I Thought a Nonprofit Couldn’t Make a Profit

I was working with a small community nonprofit. It was entirely volunteer-run, with no real distinction between board and staff—just a group of people united by a shared love of their mission and a desire to make their community better. These are my favorite kinds of 501(c)(3)s: all heart and passion, small groups of people doing an extraordinary amount of good. They are the backbone of our communities, and this particular organization had been around for decades, quietly supporting and uplifting its neighbors.

They operated almost exclusively on earned income and managed, year after year, to break even—just enough to get through each fiscal year. They wanted to grow, but didn’t know how. That’s where I came in.

As I reviewed their financials, the path forward was clear. What they needed wasn’t more passion or better programming—it was increased cash flow and a consistent surplus. They needed margin to stabilize, plan, and intentionally grow their mission.

But as I began to explain this, a question stopped me short.

During my presentation, a board member raised their hand and asked,

But I thought a nonprofit couldn’t make a profit?

It wasn’t the last time I would hear that question—or some version of it. Over time, I realized it often came from a deeply rooted belief: that if a nonprofit has money left over at the end of the year, it must not be spending enough on its mission. This belief is especially common among small, volunteer-run organizations.

But why?

Why is having money in the bank seen as taboo?

The reality is that living paycheck-to-paycheck places enormous strain on a nonprofit and the people who sustain it. Having money in the bank means you have a future. It means you can weather uncertainty and still be here tomorrow, doing the work you exist to do. Without that safety net, a single unforeseen event can end an organization entirely. The pandemic made that painfully clear.

Surplus doesn’t just mean stability—it means growth. Creating surplus today allows your mission to grow tomorrow. It allows you to invest, plan, and serve more effectively. Think of it as investing in your mission itself.

So how do we change nonprofit culture to not only accept surplus, but to intentionally create it year after year?

It starts with thinking, planning, and organizing like a business.

Even if your organization is run by a handful of volunteers and your annual budget is $10,000, it is still a business. That doesn’t mean it exists to generate profit—but it does mean it has obligations, risks, and responsibilities.

The difference is not whether money matters, but why. Nonprofits are mission-driven, not profit-driven.

And notice the word I’m using: surplus.

“Profit” implies money going into an owner’s or investor’s pocket. A nonprofit’s surplus goes back into the mission—strengthening programs, people, and long-term impact.

So let’s talk about what “profit” really means in the nonprofit world—and why embracing surplus is essential to doing good, not a betrayal of it.

Since so much of this myth comes from a misunderstanding of basic financial terms, let’s start with a simple definition.

Profit = Revenue – Expenses

If you bring in more money than you spend, you have a surplus. In the for-profit world, that surplus is the goal. The aim is to maximize it and distribute it to owners or shareholders. Profit is the point.

In a mission-driven environment, the goal is not what’s left at the end of the fiscal year—it’s what that surplus makes possible. By definition, a nonprofit’s surplus is reinvested back into the organization.

Profit-driven: money is the point
Mission-driven: the mission is the point—and money is how you get there

Now that we’ve established why surplus matters, the next question is obvious: how do we actually create it?

The math itself isn’t complicated. What makes this difficult for many small nonprofits is emotional, not financial.

The instinct is often to say, “Once we bring in more revenue, we’ll start building surplus.” But as is so often the case, tomorrow never comes. If surplus is always something you plan to do later, it will never happen.

Today is the day you build surplus.

That means taking a hard look at the budget and making a conscious decision to allocate money toward the future—not just the present. And yes, that may mean shrinking the mission budget in the short term.

You may not want to hear that, but it’s true.

Keeping money back from the mission can feel like taking something away from the good you’re trying to do. Small nonprofits often take on enormous community needs with very limited resources. Whether it’s a community theater, a food bank, a service organization, or a community band, it rarely feels like you’re funding the mission enough as it is. The idea of intentionally holding money back can feel counterintuitive—even irresponsible.

That discomfort is amplified because so much nonprofit revenue comes from donations. Not spending a donation right away can feel like a betrayal of donor trust.

This mindset often comes from operating year-to-year without long-term financial planning. It’s a difficult cycle to break. But the reality is this: you have to hold back today so you can grow tomorrow—so you can continue serving your community not just this year, but for decades to come.

Creating surplus is not abandoning your mission. It is investing in it.

A Quick Diagnostic: Today vs. Tomorrow Thinking

Here’s a simple way to tell whether a nonprofit is focused on surviving today instead of planning for the future.

If the most important financial report in your organization is the cash flow statement, that’s a warning sign.

Cash flow tells you whether you can pay today’s bills. It reflects short-term survival.

A healthy nonprofit also relies on its balance sheet and profit and loss statement. These show sustainability, trends, and long-term capacity. They allow leadership to plan—not just react.

A financially stable organization knows it can meet its obligations. A financially fragile one is constantly worried about whether it can.

You can’t plan for growth—or resilience—in survival mode.

Sometimes, intentionally building surplus means slowing expansion or temporarily shrinking programs. That can feel painful. But sometimes it’s exactly what’s needed.

So, going back to that board member’s question:

Can a nonprofit make a profit?

Yes. And not just yes—it should.

Legally, nonprofits are prohibited from distributing surplus, not from creating it. The IRS cares about private inurement, not organizational reserves. A surplus is not a failure of mission; it is evidence of stewardship.

Creating and maintaining surplus means your nonprofit can stabilize, adapt, and grow. It means you can plan beyond the next crisis. It means your mission has a future.

And a mission that can endure is one that can continue to do good.

Now go do some good.