Curmudgeon's Corner

Are Profits Bad?

Posted by Al Campbell on Feb. 25, 2010

Economy, Quality of Life, Taxes

There appears, from time to time, a debate amongst commenters to this Blog that discusses “for-profit” and “not-for-profit” organizations and the relative merits of each.  The general thrust often devolves into the relative good or bad that ‘profits’ represent.

I have had the privilege of serving in leadership roles in both types of organizations over the years.  One thing I have observed is that, whether or not one calls the money remaining at the end of the accounting period a “profit” or a “surplus”, there is little if any difference in the actual operation of such entities.

For-profit organizations must have profits in order to survive and prosper over the long pull.  Not-for-profit organizations must have surpluses in order to survive and prosper over the long pull.

The uses of the “profits” may differ from the uses of the “surpluses” but those dollars were made available as the result of operating a good business model that delivered what was promised at a value to the users of the product or service.

Not-for-profit entities aften have tax advantages by virtue of laws that govern those entities.  That is typically justified by the more 'social' purpose behind those entities than the simple 'crass' motive of greed.

The “profits” of a for-profit entity sometimes flow to the stockholders (owners) and sometimes are re-deployed back into the business organization in order to support research and development, hiring employees, marketing, etc.   The “surpluses” are sometimes given out as bonuses to those operating the business, or are sent back to the founding/sponsoring entity for its use in furthering its own ends.

I found little difference in the day-to-day motivations present in either form of business.  Both have to address the wants and needs of those they purport to serve or they do not survive.  Both employ ‘capitalists’ and both probably employ ‘socialists’.  Neither of those terms is, in and of themselves, a pejorative although we sometimes tend to make them that in our usage.

If one thing has emerged from this small debate amongst commenters, it seems to be that some in the “not-for-profit” world think themselves superior due to the simple difference in organization types in which they provide their services and reap their incomes.  I can tell you that my experience has led me to conclude that there are both good people and not-so-good people in both types of organizations. 

A profit-driven organization is not bad just because it seeks profit.  A not-for-profit organization is not good just because it calls that money a surplus.