A profit objective aims to earn more than the business spends, for the owners. A non-profit objective aims to serve a cause, and any surplus goes back into that cause.
This lesson is part of SPM Business purpose and ownership. The next step is comparing ownership forms by features.
What are the three questions?
- Why does it exist? To earn for owners, or to serve a cause?
- Where does income come from? Sales, or donations and grants as well?
- Where does any surplus go? To owners, or back into the work?
Use them on every organisation in a case.
How does it work with two organisations?
Kedai Runcit Mesra is a grocery shop owned by Encik Rahim. Income comes from sales, and what remains after costs is his to keep. The objective is profit.
Persatuan Makanan Komuniti collects donated food and gives it to families in need. It earns a small amount selling baked goods at a fair, and uses all of it to buy more food. The objective is non-profit, because the surplus serves the cause.
Suppose Mesra earns RM12 000 in sales and spends RM10 500. Its surplus is RM12 000 − RM10 500 = RM1 500, which Rahim keeps. If the association’s fair raised RM1 500, all of it would buy food.
What does an applied answer sound like?
A definition says, “Non-profit organisations do not aim for profit.” An applied answer says, “Persatuan Makanan Komuniti has a non-profit objective, because it exists to feed families and spends its fair income on food instead of paying owners.”
The second answer says why it exists and where the surplus goes.
Which mistakes cost marks?
- Writing that a non-profit earns nothing. It may earn, but the surplus is not shared with owners.
- Calling every social action a non-profit objective. A shop that gives a small discount to students still aims for profit.
- Forgetting other commercial objectives, such as growth or survival.
Check yourself
A fictional cooperative sells school uniforms to members at cost and uses its small surplus to give members book vouchers. A fictional tailor sells the same uniforms and keeps the surplus. Classify both.
Answer
The cooperative has a mainly service-to-members objective, and its surplus returns to members, so it fits a non-profit or social aim. The tailor has a profit objective, because the surplus goes to the owner. The test is where the surplus goes.
What to study next
Go on to comparing ownership forms by features, then test yourself with the practice set.
If you want a teacher to give you fresh organisations to classify, see online one-to-one Business tuition.