Episode #118: “Non-Profit Explained: What It Means and How It Really Works’

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Transcript

Welcome And Episode Setup

SPEAKER_00 0:01

Welcome to the Physical Physical Podcast. Join us today week is we sit down with the founder of Alchemy Wealth Management and author of your physical physical, Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

Defining Nonprofits Versus For‑Profits

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. My name is Aaron Hoisington here with Ryan Nelson, founder of Alchemy Wealth Management, published author. Find his book on Amazon, Your Fiscal Physical, Seven Keys to Becoming Financially Fit. Great read. Really recommend it there. And if you guys are interested in this podcast, hopefully you're listening, subscribed, all the different platforms, Spotify, Apple Podcasts, wherever you get your podcasts. Every Tuesday morning we drop these and uh we're excited to have you along today. Uh Ryan, uh, what's what's going on with you, man? How are you? I'm doing well. How are you doing? I'm doing solid, doing solid. Another day, get to learn, expand my knowledge banks and bank regarding uh financial topics. So I'm excited to learn today. You uh you ready to jump into it? Let's do it. Awesome. So today's topic, we're gonna talk about uh nonprofits. What are nonprofits, how to explain them, what it means, what it really uh how it really kind of all works. Um I think this is one of those topics that I hear the word like non-profit, and I'm like, oh perfect. Like it's uh you know something that maybe doesn't make any money. Right. Or like there's there's no profit, none, none whatsoever. People work there, they're all volunteers, or um I and I I over the years I've I've uh learned that it's probably pretty misleading as far as that goes. So um I'm excited for you, you know, I'd take a moment for the listeners, kind of think about what you think a nonprofit is, what it goes into it, what it entails, and uh uh I'm hoping uh Ryan can uh break down some you know common misconceptions and what it actually is regarding uh how a nonprofit is explained. So I think that's possible, Ryan.

Profits, Dividends, And Shareholders

Salaries, Expenses, And Efficiency

Ryan Nelson 2:09

Well, yeah, absolutely. Let's give it a try. So yeah, I think like one of the most common misconceptions around nonprofits is exactly that that they don't make money, um, and that it's just like a volunteer organization um volunteering for a cause. Uh, but that is definitely not true. So non-for-profit does not mean that there is no profit. It me what it does mean is that the organization is not owned by shareholders. Oh, okay. Um so any extra money stays inside the organization. Um so nonprofits do make money, they can charge fees, sell services, generate revenue, they can do all the sort of normal things that a business does. But the key difference is what they can then do with that profit that they've generated from those services or those fees, right? And so in an in a for-profit business, so a kind of a normal run-of-the-mill business, a for-profit business, the profit would go to the owners or the investors. So the way I always think about this is you know, with with clients, or you, you know, when I'm talking with clients, when we think about like, let's say Apple computers, right? If Apple computers has a bunch of excess revenue at the end of the year, that would be profit. Now they get to choose what do they do with this profit. They may reinvest it back into themselves to create the next iPhone or the next virtual VR headset or who knows what they're doing, right? They probably got some cool projects down the road that we don't even know about. Um so you could take some of that profit, reinvest in themselves, or they could take some of that profit and share it with us, the shareholders, and that would be what we'd call a dividend, right? So that'd be a publicly traded for-profit company sharing with us the shareholders through a dividend, or they could share their money with the shareholders or the owners for a non-public company as well. But so for a nonprofit company, they wouldn't have that option. There are no shareholders, so they wouldn't have that prof that option to share that profit with the owners. So all the revenue it creates stays inside the organization. That's really the main difference between a nonprofit and a for-profit organization. So really just no dividends, no owners like cashing out. Um, but that being said, so employees of nonprofits, they can still get paid. Um, they're they're normal employees of this organization. So from as an employee standpoint, you're just collecting a uh check just like uh an employee from a for-profit organization, right? Okay. Um executives of nonprofits can still make a lot of money. Um, so these there's some really big nonprofits out there, and the the key leaders of these really big organizations, whether they're for-profit or not for profit, or are making a lot of money. So these key leaders and executives of of non of nonprofit organizations are still making typically really high salaries. Um and so it's important to realize that that payroll, so what you're paying the employees, that's an expense. It's not a profit. So it's okay for these organizations, these nonprofit organizations, to have payroll. They have expenses, they're all gonna have expenses. Payroll is an expense, so they can pay their people. So the people working for nonprofits are making money. Um it's not, you know, nonprofits aren't necessarily automatically like ethical or efficient. Um are ran very well, some are not probably ran that well, right? Um and so it, you know, it's it's I wouldn't use you shouldn't hear the word nonprofit and then immediately assume that that organization is like super ethical or anything like that. Hopefully they are. Hopefully all businesses are running ethically, hopefully all for profit, right? Um, but that in itself, just the fact that they're a nonprofit, is not some sort of like um sign-off that hey, this is a good organization doing good things. Okay. Um another thing, so as you donate to nonprofits, so so I used to um be heavily involved in a couple of um local nonprofits. And so one of the things that you pay close attention to is how much of every dollar like donated sort of goes to the cause. Okay, right. So, like we said, there's certain expenses that all these organizations have. And so if you give a dollar with one organization, maybe 25 cents goes to the cause, another organization 50 cents goes to a cause, and another organization 75 cents goes to the cause. Clearly, if you're giving the dollar to that organization, you're probably hoping it's going to a cause. Right. It'd be better to give it maybe better to give it to an organization that's a little more efficient and can put more of that dollar to the cause you're hoping or or intending it to go to, right? Um and so sometimes, you know, maybe some of these organizations they're paying their employees a lot, a lot, a lot of money, and you know, mm maybe 75% of the money that that nonprofit's or is is generating is going to the employees' salaries and only 25% going to the the actual cause, yeah. That may not be the nonprofit you want to donate to, and there may be another one that has 70, 80, 90% of the money donated going to the cause and only 10% represented by salaries.

Aaron Hoisington 6:58

With the with just out of curiosity, with the with the nonprofit itself, do they have to disclose that? Is that like a piece of like I I'd be curious to see. Obviously, you could probably do some research on it in such terms.

Donor Dollars And Impact Ratios

Ryan Nelson 7:08

Yeah, that's a good question. There's lots of organization. I I the short answer is I don't know exactly how that gets disclosed or what is necessarily disclosed. I do remember like when I was more involved with nonprofits, we you know, when we would submit for grants, um, we would be disclosing that information for the grant. So you think, you know, this grant, they may be giving you$200,000, a million dollars,$500,000, right? So similarly, it's like this just a big donation almost. They want to know, hey, if we're giving you$500,000, is this five, how much of this$500,000 is going to go to the community versus salaries, right? So I do know like at certain times when we I was with these organizations that would get disclosed. I don't know if it's a requirement like on tax documents that it gets disclosed. So I I just don't know exactly. No, that makes sense.

Aaron Hoisington 7:54

Yeah, I was just curious if there was, you know, because I think you hit right on the point of like you hear the word, oh, like we're a nonprofit, and you're like, oh, cool, they're probably absolutely ethical. Everything goes right back into the cause and such, too. But I think you made a good point of like, yeah, not maybe not always the case. And it's kind of like that uh the um the old proverb, trust but verify kind of piece of it.

Transparency, Grants, And Disclosures

Ryan Nelson 8:15

Yeah, yeah. So yeah, exactly. So being a nonprofit, right, it it's a legal and tax classification. It would so that's what it is, legal and tax classification. It is not a promise of like honesty or effectiveness. Sure, right? So two different things, don't want to get them confused. Um but but the the reality is like you know, what in what you were asking, like, does that have to be disclosed? Like a lot of good nonprofits do disclose that information because they know donors care about it. And they in most nonprofits out there, it's just like most for-profits, most for-profits are running really ethical businesses trying to do good work. Most nonprofits are running really ethical businesses trying to do good work, right? Like it, like 99.9% of businesses out there, right, are probably just good people trying to do good things. And so the reality is like most nonprofits are happy to disclose that information, whether or not they're required to, they're happy to disclose that type of information, and they are working to get that number higher, right? So, like, you know, even my involvement with our nonprofits, like we would be trying to figure out how do we get more money going to um you know, basically benefit the community or the cause. And are there any things we can do to be more efficient? And like every single nonprofit is trying to get more efficient themselves. Um but they but they also are struggling themselves. Like, hey, you know, it's kind of funny, like oftentimes for them to get more efficient, they need to get bigger, so they need more funding. So it's like you can get in this little trap where it's like, yeah, of course we're not as efficient as a big company, as this big nonprofit, we're much smaller. We need money to get to the efficiency level so we can be like that organization, right? So yeah, there's kind of a uh interesting cycle that you exactly kind of go through with that for sure.

Aaron Hoisington 9:46

But yeah, um awesome, man. Well, I I think I learned something here. Anything else you want to want to talk on this topic here, Ryan, or give any you know, last minute things.

Ryan Nelson 9:54

Yeah, I think that's not non-profit in a nutshell for sure.

Aaron Hoisington 9:56

Um awesome. Because I think there, and maybe we'll do a future episode as well, too. I think there's like um like there's the difference between like non-profit and not for profit. I think there's like differences. I can't remember like it could be. I just I maybe I th should have writ written that one down for talking, start teasing an episode like that. But uh we'll circle back on that maybe in the future. But uh um hopefully you guys got something out of this and uh everybody uh hang tight. We'll be uh right back on the other side of this.

SPEAKER_00 10:24

And now to put the personal in personal finance.

Aaron Hoisington 10:30

All right, Ryan. I am back here with uh with you, and we're on the side of the physical physical podcast. Uh just you guys hopefully learn some stuff about nonprofits there. And uh uh Ryan, I I would consider you a big efficiency guy. Would that be a uh a fair, fair uh I guess quality to call about sure? You like efficiency? Yeah, I like efficiency. Yeah. So this question kind of goes into that uh overall. Um if you could eliminate one daily, necessary or not, annoyance, what would it be for you? And and I'm curious to get your thoughts on this because like I said, generally I feel like you do a pretty good job of like, ah, if I can you know automate something, I'm probably gonna do it. If I can make people's lives easier or my life easier, probably gonna do it. So I'm curious what you would uh what's one daily thing that you do that you'd you'd like to eliminate?

Scale, Efficiency Traps, And Tradeoffs

Ryan Nelson 11:18

Yeah, I see. Yeah, I I I think I kind of went in a different direction, maybe, but like I I don't know if annoying I don't know if this even qualifies because I don't know that it's a huge annoyance, but uh like if you could just get rid of sleep, like that's eight hours a day, right? Oh yeah. So I mean I think that's a low-hanging fruit. Like there's nothing else we do more in our life than sleep. I I don't find sleep particularly annoying, but if you think about like a 24-hour day, 33% of your life or whatever, spent sleeping, like, yeah, you'd have a lot more life to live, so to speak. Um so I suppose it would be that. Um you know, if you yeah, I that that yeah, what about you?

Segment Break And Tease

Personal Efficiency: Ditching Sleep

Aaron Hoisington 11:55

Yeah, no, that's a that's it's a funny you mentioned that. There's a movie, it's called The Martian, I think is what it is. It's an old movie with like uh the guy from Back to the Future, I can't remember his name, the old guy Doc, but he's in it, he's like a he's like an alien who comes to like Earth. Yeah, yeah, yeah. And there he's like uh he's talking to like his human handler or whatever, and there he's like, human guy's like, hey, do you do you guys sleep on your planet? He's like, Oh, absolutely. That's one thing we definitely agree on. We are on the same page, we're gonna get some sleep. And the guy's like, Great, because they're really tired. So he turns off the lights and like 30 seconds goes by, and the the the alien guy wakes up, he's like, Wake up, it's it's it's morning time, and he's like, What do you mean? He's like, he's like, You've been asleep for 30 seconds, like 30 seconds? I really was tired then. And like just how they had like wired their bodies, like and the moral of it was like, Oh, why would you sleep for eight hours when you could just like get it done with 30 seconds or whatever? And so um, I think that's a that's a huge one that I think that because you mentioned you know, if you live to be you know 80 years old or something like that, you're probably beneficially. Which is a wild thing to think about what you could be doing at that point. So um, no, I think sleep's a sleep's a great one. Um, I think for myself, like I mean, it's it's it's and I I work from home, so put it like that. I think if you could eliminate commuting places, like I I even if I have to go to the grocery store, I have to go to the bank, or I do these different things, I hate commuting places. Like uh and even like you know, like coming here, we're doing this in a recording place and it's outside of my house. I'm like, okay, like I got a plan for 25 minutes in the car, whatever. You know, never know what the traffic's gonna be like these are areas. So I think if I could, you know, maybe that's teleportation or whatever, but like if you could eliminate commuting, oh boy, I think that'd be a that'd be a good one just as far as like you know, safety-wise and such too. But um as you as you're as you're you mentioned the sleep one, I'm like, yeah, I can I could do a lot of stuff without having to like sleep.

Ryan Nelson 13:50

Yeah, that that that would be a good one too. Even as I'm just kind of thinking, even something like almost like showering, like sure. Um yeah, it would be uh efficient if you I suppose you didn't need to do it. Um I I and one other thing I think AI is kind of maybe going to solve this eventually, but like I feel like all the time I'll be like in the car or something and I'll say, Oh, I need to do XYZ, or like like or like I need to send this email, or like like it's almost like if if like Siri or whatever actually did what like you wanted it to do, like if it was so good that I could say, uh you know, you just remember you're driving in the car, like you're walking the dog or whatever, and you could just say, like, hey, oh Siri, um, send Aaron an email um about this. I need to remember to do this, and tell him I've like did this or whatever. Yeah, like like it just it seems like AI might be able to s solve that eventually, um, but it's still super far away, like as far as I can tell. Um, like I don't know that it would know who Aaron is, or like, right? There's just so much, so many variables there. Um, but yeah, there's oftentimes just like those those things like lingering in the back of your mind that you're like, I need to get this done, I need to get this done, I need to get this done. And there's a point in the day where you've thought about it, and if you could just get it done in that moment, it'd be beautiful. But right now I don't think the technology exists to get it done.

Commuting, Showers, And AI Helpers

Aaron Hoisington 15:08

It is funny you mentioned that too, because I I I go through those same things. I'll be like laying in bed and I'm like, oh, that's a great idea. I'll remember that in the morning.

Ryan Nelson 15:14

Yeah.

Aaron Hoisington 15:15

No.

Ryan Nelson 15:15

But you remember needing to remember something.

Aaron Hoisington 15:17

I remember I was like, oh, I gotta rem I I knew there was something to remember, or like I'll like uh I'll like make a reminder on my phone or do these certain things. But sometimes the time that it takes me to like, you know, put on my glasses to like find my phone, to open it up, to go to my reminders app or whatever, I'm like, I probably just could have done the topic like that I'm talking there too. So and I don't know what capacity I am in. I I'm I'm famous for like I'll just send like my wife like voice messages. I'll be like, hey, I want to talk about this when I get home. And like 50% of the time we actually remember to talk about it, but I'm like, I'd love to like increase that. You could be able to do that. But um awesome. Well, I appreciate the appreciate you sharing there, Ryan. And uh turn over the listeners. What would you guys like to eliminate uh out of your daily um lives that might be an annoyance or just something you don't enjoy doing, or you think could really uh increase the quality of life? Let us let us know. And uh also let us know if you guys have any podcast topics. We'd love to love to hear those. Uh email us, podcast at alchemywealth.com. And uh with that subtle plug there, Ryan, I'll uh leave it over to you, man. As always, stay the course.

Memory Hacks And Listener Prompt

SPEAKER_00 16:25

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find the channel. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your physical physical the book on Amazon. We'd be remiss if we didn't mention the personal finances just then. First of all, please don't take anything we say as advised. The pre-setting content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.