A non-profit organization can be defined as an entity without a profit objective. That sounds altruistic and appropriate for charities and government organizations but it is also misleading.

What differentiates a non-profit from a regular enterprise is that any money that does not cover costs gets re-invested into the business. So, the basic revenue equation is as follows:


A Non-profit will reinvest their profit into the next year, calling it "retained earnings".

This sounds like like an ideal way to provide services efficiently and effectively. It should mean that the dollars we spend do nothing more then cover the cost of doing business. A fair price will be offered and the money we spend will be creating pure value instead of getting pocketed.

So, why do some directors at the Red Cross Make $300 000 (USD) and why do we find ourselves paying exorbitant rates for basic government services? Well, one way to avoid making profit is by inflating costs. An inflated cost like an executive's salary, an exotic convention local or corporate boxes at sporting events.

So, non-profit is not the opposite of profit as suggested above. Non-profits should definitely be subject to the same scrutiny as any basic capitalist enterprise.

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