A not-for-profit organisation (often referred to as a non-profit) is an entity established to pursue a social, cultural, educational, charitable, or community-focused mission rather than to generate profit for owners or shareholders. Any surplus income earned is reinvested into the organization’s activities rather than distributed to members, directors, or stakeholders. Their purpose is to create public value, support specific groups, or advocate for social change.
Characteristics of Not-for-Profit Organisations
1. Mission-Driven Purpose
Not-for-profits exist to advance a particular cause or meet a public or community need. Examples include reducing poverty, promoting education, supporting health initiatives, protecting the environment, or advancing religious or cultural interests.
2. No Profit Distribution
Although not-for-profits can generate revenue, they cannot distribute financial surplus to members or directors. Instead, all resources must be directed towards achieving the organization’s stated mission.
3. Public or Member Benefit
These organizations may serve:
- The general public (e.g., charities, health organizations)
- Specific groups or communities (e.g., trade unions, professional associations)
- Cultural or religious communities (e.g., churches, temples, arts groups)
Examples (UK Context)
In the UK, not-for-profit organizations include:
- Charities such as Cancer Research UK
- Religious organizations such as the Church of England
- Membership bodies such as trade unions and professional associations
How Not-for-Profits Raise Revenue
Not-for-profits use a wide range of funding sources, including:
- Donations and philanthropy
- Grants from governments, foundations, or institutions
- Fundraising events and campaigns
- Membership fees or subscriptions
- Sale of goods or services, such as charity shops or training programmes
While some generate significant trading income, revenue is always reinvested into delivering services and advancing their mission rather than maximising profit.
Difference Between Not-for-Profits and Commercial Businesses
A key distinction lies in purpose:
- Commercial organizations exist primarily to generate profit and maximise returns for owners or shareholders.
- Not-for-profits focus on social impact, using surplus income to further their mission rather than distribute it.
Because of this, commercial firms usually depend on revenue from sales, while not-for-profits commonly rely on donations, grants, and fundraising - although many now blend these with trading activities to diversify income.
