if we go and make a bunch of money, we
have to deal with either people literally saying or the
understood assumption that we have now become a sellout because
or making all this money and the people coming behind
us are still struggling. So a number of people come
(04:28):
to me and say, Okay, I want to help the community,
I need to start a nonprofit. And my question to
them is always, do you really need to start a
nonprofit or do you just want to run a business
that makes a social impact. So the first example that
I always think of is Tom's Shoes. Tom's everybody knows,
or most people know. You buy one pair of Tom's
and they will donate a pair of their shoes too,
(04:51):
whatever community that they have donated. They are of for
profit business, but they have a social mission to put
shoes on people's feet eat. So the founders and the
CEOs and the c suite folks and Tom's can make
as much money as they want, but their mission is
built into the work that they do. But there are
for profit. If you're running a nonprofit, all you're doing
(05:15):
essentially is that social good, which is a good thing.
But if you have raised in a ridiculous amount of
money that year, that's never going to go to the
CEOs pocket. The CEO salary is going to stay the
exact same no matter what, because that money that you've
raised above and beyond the operating expenses is going to
has to be reinvested into the business to do more good.
(05:39):
So there's nothing wrong with that. But if you don't
want to be limited by the nonprofit, then my suggestion
is to start a for profit business that has a
social mission attached to it and that will become your
distinction and your selling point. All right, Josha, I do
have a question since we're talking about these two worlds
of nonprofits and for profits. UM, as a lawyer, what
(06:02):
do I need to know as I'm deciding on how
to form a nonprofit versus a propor for profit company? Absolutely? Well,
the first thing you should know is that the nonprofit
is not yours. So I counsel people this all the time.
You have a no, it's not yours. It belongs to
the people. So that's really important to think about. Like,
(06:23):
if you want to continue to run this company for
years and years to come, you know it's not yours.
And so if you're founding the company, you want to
make sure that your by laws are very clear about
how long of a term you can keep. You want
to put people on your board who will support your vision,
because there have been instances where a founder's vision um
(06:44):
diverge from what the board fought and the board thought
that this founder was no longer good for the company,
and the board was able to remove the founder from
their um position as CEO. So it's not yours. You
want to think about that. Next thing you want to
think about is who to put on your board. Right,
don't want the exact same people, You don't want a
replica of the skills you already have. Bring new people
(07:05):
who can help get money, who can help with the marketing,
you can help with the program, who have other skill
sets to really make this business grow. And then the
next thing is that when you actually form the corporation,
you form it at the state level. But the thing
that everybody is interested in is the tax exempt status.
That is a separate application and that has to be
(07:26):
filed with the I r S. I recommend filing it
with the I r S first and then doing it
at the local state level. So you can form a
nonprofit corporation, but until you take that next step of
getting tax exempt status, the donations won't be tax exempt.
That has to absolutely come from the I r S.
So that on three CS is a particular type of
(07:52):
of nonprofit tax exempt organization. But there are other and
that's because it's it's the five oh one C three
under the Internal Revenue Code, so it's that section, but
there are other ones for if you have like a
sports team that can be a nonprofit, like a volleyball
league or basketball league, that's under a different section political
campaigns or under a different section. So yes, to answer
(08:15):
your question, yes, but there are other types of nonprofits
and tax exempt organizations that can be formed as well.
Oh well, thank you so much for clearing that up.
I always wanted to know, and I'm sure if I
wanted to know our money moves audience also wanted to know.
So And you may or may not be able to
answer this because you're an attorney not a c p A.
But is it typically these um nonprofits have bigger tax
(08:36):
incentives and tax breaks or they aren't tax at all.
Absolutely right, Yeah, that's a really good question. So nonprofit.
So donations to nonprofits become tax deductible donations, so that's
one of the biggest and nonprofits don't pay taxes. They
still have to fill out a tax reform tax not
reform tax return. It's called a form um and that
(08:57):
is supposed to be a public form that's available to
anybody who wants to see it. But people think, okay,
let me do this nonprofit because I have this social
good and I want people to donate. That's a double
edged sword. It's great that people are going to donate
and they get that tax break, but then you are
also limited to the amount of donations that you receive,
and in some that's okay, right. That's why churches are
(09:20):
asking for people to tie every Sunday or every Wednesday
or however many times you go to church every day.
That part because they need the money because they cannot,
you know, start a business and make money like a
like a for profit business can. So the tax incentive
is an incentive, but it can also be extremely limiting too,
(09:42):
because you know, other people for profit businesses are working
to make sales in the world. Nonprofits are working to
get grants, right, and if you can get the grant, great,
the lights stay on. And if you can't, then you know,
I got some trouble. It's tough. It's tough. I mean,
I really love this concept because I think so many
(10:02):
of us, especially in our community, we want to see
each other succeed. We want to be successful, we want
to support our loved ones, are families. But you know,
we really have this altruistic need to also do good.
And I think you know, being conscious and forming businesses
that allow you to do both, it's a beautiful thing.
It is a beautiful thing. You can give back, you
(10:24):
can support. But this idea of creating companies that are
social good companies where you can make good money. It's
kind of interesting. I mean, you know, and don't gloss
over the fact that when you have a for profit business,
you are you are hiring people, and you can choose
to hire whoever you want to hire. So if you
(10:44):
want to reach the folks who are traditionally hard to employ,
whether they have been formally incarcerated or are you know,
Clayton sober now or formally homeless, or you want to
help people make that transition, you absolutely have the power
to make impact right where you are with your for
profit business as well. So I'm not telling people not
(11:07):
to do nonprofits, but I'm also just wanting to get
people to think about how powerful your business is no
matter what structure it's put in. You actually just jogged
my mind, and I'm going to shout out to Pinky Cole,
who is the founder of Slutty Vegan, which is a
delicious vegan burger chain. And you know, one of the
initiatives that she did because her father was incarcerated, is
(11:28):
that she makes it very intentional that I don't know
what the percentage of, but like the hires in her
business have been incarcerated, which is obviously a very hard thing.
To overcome in our society in terms of getting a job,
and like she has created a really unique foundation and
pathway for a lot of people to come out of
the prison system, but to get steady income, find a job,
(11:50):
find training, and there's just lots of ways to do good.
So Asha, thank you so much. I think this was
a great topic for our Money Moves audience and I'm
so happy to have had you here again. Absolutely, thank
you so much. Alright, Money Movers, that's all the time
we have for today. Um Asha, can you please tell
our audience where they can find you on social media
so that they can follow along with all the gems
(12:12):
and knowledge and wisdom that you have to share. Yes, indeed,
come check me out on Instagram. Asha Wilkerson e s Q. Alright,
Money Movers, it is that time. It's all the time
we have for today. But make sure to follow Asha
on all of our social media handles and make sure
to tune in every Monday through Friday and subscribe to
the Money Moves podcast powered by Greenwood, so that you
(12:33):
two can have the keys to financial freedom that you
so rightly deserve. Thank you so much for tuning in
Money Moves audience. If you want more or a recap
of this episode, please go to the bank Greenwood dot
com and check out the Money Moves podcast blog. Money
Moves is an i heeart radio podcast powered by Greenwood
(12:54):
Executive produced by Sunwise Media, Inc. For more podcast on
i heart radio, visit the i heart Radio app, Apple Podcasts,
or wherever you get your podcasts from.
Hey, Money Movers, Welcome back to Money Moves, the daily
podcast determined to give you the keys to the Kingdom
of financial stability, wealth and abundance. Hey money Movers, Welcome
back to the Money Moves podcast powered by Greenwood. In
(00:23):
our community, everyone is aspiring to do good, make good,
not just for them their families, for others, and entrepreneurship
has been the buzzword of the decade. So today we
want to dive into our Business Moves segment and talk
about what's the difference between nonprofit businesses and for profit
(00:43):
businesses and who better to help us out than our
passionate business attorney Asha Wilkerson. Asha, welcome back to the podcast.
Thank you, happy to be here. All right, money Movers,
have we got a session for you today. I have
often wondered about the difference between nonprofits for profits doing
good making money and how all these things are mutually
(01:06):
exclusive or perhaps not, And so actually I want to
dive in and how you explained to me the difference
between nonprofits and for profits. Yeah, So the basic difference
is that a nonprofit organization is not allowed to retain
a profit year over year. So what does that mean?
It means that all the money that a nonprofit makes
needs to be reinvested into the business, whether that's into
(01:29):
salaries for the people who run in, into programming for
the work that needs to be done, into i don't know, operations,
things like that. But with a for profit company, then
as soon as the operating expenses are paid, the owners
and the operators of the company can take all the revenue. Right,
there's no cap on how much you can earn in
a in a for profit, but a nonprofit you cannot
(01:52):
earn more than what the industry standard is because the
mission is to be a business for the community. It's
a social good company, and so the priority is on
the community, not on the people who have started the business. Okay,
So I don't mean to be pardon upon the devil's
advocate here, but we always hear about crazy stories about,
for example, the number one social impact um nonprofits, the church. Right,
(02:18):
We'll hear about people talking about the church and how
they have these exorbitant budgets and planes and this, that
and the other. So how does that really work? And
like why is that the first thing that comes to
mind when we're having this debate over nonprofits and how
they spend their money. Well, because nonprofits I won't say
it's a stereotype, because it is actually written in the
law that they're supposed to do social good. But I
(02:38):
think most people don't know about churches and stuff though.
Is that a lot of times there are multiple business
entities that are operating at the same time as the church.
So if you're looking at like a fame, I won't
call any names because I don't want to get in
any trouble. But like a famous pastor, let's say, who
has written a number of books, they have their own
(02:59):
business in to tea that is housing their public speaking engagements,
they're publishing engagements, or when churches have choirs and put
out CDs, that's often terms run under a different business
and that gets taxed because even though we listen to
music in the church, it's not really essential to the
work that the church is doing. And if it's under
(03:22):
the same umbrella of the nonprofit, that for profit venture
is paying taxes on that for profit venture, which is
separate from like the public good that it's doing in
the community. Okay, that makes sense. Okay, So there is
this ability to sort of do good, have social impacts,
but also make money um, and it's completely legal. It's
(03:45):
totally fine. People have been very forthright about doing that
from the very beginning. Can you give me some examples
of that? Sure? So you know, one of the first
thing that comes to mind, Well, let me let me
back up a little bit. People come to me all
the time, and it happens more, I think with black
and brown oaks, because we have such a heart for
our community, and there's this there's there is this pool
of if I made it out and I was successful,
(04:07):
there's this pressure on us to go back and to
help the next generation, to save the next generation. And
if we go and make a bunch of money, we
have to deal with either people literally saying or the
understood assumption that we have now become a sellout because
or making all this money and the people coming behind
us are still struggling. So a number of people come
(04:28):
to me and say, Okay, I want to help the community,
I need to start a nonprofit. And my question to
them is always, do you really need to start a
nonprofit or do you just want to run a business
that makes a social impact. So the first example that
I always think of is Tom's Shoes. Tom's everybody knows,
or most people know. You buy one pair of Tom's
and they will donate a pair of their shoes too,
(04:51):
whatever community that they have donated. They are of for
profit business, but they have a social mission to put
shoes on people's feet eat. So the founders and the
CEOs and the c suite folks and Tom's can make
as much money as they want, but their mission is
built into the work that they do. But there are
for profit. If you're running a nonprofit, all you're doing
(05:15):
essentially is that social good, which is a good thing.
But if you have raised in a ridiculous amount of
money that year, that's never going to go to the
CEOs pocket. The CEO salary is going to stay the
exact same no matter what, because that money that you've
raised above and beyond the operating expenses is going to
has to be reinvested into the business to do more good.
(05:39):
So there's nothing wrong with that. But if you don't
want to be limited by the nonprofit, then my suggestion
is to start a for profit business that has a
social mission attached to it and that will become your
distinction and your selling point. All right, Josha, I do
have a question since we're talking about these two worlds
of nonprofits and for profits. UM, as a lawyer, what
(06:02):
do I need to know as I'm deciding on how
to form a nonprofit versus a propor for profit company? Absolutely? Well,
the first thing you should know is that the nonprofit
is not yours. So I counsel people this all the time.
You have a no, it's not yours. It belongs to
the people. So that's really important to think about. Like,
(06:23):
if you want to continue to run this company for
years and years to come, you know it's not yours.
And so if you're founding the company, you want to
make sure that your by laws are very clear about
how long of a term you can keep. You want
to put people on your board who will support your vision,
because there have been instances where a founder's vision um
(06:44):
diverge from what the board fought and the board thought
that this founder was no longer good for the company,
and the board was able to remove the founder from
their um position as CEO. So it's not yours. You
want to think about that. Next thing you want to
think about is who to put on your board. Right,
don't want the exact same people, You don't want a
replica of the skills you already have. Bring new people
(07:05):
who can help get money, who can help with the marketing,
you can help with the program, who have other skill
sets to really make this business grow. And then the
next thing is that when you actually form the corporation,
you form it at the state level. But the thing
that everybody is interested in is the tax exempt status.
That is a separate application and that has to be
(07:26):
filed with the I r S. I recommend filing it
with the I r S first and then doing it
at the local state level. So you can form a
nonprofit corporation, but until you take that next step of
getting tax exempt status, the donations won't be tax exempt.
That has to absolutely come from the I r S.
So that on three CS is a particular type of
(07:52):
of nonprofit tax exempt organization. But there are other and
that's because it's it's the five oh one C three
under the Internal Revenue Code, so it's that section, but
there are other ones for if you have like a
sports team that can be a nonprofit, like a volleyball
league or basketball league, that's under a different section political
campaigns or under a different section. So yes, to answer
(08:15):
your question, yes, but there are other types of nonprofits
and tax exempt organizations that can be formed as well.
Oh well, thank you so much for clearing that up.
I always wanted to know, and I'm sure if I
wanted to know our money moves audience also wanted to know.
So And you may or may not be able to
answer this because you're an attorney not a c p A.
But is it typically these um nonprofits have bigger tax
(08:36):
incentives and tax breaks or they aren't tax at all.
Absolutely right, Yeah, that's a really good question. So nonprofit.
So donations to nonprofits become tax deductible donations, so that's
one of the biggest and nonprofits don't pay taxes. They
still have to fill out a tax reform tax not
reform tax return. It's called a form um and that
(08:57):
is supposed to be a public form that's available to
anybody who wants to see it. But people think, okay,
let me do this nonprofit because I have this social
good and I want people to donate. That's a double
edged sword. It's great that people are going to donate
and they get that tax break, but then you are
also limited to the amount of donations that you receive,
and in some that's okay, right. That's why churches are
(09:20):
asking for people to tie every Sunday or every Wednesday
or however many times you go to church every day.
That part because they need the money because they cannot,
you know, start a business and make money like a
like a for profit business can. So the tax incentive
is an incentive, but it can also be extremely limiting too,
(09:42):
because you know, other people for profit businesses are working
to make sales in the world. Nonprofits are working to
get grants, right, and if you can get the grant, great,
the lights stay on. And if you can't, then you know,
I got some trouble. It's tough. It's tough. I mean,
I really love this concept because I think so many
(10:02):
of us, especially in our community, we want to see
each other succeed. We want to be successful, we want
to support our loved ones, are families. But you know,
we really have this altruistic need to also do good.
And I think you know, being conscious and forming businesses
that allow you to do both, it's a beautiful thing.
It is a beautiful thing. You can give back, you
(10:24):
can support. But this idea of creating companies that are
social good companies where you can make good money. It's
kind of interesting. I mean, you know, and don't gloss
over the fact that when you have a for profit business,
you are you are hiring people, and you can choose
to hire whoever you want to hire. So if you
(10:44):
want to reach the folks who are traditionally hard to employ,
whether they have been formally incarcerated or are you know,
Clayton sober now or formally homeless, or you want to
help people make that transition, you absolutely have the power
to make impact right where you are with your for
profit business as well. So I'm not telling people not
(11:07):
to do nonprofits, but I'm also just wanting to get
people to think about how powerful your business is no
matter what structure it's put in. You actually just jogged
my mind, and I'm going to shout out to Pinky Cole,
who is the founder of Slutty Vegan, which is a
delicious vegan burger chain. And you know, one of the
initiatives that she did because her father was incarcerated, is
(11:28):
that she makes it very intentional that I don't know
what the percentage of, but like the hires in her
business have been incarcerated, which is obviously a very hard thing.
To overcome in our society in terms of getting a job,
and like she has created a really unique foundation and
pathway for a lot of people to come out of
the prison system, but to get steady income, find a job,
(11:50):
find training, and there's just lots of ways to do good.
So Asha, thank you so much. I think this was
a great topic for our Money Moves audience and I'm
so happy to have had you here again. Absolutely, thank
you so much. Alright, Money Movers, that's all the time
we have for today. Um Asha, can you please tell
our audience where they can find you on social media
so that they can follow along with all the gems
(12:12):
and knowledge and wisdom that you have to share. Yes, indeed,
come check me out on Instagram. Asha Wilkerson e s Q. Alright,
Money Movers, it is that time. It's all the time
we have for today. But make sure to follow Asha
on all of our social media handles and make sure
to tune in every Monday through Friday and subscribe to
the Money Moves podcast powered by Greenwood, so that you
(12:33):
two can have the keys to financial freedom that you
so rightly deserve. Thank you so much for tuning in
Money Moves audience. If you want more or a recap
of this episode, please go to the bank Greenwood dot
com and check out the Money Moves podcast blog. Money
Moves is an i heeart radio podcast powered by Greenwood
(12:54):
Executive produced by Sunwise Media, Inc. For more podcast on
i heart radio, visit the i heart Radio app, Apple Podcasts,
or wherever you get your podcasts from.
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