A company claiming “non-profit” status is much more credible and trustworthy, and less expensive to work with, than their for-profit corporation counterparts. Or is it?
The public perception is that “non-profits” are charitable do-gooders who work for the public good will, charge less for their services, and have income and chief executives making a lot less than their counterparts in the for-profit business sector. In many cases, such as with social service and community-based organizations, this is often very true. But in other cases, ranging from national civic organizations or government-funded “research centers” to some school safety consulting entities, reality may not actually be what people are being lead to believe.
Boasts of “non-profit” status can be misleading marketing ploys
I have been intrigued and concerned upon hearing the word “non-profit” tossed around by some individuals and organizations promoting their school safety consulting services and products during my decades of work in this field. Over the years, I have seen words like “center” and “institute” tossed around, and direct statements of or implied non-profit status, used to suggest that one particular school safety consulting organization is somehow more credible, trustworthy and inexpensive than their competitor for-profit corporations providing identical or very similar services. We have even seen for-profit consultants make comments against other for-profit consultants to imply that they (also a for-profit consultant) are somehow more like non-profit entities than a for-profit business that provides the same services.
This often leaves well-intended, trusting educators — the consumers of school safety consulting services — in a vulnerable position if they blindly assume that an organization claiming to be a “non-profit” is, by the nature of this organizational classification, somehow a cheaper and/or better service provider than other firms in the same marketplace. School boards, superintendents and heads of private schools need to be good investigators and perform their due diligence to determine if the school safety consulting organizations they are considering to hire are true “non-profits” or more like consulting firms disguised as non-profits.
More importantly, school leaders need to determine if there is a substantial difference in qualifications and costs for services between the firms instead of assuming that because an entity has an organizational structure deemed a non-profit, it is really that much cheaper than their counterparts when in fact, this may not actually be the case. My review of proposals submitted for school projects by one non-profit consulting firm actually found that in some cases, this “non-profit” bid several thousand dollars higher than our for-profit corporation for the same job. In other cases, the bids were very close with the “non-profit” coming in under our bid but within a comparable range.
IRS 990 tax filings show big revenues, big compensation for some “non-profit” school safety entities
To shed a little light on this issue, I took a closer look at two well-established school safety consulting entities that are registered as non-profit organizations. Two great non-profit investigative tools available to anyone with Internet access are www.guidestar.com and www.foundationcenter.org. These organizations maintain databases with many of the IRS 990 tax forms that non-profit organizations are required to file annually, and visitors to these sites can search organizations and find out from where many non-profit organizations say they get their money and where it is being spent.
The first school safety consulting entity examined was a long-established, well-respected organization from the western part of the United States. The IRS 990 non-profit tax forms examined for this organization revealed:
- More than $1.8 million in revenue received between 2005-2009.
- An executive director with an annual salary of $108,000 plus pension and other benefits.
- In one year, a 20-hour-per-week, part-time employee made an annual salary of more than $40,000.
These figures, while fairly modest, to some may be higher than one might initially perceive when hearing the word “non-profit.”
The second school safety consulting entity examined is an established firm from the opposite side of the country in the eastern part of the United States. The IRS 990 non-profit tax forms examined for this organization revealed:
- More than $3.7 million in revenue reported received between 2009-2013.
- Compensation to officers, directors, trustees, etc. included more than $227,000 in 2013, and more than $233,000 in 2011.
- Compensation to “disqualified persons” (which according to IRS guidelines could include family members associated with a person having a substantial influence in the organization’s leadership) included more than $115,000 in 2013 and more than $120,000 in 2011.
- The bulk of this organization’s revenues were reported as coming from consulting services. In 2013, out of more than $910,000 in revenue, more than $868,000 came from consulting services provided by the entity. In 2011, out of more than $670,000 in revenue, $630,000 came from consulting fees.
- In 2013, the executive director reported a salary of $158,000. In 2011, the salary for this position was listed as $123,000. (Other benefits are not listed here.)
The revenue and salary figures for the second entity tend to be substantially greater than the first organization. However, it should be noted that the first organization appeared to be terminating its non-profit status according to its 2011 990 tax report, suggesting that the organization may be at a different stage of operation given it was in existence in various forms for several decades.
Not specific to the two aforementioned organizations, it should be noted that individuals associated with non-profits may also have other business entities, including for-profit corporations, registered under different names. These persons could not only receive the income listed on their 990 non-profit tax forms, but also additional income from other for-profit businesses that is reported on different tax forms. In other words, an individual could have both income as an officer of a non-profit while at the same time receive other income from business channeled through a separate, for-profit consulting business above-and-beyond what is reported on the 990 report — in essence running a non-profit and for-profit business at the same time.
Are so-called “non-profits” really much different than for-profit school safety consulting firms?
Many educators, public safety officials and “for-profit” small business leaders we shared this with look at the above figures from these “non-profits” and see little difference between what they would expect to see from for-profit corporations providing professional services. The reality is that the school safety consulting profession largely consists of individual consultants and “boutique firms” that are relatively small business entities. At best, the above figures would seem aligned with what one would expect to be made by a for-profit company. In many cases, the money made and the compensation paid by these “non-profits” are more than what some for-profit individual consultants and/or small consulting corporations will see each year.
So what is the lesson learned? Don’t be mislead when the word “non-profit” is thrown around as it may mean much less than those using it hope it will be interpreted as by unwitting school board members, superintendents and private school heads. School leaders should do their homework, use the above mentioned charity web sites to review 990 tax reports by organizations claiming non-profit status, and beware of those who may be intentionally using the word “non-profit” (or negative references to “for-profit” companies) for their own marketing purposes.
I own and operate a for-profit school safety corporation. It is nothing to be ashamed of and, in fact, I am very proud of it. I have the pleasure of living the American dream: I earned a great education, started my own business, and spend my life doing meaningful work that I greatly enjoy doing for a living. I have ideas for possible non-profits, but my business has and will be operated as what it really is: A for-profit corporation that provides a professional service. Period.
The desire by some to push the “non-profit” label or attack for-profit corporations does raise questions in my mind as to why others would be ashamed to call their consulting businesses what they are: Consulting businesses. It should also leave their potential clients wondering the same thing.
In the end, there may be little-to-no difference between “non-profit” school safety consultants and “for-profit” school safety consulting firms having different business organizational structures. The real difference may rest in which entity is the most honest, proud and forthcoming about who they really are and what they really do.
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