Making An Honest Profit Is Not Easy

The little publishing house that gave us advice on decorative gourd season is changing its corporate form to non-profit.

Most businesses operate in competitive markets subject to all kinds of uncertainties, risks, and grinding challenges. Book publishing has been under particular stress due to changes in technology and consumer habits.

In this case the top managers appear to be the owners. Changing to a a non-profit corporate structure makes lots of sense for them personally. As a for-profit company, any injection of capital into the enterprise must use after-tax money.  Changing to a non-profit means the company can now reverse the flow between investors/donors, the company, and the government. Since donations are tax-deductible, the effect of going non-profit is to take tax dollars and cycle them through your enterprise to pay salaries, partners, and suppliers. Taxes that a donor would have paid are now available to the firm and thus to its payees!

The managers no longer need to focus on producing and harvesting more value than the firm consumes, but instead can focus on just a handful of relationships involving individual donors and funding from other non-profits and government agencies. Trying to grind out net profit and pay your taxes is not easy. It’s conceivable that the non-profit form will provide more secure income to the managers while allowing them to spend their time more pleasurably.

But if it results in more freely shared pieces like decorative gourd season, I’d say they are producing plenty of external benefit.

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2 Responses to Making An Honest Profit Is Not Easy

  1. Rob says:

    Probably not a bad idea for things like newspapers and book publishers. It works pretty well for NPR, Heritage Foundation, etc.

  2. tward says:

    Rob, I agree. There are areas of social and economic life that have traditionally been the purview of wealthy patrons and high-powered institutions. Expanding the scope of things that rely on the good will of donors is worth watching though. McSweeney’s is a bad example, but I’m wary of changes in media ownership.

    Hey, you’re the one that brought up Heritage Foundation.

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