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For-profit vs. Non-profit Music Schools

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The official blog of the British Columbia Association of Community Music Schools

Friday, August 6, 2010

For-profit vs. Non-profit Music Schools

An interesting discussion surfaced at our AGM discussions this year about Non-profit vs. For-profit music schools. So what is a non-profit school? What is the difference between a for-profit and a non-profit school? Who benefits by supporting a non-profit school as opposed to supporting a for-profit school?

Perhaps the main difference between the “for-profit” vs “non-profit” or perhaps a better term would be “social profit” enterprises, would be the purpose behind the reason for forming the school, and the beneficiaries for its existence. By definition the fundamental purpose of a for-profit enterprise is to do just that; make a profit. The beneficiary of that profit is usually those that invested in the business, or its stakeholders. Those stakeholders are those who work for the organization or those who have invested in the organization in some way. Starting a for-profit enterprise usually involves some sort of investment of time, labour and capital resources. For a music school this could mean instruments, other equipment, space (physical location) and the materials required for sustaining the business. The primary goal of any for-profit enterprise would be for the stakeholders to recoup their investment and to make further profits. Otherwise why would potential stakeholders invest in a for-profit business? The purpose then is for someone’s personal gain.


A Non-profit school is set up with a different purpose. The purpose of the non-profit society is not to earn income for shareholders. The stakeholders in this case are the constituents of the community itself. Any financial "Profits" incurred are reinvested in the organization to provide for continued community good. Non-profit schools are run by their stakeholders in the form of boards of directors that are unpaid, and these people volunteer for the enterprise out of good will to their constituents and for the community in which they live. The benefits these schools provide are the “social” benefits to the community. Indeed many of our schools provide a variety of services to the communities they sever other than just providing private music lessons. The social profit benefits of these organizations include things like recitals and performances that are initiated by the school, Also school staff and board members are usually volunteering to be involved with or sit on other local boards and committees, As well staff and faculty in some schools have opportunities for professional development. The non-profit schools have similar mandates to provide artistic opportunities and education to their constituents. These non-profit schools are not “competing” in the same way for students so these schools tend to network and share resources. Also a very important point is that our non-profits schools, because of their community nature, are in for the “long haul”. Because of their community ties they tend to continue operating long after the for-profit person sells or closes their business and moves on to a more profitable neighborhood. As well most of our nonprofit schools have other “social profit” benefits including bursaries and scholarships for students (some even assisting their students even after they leave for university), offer community groups and ensembles, rent their facilities at non-profit rates to benefit other members of the community, partner with other local community groups, collaborate on concerts and programs, provide workshops and masterclasses that are open to students regardless of where they study, and so on.

So who wins in this scenario? Well, there are advantages and disadvantages to both systems. The advantage for the for-profit school is that is usually owner-operated without a board of directors. Autonomy within an organization is easier to achieve. Because of this, they can make business decisions about various matters on the fly with little or no consultation with staff or clients. Non-profits on the other hand, are run by Boards which of course are less flexible than owner-operators as they have to have quorums, and reach consensus among themselves and among the members of the societies that elect them. Significant changes to programs and policy cannot happen overnight, so in many ways change is slower in the non-profit management world.

While that board of directors maybe somewhat slower in making decisions, hopefully those decisions are being made with their community mission and vision statements in mind. As mentioned earlier these people are volunteers, not on the payroll, and are not receiving financial gain or benefit for their actions. Another important difference between the two types of schools is faculty. In most cases for-profit schools pay their faculty less than non-profit schools. Why? The answer is usually not in being that non-profits have less expenses, they generally don’t. Because of their community mandate, non profits tend to do more fundraising in both the public and private sectors. Many are registered charities and once again are community based. Their communities at large support them because of the good deeds they undertake for the benefit of their constituents, the community in which they live. They tend to attract better quality and more experienced faculty. If you are studying at a for-profit school, then you usually wind up paying more for the same service, or pay the same for a lot less experienced teacher with less training or experience. The for-profit schools tend to have a much higher rate of turnover of teaching Faculty. Have you ever noticed how for-profit schools almost never advertise in their print or web media who their faculty is?

So if non-profit schools can serve the community better, why then are there for-profit schools in existence?

  1.  location - perhaps the non-profit school is in a fixed location in a downtown location that was established many years ago, while population growth has since moved to the suburbs or to the other side of the freeway. The new for-profit school sets up shop in the new subdivision because of:
  2.  Convenience - parents want the kids to find their own way to the lessons without the parents having to drive, or they are only willing to undertake a very short commute; maybe the commute is less than 10min where as the non-profit school takes 30min to travel there. One cannot over emphasis this point, especially when the kids are just starting.
  3.  Investment - Perhaps the owner has invested their life savings in starting a school and feels that there is now way they can be "non-profit" as that would require losing their investment. Back in the day they started maybe the community they are in was not forward thinking enough to invest in a school, or they want to sell the studio and use it for their own retirement plan.
So which is better? Well, like most questions in life this depends on who and where you are. If you are the owner /operator, well then probably the for-profit model where the owner has equity at the end of the day as a reward for taking the risk of setting up a new venture will be seen as the best option.

If you are a student or teacher then usually it is the non-profit school that seems to be the best deal. Non-profit schools tend to have highly educated university trained faculty. This seems to be less prevalent in the for-profit schools, but this is a difficult statement to prove as mentioned earlier most for-profits do not publish information about their faculty. Also being a provider of private music lessons is usually only a starting point; the non-profit schools tend to do much more for the communities they reside in, hence their social value to the community. Their mandate is to serve the community and its needs, rather than offer only programs that are guaranteed to make money.

It is always best to check out what is available in your community, and most importantly the education and experience of the teacher that you are seeking. Teachers are not “one size fits all”, and it is important for parents to get to know their community and what it has to offer.

Remember that non-profit schools are community based. Their founders had a vision of creating a better community and creating better citizens for that community. Having a local music school is just but one piece of that puzzle.

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2 Comments:

Anonymous Anonymous said...

As an owner of a for-profit performing arts education facility and former president of the board for a non-profit, I'd offer a slightly different perspective.

First, your premise that for profit organizations are motivated solely by profit and non-profits only by altruism is an oversimplification in my view. “Profit” is a motive in both cases. In either case, the people who are paid to manage and deliver services all have, unless they are independently wealthy, a personal ‘profit’ motive. To think otherwise is naïve. Also, just because one owns a for-profit venture, does not mean that there isn’t an additional overarching altruistic motive. In our case, we are “Arts” people first and small business owners second. We wouldn’t be doing what we are doing if we didn’t want to elevate the bar in art’s education in our area and positively impact our students.

Second, your assumption that non-profit ventures pay their staff better is a generalization that also doesn’t hold water. We pay our staff better than any of the non-profits around. We do that because we want the best instructors we can find, and we want them to be happy so they can provide our students with the best possible education. Sometimes we do that at the expense of not cutting our own payroll checks and believe me, that’s not an easy pill to swallow. Paying people poorly is an attribute of a bad business model. For- or Non-profit... It doesn’t matter.

Finally, for-profit organizations, if and/or when they make a profit, pay taxes. Taxes that find their way into the grants that fund non-profits which, in some instances are competing directly against the for-profit organization. When non-profits compete in the for-profit space, their non-profit status can be rightfully challenged. It’s not that they shouldn’t be allowed to compete; it’s that they shouldn’t be able to compete unfairly.
Small business owners invest (read spend) personal dollars to build a business in the hope of being able to work at something they love, and perhaps, make at least as much as they would if they had invested those dollars in a decent retirement fund. The former is a guarantee… the latter, an uncommon occurrence.

We do it for the kids.

August 24, 2010 at 8:11 AM

 
Anonymous non profit organization bylaws said...

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August 29, 2012 at 1:16 AM

 

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