Starting a not for profit (NFP), be it a charitable or religious organization, a private foundation, labor organization, or any other of many types of 501(c)(3) means taking into considerations for-profit businesses don’t have to. Because there are different regulations and tax implications depending on the type and locality of the organization, founders would best be served by seeking guidance outside of themselves and their board members.

Businesses keep a balance sheet reflecting assets and earnings, whereas non-profits keep a statement of financial position which reflects assets on hand available for use to further the mission of the organization.

For-profits use accounting systems to track net income, whereas non-profits track excess of revenues over expenditures. Businesses may be accountable to shareholders and distribute earnings, or in the case of small businesses only accountable to ownership, whereas non-profits are accountable to their board members and those they serve, making full transparency and accuracy their top accounting priority.

Understanding the differences helps eliminate risks, ensuring NFPs meet regulations and reporting requirements under both state and federal law.