Question

How does for-profit or not-for-profit status influence the practice of finance

Answer 1

Organizational structures like, nonprofits and for-profits, have different missions, target audiences, and problem-solving strategies. The major difference while practicing finance between them are as follows:-

1.Preperation of statements- Financial position of a company, wheather for-profit or not-for-profit, can be analysed from their annual statements  The annual statement of not-for-profit organisation includes statement of financial position/balance sheet, statement of activities,statement of functional expenses,statement of cash flow and annual report. While in case of for-profit organisation statements required to be prepared are balance sheets, income statements, cash flow statements and statements of shareholders' equity.

2.Funding-One of the most important aspects of running an organization is establishing a consistent method for funding projects and operations. For-profit organizations tend to fund their initial efforts through bank loans, local investors and revenue generated from sales. If a company’s product or service is considered to have a high potential market value, then they may have the opportunity to receive funding from national or global investors, such as angle investors and venture capitalists. Nonprofits often take a different approach by seeking out private donations of time and money, corporate sponsorships, and government grants, among others. Crowdfunding, a form of online fundraising, has also become a popular method of funding for nonprofit organizations as of late

3.Taxation-Normally nonprofits are registered by law of specific country from which they belongs, which means that they are able to provide their services as a public good without rendering a portion of their earnings back to the government. Likewise, individuals and companies donating to these organizations are able to write off their contributions as tax-deductible. For-profit companies are not able to benefit from tax exemptions and must pay taxes as the law requires.