Does your association board include directors who tell you that operations must be run on a break even basis because you are a “non-profit”? Nonsense! You will not lose your non-profit status nor will the Canada Revenue Agency (CRA) penalize you for having resources.
A “not-for-profit”, or “non-profit” organization is a registered corporate entity that dictates how a corporation files its taxes. It does not mean “no” profit. The key difference between for-profit and not-for-profit is how the organization uses its surplus.
- For-Profit: For-profit organizations may either reinvest or distribute the surplus to the owner(s) and/or shareholders
- Not-for-Profit: Not-for-profit organizations do not have owners or shareholders and may not distribute their surplus to members, stakeholders etc. However, they may retain a “rainy day”/reserve fund, etc.
Any sustainable business – which includes associations– has money in the bank for two reasons:
- To invest in the future (e.g. technology, staffing, marketing)
- To provide a buffer in the event of an unexpected economic downturn/emergency.
High Performance Membership Organizations™ plan and maintain a “war chest” and develop an operating reserve policy which dictates a minimum savings requirement. To ensure the legitimacy of the reserved with the Canada Revenue Agency, it is strongly recommended that associations are explicit about the purpose(s) for which the reserves are retained.