Not-for-profits should aim to make a profit — and here’s why that’s not a dirty word

There’s a sentence we hear surprisingly often when working with not-for-profits (NFPs):

“Are we actually allowed to make a profit?”

It’s sometimes asked quietly and as an 'almost' joke. It's often asked after a long discussion about rising costs, stretched teams, or the growing difficulty of delivering impact with the same funding year after year.

The question itself reveals something deeper — a long-held assumption in the NFP sector that breaking even is the gold standard, and that seeking a surplus somehow contradicts purpose.

In our experience, that assumption doesn’t just hold organisations back. It can actually quietly undermine them.

The myth of “breaking even”

On paper, breaking even can sound responsible. Sensible. Ethical, even.

But in practice, it often masks a lack of clarity.

We regularly see not-for-profits running multiple programs, services or events each year, carrying costs centrally and looking only at the overall result. When things feel tight, the conclusion is often vague: “We just need more funding” or “This is the reality of the sector.”

What’s missing isn’t commitment or intent. It’s visibility.

Without understanding exactly which activities generate surplus and which consistently drain resources, organisations are left managing by instinct — and instinct tends to default to caution.

When everything is mission-critical, nothing is prioritised

A common pattern we see is this:

• Events or programs are deeply valued for their community impact

• Costs are absorbed centrally rather than allocated properly

• Profitability is rarely measured at an individual level

The result? Leadership teams feel financial pressure but can’t pinpoint its source.

Once reporting improves — particularly when costs are allocated properly and performance is viewed by event, program or department — something interesting happens. Conversations change.

Suddenly, it becomes possible to say:

• “This activity is consistently funding three others.”

• “This one delivers impact, but only because it’s subsidised elsewhere.”

• “If we adjusted pricing here, we could reinvest there.”

That’s not mission drift. That’s mission protection.

The moment many boards avoid — but shouldn’t

For many NFP boards, pricing discussions are where anxiety peaks.

There’s often a fear that:

• Members will revolt

• Participation will collapse

• Trust will be lost

In reality, we’ve seen the opposite more often than not.

When pricing decisions are grounded in clear data and communicated transparently — explaining why changes are being made and what they enable — stakeholders are usually far more understanding than expected.

People generally accept paying more when they can see that:

• Costs are real

• Value is clear

• Surpluses are reinvested, not extracted

The fear tends to live longer than the evidence.

“Not-for-profit” doesn’t mean “not-for-surplus”

This is often the real turning point.

A not-for-profit exists to serve a purpose, not to distribute profits to shareholders. That doesn’t mean it shouldn’t generate surplus. In fact, surplus is often the only way to:

• Invest in underfunded parts of the organisation

• Build financial resilience

• Replace or upgrade ageing infrastructure

• Fund innovation without waiting for the next grant round

Many organisations already operate in cycles of: profit → investment → short-term loss → profit again

They just don’t always label it that way.

Capital projects, system upgrades and capability building don’t  show up on the P&L — but they all require cash.

And cash has to come from somewhere. 

Better reporting doesn’t just save time — it changes behaviour

Another overlooked impact of clearer financial reporting is what it frees leaders from.

We’ve seen CEOs spending significant time manually preparing board reports — pulling numbers together, second-guessing accuracy, and trying to explain results where timing differs from expectations.

When reporting improves — with clearer visuals, agreed metrics and meaningful commentary — something shifts:

• Board discussions become more strategic

• Time is spent on decisions, not explanations

• Leaders get back to leading

Good reporting doesn’t just describe the past. It shapes the future.

The real risk isn’t surplus — it’s silence

Avoiding conversations about profitability doesn’t make the issue go away. It just pushes decisions into the background, where they’re made too late or under pressure.

The not-for-profits that struggle most aren’t the ones that aim for surplus. They’re often the ones that:

• Don’t know what truly costs money

• Can’t articulate what funds what

• Avoid pricing conversations until options run out

Seeking surplus, intentionally and transparently, is rarely the problem.

Failing to understand the numbers usually is.

A more sustainable question for the sector

So perhaps the question isn’t: “Should not-for-profits be allowed to make a profit?”

A more useful question might be: “How do we generate enough surplus to sustain and strengthen our purpose?”

From where we sit, the organisations willing to ask — and answer — that question openly are the ones best positioned to deliver impact for the long term.

And that’s not a dirty word at all.

So, can not-for-profits be making a profit, legally?

This question comes up more often than many boards expect — and it’s an important one.

In Australia, not-for-profit organisations can generate a surplus. What matters is not whether a surplus is made, but how it’s used. Surpluses must be reinvested back into the organisation’s purpose — not distributed to members, directors or shareholders.

In practice, this means that aiming to generate surplus through well-run events, services or pricing decisions is entirely compatible with NFP status. In fact, for many organisations, surplus is what enables long-term sustainability, reinvestment in underfunded areas, and resilience in the face of rising costs or funding uncertainty.

As with all governance and financial matters, the detail matters — and organisations should ensure their decisions align with their constitution, funding conditions and regulatory obligations.

But at a principle level, seeking surplus to strengthen purpose is not only allowed — it’s often essential.