Should my university be formed as a for-profit or nonprofit? What to choose?
To some, the answer to this question is probably obvious and might best be captured by a famous phrase from Jerry Maguire.
Show me the money!
Maybe if you’re watching this, that’s one of your considerations. You might be surprised to learn though, that things aren’t always as clear as you’d expect!
In this video, I will discuss with you the pros and cons of for-profit vs. non-profit academic institutions.
The main difference between for-profit and non-profit institutions is, well … profit. For-profit institutions are businesses that exist to generate revenue.
Non-profit institutions, on the other hand, do not exist to generate revenue. Instead, they are organizations dedicated to achieving a certain social or environmental mission.
While some investors might want to go the “for profit” route, there are some considerations they need to realize -
One, it’s harder to get funding and approval for for-profit universities;
And two, it’s also harder to get students in the door;
This generally means “for profit” takes much longer to be cashflow positive. Sometimes even years during which you’re running at a loss.
With non-profit universities, getting started is a bit easier, and state funding helps keep the lights on, but making a profit is not really in the cards. However, for non-profits, it's not about making money - they have a different mission.
With a non-profit, you’re looking to provide a service to a specific community. Any revenue generated should go back into servicing this underlying mission.
While for-profit institutes might have a product or service that provides a benefit to a community, they aren’t in the habit of giving it away.
From a financial perspective, these two are very different, but they do have one thing in common! They both need to file annual reports to the IRS.
For a non-profit, reports being filed need to demonstrate that the funds are being used to serve their mission. All money needs to be accounted for to demonstrate that they aren’t keeping anything back.
A for-profit operation, on the other hand, can be privately held. While still required to file taxes, they don’t need to disclose financial information to the general public, unlike non-profits.
At the end of the day, it’s your decision to open a for-profit or non-profit institution. I don’t have a recommendation for you to go one way or the other. My only advice is to do your research, and whatever option you go for - make sure it works best for your goals in the long run.
Learn more about selecting the right business entity for you in the links below.
Be sure to check out our next video "How much does it cost to open a college or university?"
As always, feel free to give me a call or Contact Us with any questions you may have. I’ve been helping clients establish universities in the US for over a decade, and I’m looking forward to helping you, too.