One of the most common myths that we hear when it comes to Not For Profits is that they aren’t allowed to make a profit. This can be quite confusing and also leads to some bad spending decisions that leave the organisation without adequate cashflow over the long term.

The true definition of a not for profit is that it is not allowed to distribute or allocate its profits to its members.  So any profit that it makes, needs to be used in the business for the member's benefit, but not given out to the members as cash or an allocation of assets.

Let's say your not for profit is a Golf Club.  If you made more money from the memberships, player fees and the bar takings than it costs to pay for

• prizes for the winners,
• upkeep the grounds,
• maintain the clubhouse and
• keep the bar fully stocked
• pay insurances, etc

then you would be making a profit for the year.  So your Profit & Loss statement would show a profit this year, and members (and some committee) might say that as a not for profit you are not allowed to make a profit so where are you going to spend the money?  Some committees incorrectly think this way and spend all of the money, barely leaving enough to pay GST and wages bills, and may fall behind on bills.

By pausing for a moment and thinking about the long term specifics of the golf club, you may also need to take into account the following:

• major repairs and renovations to the clubhouse, including furniture
• new golf carts for hire
• replacing greens
• providing a better member experience by upgrading to using better software or
• having a professional come to speak at your club to improve skills

None of these is short term, nor everyday expenses - sometimes it's a once in a 5 or 10-year experience.  Your Golf Club needs to allocate money from this year's profits to be able to cover those costs in the future, for the benefit of members.

We now call Not for Profits as “Profit For Purpose” entities. Put simply, this means that you DO want your not for profit to make a profit so that it can provide for the future.

By setting up systems in order to make sure that you can make a profit in the organisation, you are setting the organisation up for success.  One of the best ways to do this is to set aside the excess funds into a separate bank account, called a "Purpose" account.  You might want to name the account something like "clubhouse renovations" or "professional skills training" and have a target for that bank account, so when it has enough money you can then order that new thing. 

By allocating the profits that you make to the purpose of your organisation – you are doing good things! Generally, these profits are going towards reducing your fundraising targets or increasing what you can do with the volunteers' time, and you have made a great decision by making a profit.  You might even find that by co-contributing towards an investment for your not for profit, a funder will be happy to give you more, and you will achieve even more!

In summary, a not for profit organisation CAN make a profit that will benefit the organisation in the long run.