Quick Highlights:
- Nonprofits focus on a specific mission rather than profit, while for-profits aim to generate financial returns. This fundamental difference shapes their accounting practices and reporting requirements.
- Nonprofits emphasize transparency and compliance with grants and fund allocation.
- For-profits prioritize profitability and strategic growth opportunities through their financial statements.
- Nonprofits must maintain tax-exempt status and comply with donor restrictions. For-profits focus on accurate tax filings and maximizing deductions.
- Accountants in nonprofits often find fulfillment in supporting meaningful missions, whereas those in for-profits may experience greater career growth and higher earning potential.
A degree in accounting can take you in many different directions. Every business in every sector needs an accountant, after all. One major difference in your experience in this field is whether you work for a nonprofit or for-profit operation. The basics of accounting are the same in both areas, but there are some fundamental differences to understand.
This page is going to dive into a discussion of nonprofit vs for-profit accounting. Each of these accounting career paths can lead to a rewarding and successful career, but you’ll want to select the one that is the right fit for you.
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A Quick Introduction to Each
It’s a good idea to get a big-picture view of these two types of organizations before looking more specifically at their accounting practices. A nonprofit organization is one that is formed around a specific mission rather than the singular purpose of making money. There are countless different types of nonprofit institutions across the country. Some examples include educational institutions, charities, healthcare organizations, and more.
By contrast, the primary goal of a for-profit business is to, well, make a profit. That doesn’t mean that the business can’t also have some objectives that involve doing good in the world, but they are formed around the goal of profitability. Pretty much every type of business you interact with on a daily basis falls into this category. From a restaurant to a grocery store and beyond, most entities exist with the hopes of making money.
One common misconception is that nonprofit organizations don’t – or can’t – make money. That’s not the reality of the situation. In fact, many nonprofits are hugely successful financially, but there are rules about where that money can go and how it can be used. If the rules aren’t followed properly, the organization can lose its nonprofit status.
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The Fundamental Accounting Differences
In a for-profit business, the accounting department is largely charged with keeping accurate books that will help leaders make good business decisions. That means understanding the financial health of the company and what opportunities may exist for growth. Nonprofit accounting basics are a bit different. Instead of profits, they are tracking things like compliance with their grants and proper fund allocation. Transparency is critical for nonprofits to thrive.
For-profit accounting fundamentals also include producing financial statements that highlight the company’s profitability. This is one of the biggest differences in accounting sectors. For nonprofits, financial reporting is still necessary, but the statements have a different purpose. In this case, they are designed to show how well the organization is performing related to its stated mission. Accounting in nonprofit organizations is a great way to see if the fundamental initiative is being met.
Staying Compliant
Financial management in nonprofits is just as important as in the for-profit sector, if not more so. To remain tax-exempt as a nonprofit organization, accurate books that comply with nonprofit reporting requirements are necessary. Also, some donors may have restrictions attached to their gifts, and the accounting department will need to ensure compliance with those rules.
For-profit financial reporting is largely focused on tax matters. Accurate books are needed to file taxes correctly and to avoid paying more than what is owed. If the accounting department falls short of the standard and errors creep into the system, tax problems could be soon to follow. Also, in addition to tax obligations, good decisions in for-profit companies can only be made if accurate financial data is available.
Developing the Right Skills and Qualifications
As you are choosing an accounting career, it’s important to know what skills and qualifications will be required. Is accounting for charitable organizations something that sounds appealing to you? Or are corporate accounting careers more of what you have in mind? Either way, you are going to need to have some basic pieces in place to be qualified for a job.
As a starting point, look to obtain a bachelor’s degree in accounting or finance. This isn’t going to be enough to reach all levels of the accounting profession, but it’s plenty to get started. From there, you might later pursue a master’s in accounting or an MBA to open up more doors.
Most likely, you will also want to pursue becoming a licensed Certified Public Accountant. Being a CPA doesn’t mean you have to do tax returns, but it will provide you with plenty of job opportunities that require such a certification. If you are going specifically for a job like revenue management in nonprofits, consider seeking a Certified Nonprofit Accounting Professional designation.
Picking a Path You Love
By default, most people who pursue an accounting education wind up getting started in the for-profit world. Largely, this is a numbers game. There are way more for-profit entities to work for, so chances are this is where you will start. However, if you are determined to work in the nonprofit sector, it’s certainly possible to find such a job.
Most likely, it will be the opportunity to do good in the world that draws you to nonprofits. It’s an appealing thought to make a living while helping people or the planet at the same time. Most for-profit companies don’t support a mission that you will feel truly passionate about. With that said, if you are all about career growth and reaching the highest heights possible in the field, staying in corporate America is the way to go.
You May End Up Doing Both
Whether you are passionate about learning the tax implications for nonprofits or you love to compete in the cutthroat for-profit space, there is no guarantee you’ll stay in one category or the other. Many accountants wind up working in both sectors at some point in their careers. As long as you understand the accounting standards differences, you can thrive in either setting.
We hope this page has been a valuable resource as you make important career decisions. More than just nonprofit or for-profit, remember to see the bigger picture of what a job has to offer in all areas of your life before choosing a path. We wish you the best of luck!