Non profit sector is a section of the economy where all the operations, transactions happen not to amass money for few people or institutions for generating their wealth, but to create positive impact on a larger pie of people, environment and society.
"For profit" and "Non-profit":
To understand profit we can start from the basic equation of profit.
Profit = Revenue - Expenses
"Profit" is same as "Saving" for everyone of us who try to save some penny at the end of every month from all our expenses (EMIs, movie tickets, petrol expenses, air tickets blah blah) getting deducted from our monthly net income (after paying tax). We try to generate wealth by saving more.
Similarly, companies & organizations have various expenses to run. They have office expenses (rent, office supplies etc.), salaries for people who work in the organization and other expenses which are incurred for various activities for achieving the goal what the organization has been founded and run for! The goal is to make "profit" for the "profit-making" organizations, that means making money for the organization. Who take them? the owners of the organization: the shareholders who have put in money initially to build or grow the organization. They have put in money to generate more money in terms profit accumulation. They create their personal wealth or use a part of the generated money to further growth of the organization to create more wealth. If the organization doesnt generate money, not only the owners lose wealth but also the organization stops growing and finally it ceases to exist as expenses only keeps growing! So, moral of the story is: its not that profit is required only for creating money for the people who have given money into the organization, but its the bloodline for sustenance and growth of an organization. Then why and how "Non-profit" organizations exist!
To understand that, lets go back to the point of "organization goal". The organization goal of a profit-seeking organization is to create only profit! Lets look at the "usage formula" for profit:
Profit = Owners wealth + Surplus to be further invested for growth (organization wealth)
More profit means more wealth for the owners and more money for the organization to use in various activities like: increase the salary, providing better facility to the employees, purchasing new efficient facility and many more like this. This kind of organization and its owners, employees and all associated work only for creating this profit and take the benefit of the profit together. they do everything in every possible way to increase the profit year after year! But The organization goal may be different with the profit. They can use the profit mainly for growth and expansions with minimal or no wealth creation for personal need. But why would somebody build an organization investing initial amount of money required, if he doesnt want to get the money back, left alone generating more money? Answer is the drive for such organisation is driven by a bigger goal: serving others who are not anyway associated with the organization: not the owners, not the employees!
Two ways of Non-profit:
Its basically helping others, who are otherwise neglected, underprivildged or downtrodden. the helping can be in two ways: one way is direct: we can directly help others by donating money who needs them, or can provide food to the hungry, or shelter to the homeless. 2nd way is to create a system and mechanism which can arrange for all these provisions in continuty instead of one time direct help. this process of helping can be continuous and more importantly sustained!
We can debate on "which way is better or effective?" We can find several arguments, study and research on both kinds of ways to help others who need support for survival.
"For profit" and "Non-profit":
To understand profit we can start from the basic equation of profit.
Profit = Revenue - Expenses
"Profit" is same as "Saving" for everyone of us who try to save some penny at the end of every month from all our expenses (EMIs, movie tickets, petrol expenses, air tickets blah blah) getting deducted from our monthly net income (after paying tax). We try to generate wealth by saving more.
Similarly, companies & organizations have various expenses to run. They have office expenses (rent, office supplies etc.), salaries for people who work in the organization and other expenses which are incurred for various activities for achieving the goal what the organization has been founded and run for! The goal is to make "profit" for the "profit-making" organizations, that means making money for the organization. Who take them? the owners of the organization: the shareholders who have put in money initially to build or grow the organization. They have put in money to generate more money in terms profit accumulation. They create their personal wealth or use a part of the generated money to further growth of the organization to create more wealth. If the organization doesnt generate money, not only the owners lose wealth but also the organization stops growing and finally it ceases to exist as expenses only keeps growing! So, moral of the story is: its not that profit is required only for creating money for the people who have given money into the organization, but its the bloodline for sustenance and growth of an organization. Then why and how "Non-profit" organizations exist!
To understand that, lets go back to the point of "organization goal". The organization goal of a profit-seeking organization is to create only profit! Lets look at the "usage formula" for profit:
Profit = Owners wealth + Surplus to be further invested for growth (organization wealth)
More profit means more wealth for the owners and more money for the organization to use in various activities like: increase the salary, providing better facility to the employees, purchasing new efficient facility and many more like this. This kind of organization and its owners, employees and all associated work only for creating this profit and take the benefit of the profit together. they do everything in every possible way to increase the profit year after year! But The organization goal may be different with the profit. They can use the profit mainly for growth and expansions with minimal or no wealth creation for personal need. But why would somebody build an organization investing initial amount of money required, if he doesnt want to get the money back, left alone generating more money? Answer is the drive for such organisation is driven by a bigger goal: serving others who are not anyway associated with the organization: not the owners, not the employees!
Two ways of Non-profit:
Its basically helping others, who are otherwise neglected, underprivildged or downtrodden. the helping can be in two ways: one way is direct: we can directly help others by donating money who needs them, or can provide food to the hungry, or shelter to the homeless. 2nd way is to create a system and mechanism which can arrange for all these provisions in continuty instead of one time direct help. this process of helping can be continuous and more importantly sustained!
We can debate on "which way is better or effective?" We can find several arguments, study and research on both kinds of ways to help others who need support for survival.
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