What are the For-profit motives vs Nonprofit?
We began our discussion around the advantages a nonprofit may or may not have over a for-profit Continuing Care Retirement Community (CCRC). We promised to look into this subject in more detail and to keep an open mind for others opinions and comments (include your comments in the comment section below). Here are links to our original For-Profit vs Nonprofit Introduction and Parts One and Two.
Today we continue the conversation with Part Three:
The iceberg below the nonprofit surface includes lots of for-profit motives
Does it matter to CCRC residents if their CCRC is for-profit or nonprofit?
In Parts 1 and 2 of our series on this question there is no clear advantage for either nonprofits or for-profit CCRCs. Both have the financial objective to be cash flow positive (income > expenses). If anything, nonprofits have more timing risk in debt payments necessary to build a CCRC.
In Part 3, we explore the issue that a nonprofit CCRC community typically has complex relationships with profit seeking entities. For-profit motives are there, just hidden below the surface. The label, “nonprofit” simply doesn’t tell the whole story.
We’re reluctant to buy into any great advantage for nonprofit CCRCs because while many communities are nonprofit, there is typically a complex web of management agreements and developer contracts with for-profit entities. These contracts show up as expenses on the nonprofit CCRC’s statement of financial activities (equivalent to a for-profit’s income statement) and statement of financial position (equivalent of a for-profit’s balance statement). So the label “nonprofit” can also be misleading if you think that no one is making a profit off of a nonprofit. The devil truly is in the details. Both for-profits and nonprofits have to pay the going rate for talent. Complex organizations, whether nonprofit or for-profit, tend to have well compensated executives, professionals and sales staff. Off-balance sheet deals with for-profit entities obscure the details of who’s benefiting. For-profit shareholder dividends are not the only form in which to extract cash from a CCRC to the detriment of residents. Do not blindly accept that nonprofit community is the same as no conflicting motives or conflicts of interests.
Because of the complex web of contracts around nonprofits, we’re not convinced that nonprofit means more resources go to the direct benefit of residents.
In Part 4 we explore the potential nonprofit benefit of not having to pay corporate income taxes.