INTRODUCTION

NON PROFIT ORGANIZATIONS

Non Profit organizations are institutions that conduct their affairs for the
purpose of assisting other individuals, groups, or causes rather than
garnering profits for themselves. Nonprofit groups have no shareholders;
do not distribute profits in a way that benefits members, directors, or other
individuals in their private capacity; and (often) receive exemption from
various taxes in recognition of their contributions to bettering the general
social fabric of the community.

Group, institution, or corporation formed for the purpose of providing

goods and services under a policy where no individual (e.g., stockholder,
trustee) will share in any profits or losses of the organization.

Profit is not the primary goal of nonprofit entities. Profit may develop,
however, under a different name (e.g., surplus, increase in fund balance).
Assets are typically provided by sources that do not expect repayment or
economic return. Usually, there are restrictions on resources obtained.

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Most nonprofit organizations have been granted exemption from federal
taxes by the Internal Revenue Service. Many of these organizations refer
to themselves according to the IRS Code section under which they receive
exempt status (i.e., 502(c)(3) organization). This identification lets donors
know that their contributions to this organization may be deductible for
income tax purposes.

Non profit organization include private non profit corporation (such as

hospitals , institutes , private colleges and organized charities ) as well as
public governmental units or agencies (such as welfare departments ,
prisons, and state universities ). Examples of nonprofit organizations are
governments, charities, universities, religious institutions, and some
hospitals.

Some of the aspects of the life that cannot easily be privatize and are often
a better managed by non profit organization are follows.

• Religion
• Education
• Charities
• Clubs, Interest groups, Unions
• Health care
• Government

Traditionally studies in strategic management have dealt with profit

making firms to the exclusion of non-profit or governmental
organizations.

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A nonprofit organization (abbreviated "NPO", also "not-for-profit") is a
legally constituted organization whose primary objective is to support or
to actively engage in activities of public or private interest without any
commercial or monetary profit purposes. NPOs are active in a wide range
of areas, including the environment, humanitarian aid, animal protection,
education, the arts, social issues, charities, health care, politics, religion,
research, sports or other endeavors.

Non-profit organizations need to keep stakeholders informed, raise

awareness, manage funding and get involved in many other activities that
require ongoing communication on a regular basis. Whether a non-profit
organization is a charity, NGO, sports club or other type of entity their
needs are very similar.

The first requirement is to have a professional persona that creates trust.

Many non-profit organizations update their identity on a frequent basis to
keep it from becoming outdated. This also relates to their posters, flyers,
brochures and other materials that are used to disseminate information and
create awareness of the activities of the group.

The non profit sector, also called the third sector, civic sector or
voluntary sector, is a third area of an economy, distinct from the public
sector and the private sector. It is made up of all of the non-profit
organizations in the economy. The presence of a large non-profit sector is
sometimes seen as an indicator of a healthy economy in local and national
financial measurements

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Surprisingly, there is no legal definition of a nonprofit organization. In
general, a nonprofit organization is one that is organized to achieve a
purpose other than generating profit.

Despite this, a nonprofit organization is not precluded from making a

profit or engaging in profit-making activities. It is prohibited from passing
along any profits to those individuals who control it, like founders,
directors, officers, employees, and members.

Nothing, however, prevents a nonprofit from paying reasonable salaries to

officers, employees, and others who perform a service for it.

According to a recent study of the NFP sector in India by participatory

research in Asia there are as many as 1.2 million NFP organization
operating in the country , approximately half of whom are not registered.
In the year 2000, this sector was providing paid employment to as many as
2.7 million people and mobilizing resources to the tune of Rs.17922
Crores.

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 EXAMPLES OF NON PROFIT
ORGANIZATIONS

• SUTRADHAR

A NPO working to give every child in India a good education. Every

book or toy you buy from us goes into making this dream come true.

• JAIPUR RUGS FOUNDATION

Jaipur Rugs Foundation

A non-profit organization, working to improve the living conditions of

poor carpet weavers and make them economically sound.

• SAHAYTA

Non-profitable organisation providing

training programmes for road accident and
road safety.

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• HELPAGE INDIA

A NPO that helps to fight against

isolation, loneliness, poverty etc.

• Swabhiman

A NPO operating in
India, focuses on girl
child / young women
with an objective of empowering them.

• CRY ORGANIZATION

A non profit organization that

works for children, their education
and upliftment on a vary large
scale.

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 TYPES OF NONPROFIT ORGANIZATIONS

A wide range of charitable and other

institutions are classified as nonprofit
organizations under the Internal Revenue
Code. Many of these qualify under the
definition provided in Section 501(c)(3) of the
Code, which stipulates that all of the following
qualify for tax-exempt status:

"Corporations, and any community chest, fund or foundation, organized

and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes, to foster certain national or
international amateur sports competition, or for the prevention of cruelty
to children or animals,"

Provided that the institutions adhere to basic standards of behavior and

requirements of net earnings allocation.

• CHARITABLE ORGANIZATIONS

Charitable institutions comprise the bulk of America's nonprofit

organizations. These include a wide variety of institutions involved in the
realms of poverty assistance (soup kitchens, counseling centers, homeless
shelters, etc.); religion (churches and their ancillary possessions, such as
cemeteries, radio stations, etc.); science (independent research institutions,
universities); health (hospitals, clinics, nursing homes, treatment centers);
education (libraries, museums, schools, universities, and other
institutions); etc.

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 • ADVOCACY ORGANIZATIONS

"These groups attempt to influence the legislative process and/or the

political process, or otherwise champion particular positions," explained
Hopkins. "

They may call themselves 'social welfare organizations' or perhaps

'political action committees.' Not all advocacy is lobbying and not all
political activity is political campaign activity.

Some of this type of program can be accomplished through a charitable

organization, but that outcome is rare where advocacy is the organization's
primary undertaking."

• MEMBERSHIP GROUPS

This kind of nonprofit organization includes business associations,

veterans' groups, and fraternal organizations.

• SOCIAL/RECREATIONAL ORGANIZATIONS

Country clubs, hobby and garden clubs, college and university fraternity
and sorority organizations, and sports tournament organizations all can
qualify as nonprofit organizations, provided that they adhere to basic
guidelines of net earnings distribution, etc. Unlike other tax-exempt
organizations, however, their investment income is taxable.

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 • "SATELLITE" ORGANIZATIONS

Hopkins pointed out that "some nonprofit organizations are deliberately

organized as auxiliaries or subsidiaries of other organizations." Such
organizations include cooperatives, retirement and other employee benefit
funds, and title-holding companies.

• EMPLOYEE BENEFIT FUNDS

Some profit-sharing and retirement programs can qualify for tax-exempt

status.

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 ADVANTAGES OF
INCORPORATING
NONPROFIT
ORGANIZATIONS

All nonprofit organizations are faced with the decision of whether or not
to incorporate. As Ted Nicholas noted in The Complete Guide to
Nonprofit Corporations, there are many benefits associated with
incorporating: "Some are the same as those commonly enjoyed by for-
profit business corporations.

Others are unique to the nonprofit corporation. Perhaps the greatest

advantages of all—granted exclusively to organizations with bona fide
nonprofit status—is exemption from taxes at federal, state, and local
levels." In addition to tax exemption, Nicholas cited the following as
principle advantages of forming a nonprofit corporation:

• Permission to solicit funds-

Many nonprofit organizations depend on their ability to
solicit funds (in the form of gifts, donations, bequests, etc.)
for their very existence.

Nicholas noted that whereas some

states bestow a fund-raising privilege on nonprofit
corporations as soon as their articles of incorporation are

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 filed, other states require groups to fulfill additional
obligations before granting permission to solicit funds.
• Low postage rates—

Many nonprofit corporations are able to use the U.S. mail

system at considerably lower rates than private individuals
or for-profit businesses. To secure these lower rates,
nonprofits must apply to the Postal Service for a permit,
but this is generally not a major hurdle, provided that the
nonprofit group has its affairs in order. "The importance of
the mailing rate advantage is directly proportional to the
volume of mail the nonprofit corporation generates in the
course of its business," said Nicholas

• Exemption from labor rules—

Nonprofit organizations enjoy exemption from the various

rules and guidelines of union collective bargaining, even if
their work force is represented by a union.

• Immunity from tort liability—

This advantage is not available in all states, but Nicholas

observed that some states still provide nonprofit charitable
organizations with immunity to tort liability. "It is important to
recognize, however, that where it exists, the immunity protects
only the nonprofit corporation—not the agent or employee
where negligence injures someone."

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In addition, nonprofit corporations enjoy certain advantages that are also
bestowed on for-profit corporations. These include-

 legal life (nonprofit corporations are guaranteed the same rights and
powers of individuals)

 limited personal liability

 continued existence beyond the involvement of original founders

 increased public recognition

 readily available information on operations

 ability to establish employee benefits programs

 flexibility in financial record keeping.

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 DISADVANTAGES OF INCORPORATING
NONPROFIT ORGANIZATIONS

But there are also certain disadvantages associated with incorporating.

Nicholas cited the following as principle drawbacks:

• Costs associated with incorporation

• Although these costs are usually not too excessive, especially for
organizations of any size, incorporation does generally involve some
extra costs.

• Additional bureaucracy—"An unincorporated nonprofit organization

can be structured so informally that its operators could keep whatever
records they chose on the backs of envelopes or as scribbled notes on
paper napkins," said Nicholas. "Not so in a nonprofit corporation. As a
legal entity, the corporation is subject to some specific recordkeeping
obligations set down by the state in which it is incorporated." In
addition, there are certain activity guidelines to which incorporated
organizations must adhere.

• Sacrifice of personal control—Depending on where incorporation

takes place, the organization may have to appoint a board of directors
to oversee operations (although founders of nonprofit groups can often
exercise considerable control in influencing the composition of the
board and the flavor of corporate bylaws and articles of incorporation).
Founders and directors of unincorporated groups are under no such
obligation.

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"Generally, the advantages far outweigh the disadvantages," summarized
Hopkins. "The disadvantages stem from the fact that incorporation entails
an affirmative act of the state government: It 'charters' the entity. In
exchange for the grant of corporate status, the state usually expects certain
forms of compliance by the organization, such as adherence to rules of
operation, an initial filing fee, annual reports, and annual fees. However,
these costs are frequently nominal and the reporting requirements are
usually not extensive."

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 DISTINCTION BETWEENT NON PROFIT
ORGANIZATIONS AND PROFIT EARNING
ORGANIZATIONS

BASIS NON PROFIT PROFIT EARNING

ORGANIZATION ORGANIZATION
Primary The main purpose of NPO is to These run to earn profits and the
objective provide services to its members main aim is to maximize net wealth
and the public at large. of the owners.
Ownership Such organizations are not The proprietors of the business are
owned by an individual or a the owners of such venture.
company.

Results of The result of the not-for-profit The result of the business

operation organization is called surplus organization is called profit or loss.
(i.e. the excess of income over
expenditure) or deficit (i.e. the
excess of expenditure over
income).
Funds It is represented by the general It is represented by capital
fund or capital fund comprising contribution by proprietors and
donations, surplus, etc. accumulated profits and reserves.

Financial Financial statements of NPO In this case it includes

statements include Receipts and Payment Manufacturing account, Trading
Account, Income and Account, Profit and Loss account
Expenditure Account and and Balance Sheet.
Balance Sheet.
Distribution Surplus and deficit is not Profit and loss is distributed
of profit / distributed among its members amongst the owners.
surplus but adjusted in capital fund.

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 ORGANIZING A NONPROFIT
ORGANIZATION

"Being enthusiastic, imaginative, and creative about establishing a

nonprofit organization is one thing," observed Hopkins. "Actually forming
the entity and making it operational is another.

For better or worse, the exercise is much like establishing one's own
business. It is a big and important undertaking, and it should be done
carefully and properly.

The label 'nonprofit' does not mean 'no planning.' Forming a nonprofit
organization is as serious as starting up a new company."

He recommended that individuals interested in forming a nonprofit

organization begin by determining the organization's main purpose and
functions.

The next step involves choosing a category of tax-exempt status to match

its functions. From there, would-be founders need to study a wide range of
issues, many of which are also basic considerations for small business
owners and other individuals involved in for-profit endeavors.

Often, the counsel of a good attorney and/or accountant can be valuable at

this stage.

Primary issues include the following:

• Decide what legal form the organization will take (public charity or
private foundation, incorporated or unincorporated, etc.)

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• If incorporating, take necessary legal steps to make that decision a
reality (devise bylaws, submit articles of incorporation, etc.)

• Investigate options and decide on principal organization programs

and emphases

• Determine the leadership of the organization (directors, officers,

primary staff positions)

• Define compensation for such positions

• Find a physical location for the organization (factors here can range
from variations in state law to availability of reasonable office
space)

• Put together a strategic plan for achieving organization goals at both

community and larger levels

• Decide how to go about funding those goals (gifts, grants, unrelated

income, etc.?)

• Determine which media avenues will be best for publicizing the

organization's goals and securing volunteers

• Devise an ongoing business plan that 1) serves as a blueprint for

institution goals and development, and 2) can be periodically
reviewed and adjusted as appropriate.

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 MANAGEMENT
STRUCTURE

Like other corporations, a nonprofit

corporation consists of the following classes
of people:

• Incorporators: Incorporators form the nonprofit corporation.

• Board of Directors: The board of directors makes major strategic

and financial decisions for the organization and ensures compliance
with relevant legal and accounting requirements.

• Officers: Officers oversee day-to-day affairs; usually officers

consist of the president, vice-president, secretary, and treasurer.

• Employees: Employees execute the decisions made by the directors

and officers.

Note that any or all of these people may be volunteers and that the
categories bleed into each other. Especially in nonprofit settings, force of
personality becomes the key to the identity of the decision makers.

Another category unique to nonprofits is

MEMBERS: Members are a special class of individuals and/or

organizations that have rights to participate in the current and future
affairs of the nonprofit organization. Nonprofit organizations are not
required to have members. You should consult with an experienced
nonprofit lawyer if you wish to become a membership organization.

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State corporate laws and the nonprofit organization's corporate bylaws
govern such things as:

• the required number of directors, or minimum and maximum sizes

of the board

• voting requirements for valid board action, such as how many

directors are needed to constitute a quorum

• whether action in writing without a formal meeting is permitted

The full array of issues surrounding nonprofit governance is beyond the

scope of this Guide. For example, there are reasons to both limit a board's
numbers (concentrate control) and broaden a board's numbers (live up to
the ideals of representation). A good legal professional or legal resource
should be able to help you find the best structure for your nonprofit.

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 LEGAL ASPECTS

There is a wide diversity of structures and purposes in the NPO landscape.

For legal classification and eventual scrutiny, there are, nevertheless, some
structural elements of prime legal importance:

• Legal requirements followed for establishment

• Purpose
• Economic activity
• Supervision and management provisions
• Representation
• Accountability and Auditing provisions
• Provisions for the amendment of the statutes or articles of
incorporation
• Provisions for the dissolution of the entity
• Tax status of corporate and private donors
• Tax status of the foundation

Some of the above must be, in most jurisdictions, expressed in the

document of establishment. Others may be provided by the supervising
authority at each particular jurisdiction.

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 LIABILITY

Like other corporate entities, nonprofit organizations can be sued for any
number of reasons, including:

• publishing defamatory statements

• violating state charitable solicitation laws, antitrust laws, or the tax

code by engaging in prohibited political activity or substantial
lobbying

• lawsuits common to any business: wrongful termination,

employment discrimination, personal injury, and breach of contract

Like shareholders in a for-profit corporation, directors of a nonprofit

corporation, and other individuals who participate in the founding and/or
operating of the nonprofit organization, enjoy limited liability for the debts
and obligations of the organization, including for the unlawful acts of
other directors, officers, and employees.

• For example, assume you are a director of a nonprofit corporation

for which you and others operate a blog about the environmental
impacts of deep-sea fishing.

If a fellow director or employee publishes a defamatory blog post or

posts copyright infringing material on the nonprofit organization's
website, you are not personally liable by virtue of your status as a
director of the organization, and your liability ordinarily is limited to
the amount you contributed to the nonprofit organization (if any).

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However, directors, officers, and employees may be personally liable for
their own wrongful conduct, regardless of whether they are paid for their
work or are volunteers.

• For example, assume that you make defamatory statements about

one of the larger fishing companies. The fishing company can sue
you personally and satisfy the judgment out of your personal assets.

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 FUNDRAISING (SOURCES OF NOT FOR
PROFIT REVENUE)

Nonprofit institutions can turn to several different methodologies to raise

funds designed to support their mission. This is especially true for
nonprofits that have tax-exempt status, because it permits donors to deduct
their gifts from their own personal income tax liability.

Major avenues of fundraising used by nonprofit organizations include the

following: fundraising events (dinners, dances, charity auctions, etc.);
direct mail solicitation; foundation grant solicitation; in-person solicitation
(door-to-door canvassing, etc.); telemarketing; and planned giving (this
includes bequests, which are given to the organization after the donor's
death, and gifts made during the donor's lifetime through trusts or other
agreements).

Revenue is generated from a variety of sources not just from clients

receiving the product or services from the NFP. It can come from people
who do not even receive the services they are subsidizing.
One study of Minnesota non profits found that
 donation accounted for almost 40%,
 government grants form around 25%,
 program service fees for about 35% of total revenues

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In other types of not profit organizations revenue comes mostly from the
members, the people who receive the service.

In profit making corporations, there is typically a simple and direct

connection between the customer or clients and the organizations. The
organization tends to be totally dependent on sales of its products or
services to customer for revenue and is therefore extremely interested in
pleasing the customer.

The profit making organization trying to influence the customer to

continue to buy and use it services. Either by buying or not buying the
item offered, the customer in turn directly influences the organization
decision making process. The business is thus market oriented.

In the case, typical not for profit organization , however there is likely to
be a different sort of relationship between the organization providing and
the person receiving the service.

Because the recipient of the service typically does not pay the entire cost
of the service, outside sponsors are required. In most instances, sponsors
receive non of the service but provide partial to total funding for the
needed revenues.

As indicated earlier, these sponsors can be the government of charitable

organizations such as united way. The not for profit organizations can be
partially dependent on sponsors. The less money it receive from the clients
receiving the service or products, the less market oriented is the not for
profit organizations.

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 OWNERSHIP OF ASSETS / DISTRIBUTION
OF PROFITS

Once incorporated, the newly created nonprofit organization is a separate

legal entity from its incorporators, directors, and employees. In fact, a
nonprofit has no owners, at least not in any ordinary sense.

The nonprofit corporation owns all assets of the business and is entitled to
receive all profits from its operation. Among the most important assets of
any nonprofit corporation that operates a website or blog are its articles,
posts, videos, and other content.

Despite its name, a nonprofit organization is not precluded from making a

profit or engaging in profit-making activities. However, a nonprofit is
prohibited from passing along any profits to those individuals who control
them, like founders, directors, officers, key employees, and members. (A
handful of states allow a nonprofit corporation to issue stock as a
mechanism of control, but no dividend rights accompany the issued
stock.)

Instead, a nonprofit organization must use any profits to further its

program activities or "exempt functions." It may also invest profits in
another tax-exempt organization.

Although a nonprofit organization may not distribute profits to its

directors, officers, key employees, or members, a nonprofit organization
may pay its employees a salary and give them benefits. A nonprofit
organization may also pay directors for their expenses and time spent

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attending director meetings. The key is that the salaries and payments
must be reasonable.

EFFECTIVE SOLICITATION AND REVENUE

MANAGEMENT.

In order to prosper, nonprofit institutions not only need to know where the
sources of funding are, they also need to know how to solicit those funds
and how to effectively manage that revenue when it comes into their
possession.

Certainly, solicitation of donors (whether they take the form of

individuals, corporations, or foundations) is a vital component of many
organization's operations. After all, most activities can only be executed
with funding. But many nonprofit institutions are not accomplished in this
area, either because they do not allocate adequate resources or because of
problems with execution. Writing in Fund Raising Management, Robert
Hartsook listed the following as common solicitation errors that nonprofit
groups make:

• Not listening to donor expectations

• Unwarranted assumption of a donor's willingness to contribute

• Lack of follow-up after initial contact

• Inadequate research on potential donors and their ability to

contribute

• Inability to close presentation with donor commitment

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 • Neglecting to establish rapport with potential donors prior to
solicitation

• Framing solicitation as "begging" rather than as a reasonable

request for help with a worthy cause

• Neglecting to tailor solicitation to individual donors

• Approaching potential donors without knowledge of how donations

impact them in the realms of tax deductions, etc.

Of course, even the most effective solicitation campaigns will wither if the
organization proves unable to allocate its financial and other resources
wisely. "Fundraising begins by determining exactly what financial and
human resources are needed to accomplish the mission [of the
organization]," wrote Larry W. Kennedy in Quality Management in the
Nonprofit World. "In the short run, money can be raised on the
organization's vision and the promises it makes to help its clients and,
therefore, its community.

It will not take long, though, for contributors to want to see results….
Performance is what counts. "Indeed, an organization may be devoted to
addressing a perfectly worthwhile cause, and its membership may be
enthusiastic and dedicated, but most nonprofit organizations—and
especially charitable ones—rely on funds from outside sources. And
poorly run nonprofits will find that their revenue streams will dry up
quickly if they do not leverage their funds wisely.

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 TAX TREATMENT

Preferred tax status to non-profit organizations is given in section 80G of

Indian income tax act in the form of exemptions form income taxes.
Private nonprofit firms also enjoy exceptions from various other state,
local, and central tax under certain conditions, these firms also benefit
form the tax deduct-ability of donors’ contributions and membership
dues .

In additions, they qualify for special third-class mailing privileges. these

benefits are allowed because private nonprofit organizations are typically
service organizations, which are expected to use any excess of revenue
over costs and expenses (a surplus rather than a profit ) either to improve
service or to their service. this service orientation is reflected in the fact
that not-for- profit organization do not use the term “customer” to refer to
the recipient of the service. The recipient to as a patient ,student ,client
,case , or simply “the public”.

You may also be eligible for other special benefits, such as:

• discounted postal rates

• state tax exemptions (such as sales tax), and limited tort liability
• local tax exemptions, including property tax

Taxation is a very technical subject and you should consider having the
nonprofit corporation's tax returns and reports handled by an experienced
tax accountant.

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 TRENDS IN THE NON PROFIT WORLD

Observers have pointed to several trends in the nonprofit community that

are expected to continue or develop in the next few years. These range
from changes in fundraising targets to expanded competition between
nonprofit organizations to regulatory developments. The following is a
listing of some issues that nonprofit organizations will be tracking in the
coming years:

1. Increased emphasis on retaining donors—

According to Robert F. Hartsook of Fund Raising Management,

"Non-profit organizations will focus on the renewal of donors rather
than on the acquisition of new ones.

As our country's population growth begins to plateau, it will be

necessary for non-profits to more keenly target their marketing
efforts."

2. Corporate giving—

Corporate giving to philanthropic causes has emerged as a major

marketing tool for corporations in recent years, and this source of
funds is expected to assume even greater importance as federal and
state governments pare back their spending on various social
programs.

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3. Increased reliance on volunteerism—

Reduced government expenditures on social programs is also

expected to spur increased demand for volunteers who can meet the
expected growth in organization activity. This need will be
especially acute for nonprofit organizations primarily involved in
charitable activities.

4. Competition with for-profit enterprises—

Many analysts believe that this issue could have tremendous

implications for nonprofit organizations in the future. Spurred by
representatives of the for-profit small business community,
regulatory agencies have undertaken more extensive reviews of
ways in which some activities of tax-exempt groups allegedly
damage the fortunes of for-profit businesses (who, of course, are
subject to local, state, and federal taxes).

Much of the controversy in this area centers around the definition

and treatment of unrelated business income (income generated by
tax-exempt organizations from ventures that are unrelated to their
primary mission). "There is a potential that all of this will lead to
nothing," wrote Hopkins, "or it could bring an in-depth inquiry into
the federal and state law distinctions between for-profit and
nonprofit organizations, the rationale for the tax exemption of
certain types of nonprofit organizations, and whether some existing
tax exemptions are outmoded and some new forms of tax exemption
are required."

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5. Continued emphasis on planned giving—

"Nonprofit organizations will enjoy a significant increase in realized

bequests," said Hartsook. "This will happen as a result of planned
giving programs put in place 10 to 15 years ago. With the evidence
at hand of how successful planned giving can be, many institutions
will increase their dependence on this methodology."

6. Continued dominance of women in the nonprofit community—

According to Fund Raising Management, women occupied

approximately two-thirds of all staff positions in nonprofit
organizations in the mid-1990s, a percentage that may increase in
the coming years.

7. Increase in government regulation among non profits—

Government oversight of fundraising activities may continue to

increase at both the state and federal levels, at least in part because
of the solicitation practices of some "fringe philanthropic groups,"
said Hartsook. "Unfortunately, telemarketing for nonprofit
organizations has received a bad name because of fringe
philanthropic organizations that solicit and collect large sums of
money—while dedicating most of those funds to the costs of fund
raising and salaries."

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 According to Hopkins, this increase in government regulation may
be especially evident at the state level: "States that have formerly
foregone the desire for a fund-raising law have suddenly decided
that their citizens now need one. States with fund-raising regulation
laws are making them tougher. Those who administer these laws—
the state regulators—are applying them with new vigor."

8. Growth in self-regulation within the nonprofit community—

Self-regulation within various sectors of nonprofit operation

underwent a noticeable increase in the late 1980s and early 1990s,
and this trend is expected to continue with the introduction of new
certification systems, codes of ethics, and watchdog groups.

9. Major donors will maximize benefits from contributions—

According to Hartsook, major donors will increasingly incorporate

aspects of planned giving into their philanthropic efforts in order to
maximize their tax deductions. "Significant gift giving will
incorporate an aspect of planned gifts in order to afford the donor
maximum tax deductions," he stated. "As the level of tax
recognition diminishes, major donors will turn to this methodology
in order to maximize tax advantages."

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 POPULAR NON PROFIT
STRATEGIES

Because of various pressures on NPO to provide

more services than the sponsors and clients can pay for, these organization
are developing strategies to help them meet their desired service of
strategic piggybacking, merger, and strategic alliances.

STRATEGIC PIGGYBACKING

Coined by Nielsen, the term strategic piggybacking refers to the

development of a new activity for the NFP organization that would
generate the funds needed to make up the difference between revenues and
expenses. The new activity is related typically in some manner to the not
for profit mission, but its purpose is to help subsidize the primary service
programs. It appears to be inverted use of portfolio analysis, the
organization invests in new, safe cash cows to fund its current cash-
hungry stars, question marks, and dogs.

The small businesses administration, however views this money making

activity as “ unfair competition.” The U.S. internal revenue service (IRS)
advice that a NFP that engages in businesses “not substantially related” to
the organization’s exempt purposes may jeopardize its tax exempt status,
particularly if the income for the businesses exceeds approximately 20%
of total organizational revenues. The IRS requires NFP to pay and
unrelated businesses income tax on commercial activities that do not relete
to the organization’s central missions. So far, NFP are still considered tax-

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exempt if there businesses are stuffed by volunteers or if almost all there
merchandise is donated. According to Marcus Owens, director of tax
exempt organization for the IRS , “The ultimate questions is should these
institutions continue as tax exempt entities. And it’s being raised more
than ever before.

Although strategic piggybacks can help NFP organizations self –subsidize

their primary missions and better use their resources, according to
Nielsen , there are several potential drawbacks-

First , the revenue generating venture could actually loose money ,

especially in the short run.

Second , the venture could subvert, interfere with, or even take over the
primary mission.

Third, the public, as well as the sponsors , could reduce their contribution
because of negative responses to such “ Money-grubbing activity” or
because of mistaken belief that the organization is becoming self
supporting.

Forth, the venture could interfere with the internal operations of the NFP
organization.

To avoid these drawbacks, a NFP should first carefully evaluate its

resources before choosing this strategy.

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MERGERS

Dwindling resources are leading and increasing number of NFP to

consider merger as a way reducing cost. For example , the merger of
Baptist health systems and research health services created health Midwest
in Kansas city . The newyork hospital (Cornell medical centre and
Columbia – Presbyterian medical centre combine to form the newyork and
Presbyterian hospital’s health care systems

Between 1980 and 1991 more than 400 US hospital’s were involved in
mergers and consolidation (More than half of them happening after 1987.

STRATEGIC ALLIANCES

It involves developing cooperative ties with other organizations. Alliances

are often used by NFP organizations as a way to enhance their capacity to
serve clients or to acquire resources while still enabling them to keep their
identity. Services can be purchased and provided more efficiently through
cooperation with other organization than if they were done alone.

For example four Ohio universities agree to create and jointly operate a
new school of international business. Alone none of the business schools
could afford the $30 million to build the school. The collaborative
ventures programs of the Teagle foundation has given more than $ 4
million in grants to help colleges setup money saving collaborations.
While only a handful consortia existed in 1995 by 1998 there were at least
21 representing 125 colleges and universities.

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Strategic alliances and mergers are becoming common place among NFP
organization. The next logical step is strategic alliances between business
firms and NPO’s .

Already business corporations are forming a alliances with universities to

fund universities research in exchange for options on the result of that
research . Business firms find it cheaper to pay universities to do basic
research than to do it themselves.

Universities are in need of research funds to attract of professors and to

maintain expensive jobs. Such alliances of convenience are been
criticized, but they are likely to continue.

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 THE KEY CHALLENGES FOR NON-
PROFIT ORGANISATIONS

In business, we are told that the customer is king; in the non-profit sector
it is more like Jack, Queen and King — multiple stakeholders ranging
from funders, to brokers to end users. The problem is that the end user or
recipient often has very little say in what is being ‘purchased’ on their
behalf. To most non-profit organisations the crucial relationship is that
shared with the funder or broker, not the end user. If cultural non-profit
organisations are to fully exploit their enterprise potential, relationships
need to be rebalanced

SATISFYING THE NEEDS OF THE FUNDERS

The industry of social policy intervention has grown and been sustained
on a flood of public investment over the past 15 years. Starting with the
lottery capital building boom from the mid nineties, through seven rounds
of the Single Regeneration Budget, ERDF, ESF, Neighbourhood Renewal,
numerous learning and skills initiatives, safer communities funding,
community health, crime, cohesion and older people target schemes.
Every aspect of the community has been addressed in one way or another
and non-profit organisations have become expert at satisfying the needs of
the funders.

The shift towards identifying and meeting the needs of customers directly
requires a shift in mindset, along with a whole new language and approach
to business.

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This transition rarely develops organically without entrepreneurially
focused individuals. As with many skill sets, it can be developed,
supported and encouraged but requires a medium to long-term
commitment. Short-term interventions are unlikely to yield lasting results
in changing organisational culture. Business support programmes need to
adapt and develop to encompass this challenge.

PRICING AND COST

Over the last decade, revenue funding both from local authorities and
central government via the Department for Culture, Media and Sport
(DCMS), has become conditional on working with targeted groups. This
presents two problems for the sector.

Firstly, these targeted groups, such as young people, ethnic minorities and
disability groups, tend to experience high levels of social exclusion and
below average levels of income. This means that not only do the costs of
intervention rise, but also end users are not able to meet any of this
additional cost.

Secondly, it means that cultural organisations can devote insufficient

focus on the needs and demands of their traditional customer base. In
other words, what would be considered a disastrous approach for business
remains the standard operating environment for the non-profit
organisations.

Organisations need support to develop both their management information

systems to assess the true cost of delivery and also in developing their
negotiation skills to try to secure more sustainable outcomes, often against
a backdrop of reduced funding availability and funders more that ever
wanting bigger bangs for their buck

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 UNWILLING FUNDERS

The third challenge exists where funders are not willing or able to fund on
a full-cost recovery basis. Conventional business operates on an elemental
supply and demand basis with companies competing for market share
from consumers who are able to make a choice of suppliers. The operating
environment for non-profit organisations is more complex, as they
compete to secure both income for the activity and a subsidy to meet the
losses incurred.

All too often funders will have different and sometimes conflicting goals
and values. This is most evident in the debate between price and value.
The funder will demand a certain level of value but will not pay the full
price of these demands.

This leaves organisations to decide whether to seek additional subsidy,

turn down the money offered or provided under-funded services to clients
leading to a reduction in quality.

The most common response to the lack of operating profit, is for non-
profit organisations to develop subsidy business to generate profits to
subsidise core business.

However, subsidy businesses from fundraising to retail incur their own

costs and require investment and significant management time and
expertise. The development of the subsidy businesses, often operating as
social enterprises is another area requiring significant investment into
business support.

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RESTRICTED INCOME

The fourth challenge facing non-profit organisations is restricted income.

Business requires cash-flow to survive and grow. Success is predicated on
investment in people, equipment and systems. The role of directors and
senior executives is to direct investment to bolster or secure market
position.

The trustees and managers of non-profits rarely have this freedom. It is the
custom of most funders to restrict or ‘ring-fence’ funding to be spent on
projects, often in delivering unprofitable services to targeted vulnerable
groups.

For the funders, this allows them some measure of control over how
funding is allocated and ensures that it goes directly to helping those most
in need. However, the reality is that for nonprofits restricted income often
carries high costs, which cannot easily be met from other sources.

INVESTMENT PROBLEM

The sixth challenge is closely related to this and involves the difficulty of
investing into non-profit organisations. Funders tend to ignore the
standard business maxim that as the business grows, so the management
costs increase. Businesses invest in infrastructure to increase efficiency as
growth occurs. Non-profit organisations are rarely able to pursue the same
approach, funders prepared to support investment into core costs are a
very rare beast — and most not only refuse to support core but also seem
to deny that these costs exist, or worse assume they can be reduced
through economies of scale

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 CONCLUSION

Non profit organization are working for social benefit aspect and
human welfare. The purpose of non profit organization is to highlight
briefly the measure differences between profit making and the not for
profit organization, so that the effects of ther differences on the
strategic management process can be understood .

NPO in recent times have witnessed a tremendous growth. Many

factors like tax benefits have created a favourable environment for
NPOs. But like twin sides of coins there are many challenges that they
have to face.

A knowledge of NPO is important if only for the sole reason that day
account for an average of one in every twenty jobs in the nation
throughout the world. NPO sector is important is that a private NPO
tends to receive benefit form society that a private profit making firm
cannot obtain.

Because of various pressures on Non profit organization to provide

more more services than the sponsors and clients can pay for, these
organization are developing strategies to help them meet their desired
service of strategic piggybacking, merger, and strategic alliances

Funders and support agencies can create a less dysfunctional

environment for non-profit organisations to operate in, creating a more
intelligent approach to funding, access to finance for social enterprise.

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 WEBLIOGRAPHY

 http://www.answers.com/library/smallbusiness
 http://en.wikipedia.org/wiki/non-profit-organization
 http://cyber.law.havard.edu/home/
 http://www.irs.gov/charities/charitable/article
 http://www.answers.com/topic/profit
 http://www.sunbeauties.org/images/worldchild
 http://www.amazon.com/managing-non-profit-
organization
 http://images.google.co.in/imgres?
imgurl=http://www.totalfocus.com.au/images/non-profit

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 BIBLIOGRAPHY

 “Thomas L. Wheelen, J. David Hunger , Krish Rangarjan”,

Concept In Strategic Management And Business Policy

 “Chaturvedi And Agarwal”, Book Keeping And Accounts

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