Nonprofit Founder Compensation
The founders of a nonprofit are not allowed to make a profit from the organization’s earnings. However, they can receive compensation for their work. The average nonprofit CEO makes a little over $120,000 per year. Since running a nonprofit is often their full-time job, it’s reasonable for founders to pay themselves a salary.
Nonprofits raise money through fundraising, grants, sponsorships, and earned income. Fundraising from individual donors is the most common method. Nonprofits also apply for grants from government agencies and foundations. As long as the income comes from activities related to the nonprofit’s mission, it is not taxed.
A nonprofit needs to generate more than enough money to cover expenses. Any extra funds allow the organization to grow and serve more people. So nonprofits do aim to make a "profit," as long as the money goes back into the organization.
There are no strict rules about nonprofit founder salaries. However, the IRS can penalize groups that excessively overpay leaders.
Founder as CEO in Nonprofit
Can a founder of a non-profit be the CEO? A nonprofit founder can serve as the CEO or executive director. This structure is common with start-up nonprofits. As the organization grows, the founder may transition to president while a new executive director is hired to manage day-to-day operations.
The average nonprofit CEO salary is over $120,000 per year. Running a nonprofit is often a full-time job, so it is reasonable for founders working in this role to pay themselves. Nonprofits generate revenue through fundraising, grants, sponsorships, and earned income. Most nonprofits aim to bring in enough income to cover expenses and support growth.
The IRS does not dictate specific salary levels but can penalize groups that excessively overpay leaders. There are no hard rules, but nonprofit salaries generally remain below for-profit industry standards.
As long as founders do not directly profit from net earnings, they have flexibility in how they are compensated. Paid salaries must be justified and reasonable. With proper policies in place, founders can receive pay while meeting legal and ethical standards.
Compensation for Nonprofit Owners
Can owners of nonprofits make money?
The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit.
The average nonprofit CEO makes a little more than $120,000 a year. Nonprofit founders often put in long work hours and make far less money than executives at for-profit organizations. When running a non-profit is their sole employment, it is reasonable for them to draw a salary for the work they do.
Nonprofits generate income from fundraising, grant writing, sponsorship and revenue generation. Fundraising is the most common method of obtaining operating capital. Grant writing occurs when the organization applies for grants made available by government bodies and philanthropic organizations for specific purposes.
Tax-exempt nonprofits often make money as a result of their activities and use it to cover expenses. In fact, this income can be essential to an organization’s survival. As long as a nonprofit’s activities are associated with the nonprofit’s purpose, any profit made from them isn’t taxable.
Not only does a nonprofit want to make money in order to survive, but they also want to make more than enough so they can grow and do even more good work. In the business world, any revenue left over after expenses is profit. The same is true when it comes to operating a nonprofit as well. So, yes, 501(c)3 organizations (as well as other categories of nonprofits) are allowed to make a profit.
One of the things that can lead to confusion around the issue of compensation for non-profit owners is that there is no hard-and-fast rule about how much they may be paid. However, the IRS can and does penalize organizations that overpay executives or employees.