The Herald Bulletin

Morning Update

Local Business

April 15, 2013

Emmett Dulaney: Business terms can be confusing

ANDERSON, Ind. — There are a number of business-related terms that I struggle with. Every discipline has its own quirks, and business is no exception, but the following three are particularly troublesome:

I have never understood the term “not for profit.” If you’re not for profit, what are you for? No one seems to ever come right out and say they are “for losses,” yet that is what the wording would seem to imply. My first job out of college was for an organization that was legally identified as a not for profit, but if we had run losses we would have had to shut down. The same is true for every organization, and we — like they — held fundraisers, sought grants, and did everything we could think of to be able to meet expenses and keep the doors open. We charged more for the services than they actually cost to deliver because we needed the excess for more mailing campaigns. Everything that came in above the break-even amount went into the bank account to help future years. At no point in time would we have ever told a potential donor that we now have all we need for the year and they need to keep their money rather than give it to us because we can’t spend anymore and we certainly don’t want to make a profit. While there are some restrictions on how the excess (what would agree can be defined as a profit) can be used — it can’t be given out as dividends, for example — in reality, “not for profit” could pretty easily be changed to “able to accept donations and have you declare them on your tax return” and be a far more accurate description in most cases.  

This brings up the second term I struggle with, and it is one closely related to the first: “tax exempt.” My confusion is not only about what tax they are exempt from (quite often it is from paying sales and/or property tax), but also why. This status is often bestowed upon not for profits, and if we really don’t want them making a profit, one way to help assure that is to have them pay the tax everyone else has to. Organizations with this status are supposed to file a Form 990 with the IRS and that department’s website currently lists 162 such entities within Anderson, or one for every 345 residents.

Lastly, the words “pro forma” are Latin meaning “for form,” but no one is ever “contra forma.” Usually, the phrase is used with financial statements accompanying business plans or models of projected results. It can also be used in other situations as well, but I am willing to bet that most people who ask to see pro forma statements don’t really know that they are just asking to see them in standard form — this is particularly true when they next want to know if this or that can’t be moved around to make the data easier to read. I guess pro forma should really mean “more of a guideline than anything.”

There are many more terms that are confusing as well (just add “integration” to anything), but these three tend to be more troublesome than others.

Emmett Dulaney is the author of several books on technology and an Anderson resident. His column appears Tuesday.

 

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