Strategy >
Business Forms
COVERS ALL MAJOR EXAM BOARDS
Teaching Business
Not for Profit
A clear guide to not-for-profit organisations, covering mission, surplus, stakeholders, funding, accountability and suitability.
9
Created by an experienced Head of Business and examiner
_edited.png){kind=small}
AQA | Edexcel | Cambridge | Eduqas | WJEC | OCR | GCSE
KEY POINTS
A not-for-profit organisation exists to achieve a social, community or public purpose rather than distribute profit to owners.
Not-for-profit organisations can still make a surplus, but it is reinvested into the organisation’s mission.
They may receive income from donations, grants, membership fees, contracts, fundraising or trading activity.
Success is often judged by impact, service quality and stakeholder trust rather than profit alone.
The model suits mission-led activities, but funding uncertainty and accountability pressures can make management difficult.
KEY DEFINITION
Not-for-profit organisation
A not-for-profit organisation is an organisation that exists to achieve a social, community or public purpose, with any surplus reinvested rather than distributed as profit to owners.
Main Explanation
A not-for-profit organisation is set up to achieve a mission rather than to distribute profit to owners. This mission may involve helping a community, protecting the environment, supporting a cause, providing public services or improving social welfare.
Not-for-profit does not mean the organisation cannot make money. It still needs income to pay staff, rent, suppliers, technology and other costs. If income is greater than costs, the organisation makes a surplus. The key difference is that this surplus is reinvested into the mission rather than paid out as profit to owners.
Income may come from donations, grants, fundraising, membership fees, government contracts, sponsorship or trading activity. This can create financial uncertainty because donations and grants may vary from year to year.
Objectives are often different from profit-seeking businesses. A not-for-profit may focus on service quality, access, social impact, awareness, volunteer engagement, safeguarding, environmental outcomes or community benefit. However, it must still manage costs, productivity, cash flow and stakeholder relationships.
Accountability is important. Donors, beneficiaries, funders, regulators, volunteers and the wider public may all expect money to be used responsibly. Poor governance or weak impact measurement can damage trust and future funding.
Overall, not-for-profit status is suitable when the primary aim is mission delivery rather than private profit. The strongest evaluation is that good intentions are not enough: the organisation still needs effective management, reliable funding and clear measures of impact.
✎ EXAMINER TIP
Do not write that not-for-profit organisations cannot make a surplus. The key point is that surplus is reinvested into the mission rather than distributed as owner profit.
KEY FORMULAS(s)
Profit and Profitability Formulas
These key formulas help you calculate different profit measures and profitability ratios used in business.
Gross Profit
Gross profit = Revenue − Cost of sales
The profit made after deducting direct costs.
!
Remember: profit shows how much money has been made, while profitability shows how efficiently revenue is being turned into profit.
DATA TABLE
Income Statement for North Coast Coffee Ltd
This statement shows how revenue is converted into gross profit, operating profit and net profit.
Revenue
£250,000
Output
Fixed Costs
Variable Costs
Total Costs
Revenue
Profit / Loss
0 candles £1,200 £0 £1,200 £0 -£1,200
Net profit is the final profit remaining after all costs and expenses have been deducted from revenue.
Measuring Success
WORKED EXAMPLE
Worked Example: North Coast Coffee
How many coffees must be sold to break even?
Fixed Costs
£1,800
equity + long-term debt
Break-even output = Fixed costs ÷ Contribution per unit
Contribution per unit = Selling price − Variable cost
£3.50 − £1.10 = £2.40
1
Step 1: Calculate contribution
£3.50 − £1.10 = £2.40
Contribution per unit is the amount each coffee contributes towards fixed costs.
BREAK-EVEN OUTPUT:
750 coffees per month
EXAM TIP
Always explain what the number means for the business. Do not just calculate the break-even point.
Not-for-Profit Model: Mission, Funding and Accountability
This diagram shows how not-for-profit organisations turn funding and stakeholder trust into mission impact while managing financial sustainability.
APPLICATION
Oxfam
Oxfam provides a useful context for not-for-profit analysis because it is mission-led and relies on stakeholder trust, donations, shops, campaigns and programme delivery.
The organisation’s objectives are not simply profit maximisation. Success may be judged by social impact, fundraising effectiveness, campaign reach and support for communities.
However, Oxfam still needs strong financial control and operational management. It must fund staff, shops, logistics, campaigns and support programmes.
This shows that not-for-profit organisations need business skills even when their mission is social rather than profit-focused.
This independent educational case study is not affiliated with, endorsed by or sponsored by Greggs plc. Any financial figures used alongside this example should be treated as simplified or hypothetical estimates created for teaching purposes.
_edited.png)
ANALYSIS
EXAM FOCUS
Analysis questions require you to examine a business concept or issue in detail, breaking it down into its component parts. You should explain how and why something happens and consider its impact on the business.
How to Approach Analysis Questions
1
Identify the key issue or concept
2
Break it down
3
Explain how and why
4
Reach a reasoned conclusion
Read the question carefully and highlight the focus of the analysis.
Consider the different factors, causes or impacts related to the issue.
Provide clear explanations using business terms and links points to context.
Evaluate the overall implications for the business.
Example Analysis Question
North Coast Coffee is considering using break-even analysis before opening a second café.
Advantages
• Sales forecasts may be inaccurate.
• Assumes costs and revenue remain constant.
• External factors may reduce reliability.
• Ignores qualitative business factors.
Disadvantages
• Sales forecasts may be inaccurate.
• Assumes costs and revenue remain constant.
• External factors may reduce reliability.
• Ignores qualitative business factors.
Key Exam Tip
If you find it difficult to expand your answer and show the type of depth that an examiner is looking for in a top response, consider using the 'so what' approach.
Tesco carry out market research - so what? - this allows them to better understand customer needs - so what? as a result Tesco can provide goods more likely to sell - so what? - this will increase Tesco profit and ensure higher levels of customer satisfaction - so what? this means that customers are likely to become more loyal to Tesco.
Avoid These Exam Traps
Students often lose marks on calculation and analysis questions by making these mistakes. Watch out for them in your exam!
1
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
2
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
3
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Be precise. Read the question carefully. Show your working.
Small mistakes can cost big marks.
EXAM PRACTICE
Practice Question
Apply your knowledge of profit and profitability to answer this exam-style question.
1
MINI CASE STUDY
North Coast Coffee Ltd is a premium coffee business which sells freshly roasted coffee beans through its online store and a small chain of independent cafés. The business has experienced strong sales growth due to increasing demand for high-quality speciality coffee products.
The business generates annual revenue of £250,000. Its cost of sales, including coffee beans, packaging and direct production costs, totals £100,000. North Coast Coffee Ltd also faces operating expenses of £80,000, including marketing, employee wages, rent and administration costs. In addition, the business pays £20,000 in interest and taxation each year.
The owner, Mia Thompson, is reviewing the company’s profitability because rising wage costs and increased competition in the premium coffee market have started to place pressure on operating profit margins. She is considering increasing prices slightly in order to protect profitability while still maintaining customer demand.
.jpg)
2
EXAM QUESTION
Analyse the possible reasons for BrightBite’s falling profit margins and evaluate strategies it could use to improve profitability.
3
HOW TO ANSWER
P
Point
E
Explain
A
Apply
C
Consequence
H
However...
4
MODEL ANSWER
P
Point
Increasing prices could improve the profitability of North Coast Coffee Ltd because each sale would generate a larger amount of revenue and potentially increase profit margins.
5
EXAMINER TIP
For full marks, make sure you analyse causes rather than just listing them, and evaluate realistic strategies with clear judgement. THINK: Which strategy would have the biggest impact and why?
CALCULATOR
THIS TOPIC · POWERPOINT RESOURCE
Not for Profit
CHOOSE YOUR EXAM BOARD:
Product Title
Instant download — school site licence included
-
Fully editable PowerPoint lesson
-
Relevant activities and practice questions
-
School site licence — share with your department
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
£3.00
RELATED TOPICS
Continue Learning
Build your understanding by exploring other topics that connect closely with this one.
Profit and Profitability
Learn how to calculate profit and analyse profitability to measure the financial performance of a business.