Mostly pertaining to public charities and private foundations, a 501(c)3 company is defined by (and named for) its tax status: the organization does not have to pay corporate income tax on its revenue.
We frequently call these “nonprofits.” But it’s important to keep in mind that “nonprofit” is a tax status, not a business plan, and that making a profit is fundamental to the health of art organizations.
Museums should, as a best practice, have 90 days of liquidity at any given time.
Fixed land holdings can contribute to impressive bottom lines, especially in major metropolitan areas.
It’s not a recommended practice, but it does happen.) American museums are unlike, say, the Louvre.
Arguably the most famous museum in the world, the Louvre is miraculously funded by the French state and supplemented by other revenue streams from donations to licensing (the newly opened Louvre Abu Dhabi is a notable example). Staying profitable is the only way for a museum to keep its mission alive, given high operating costs and limited liquidity.
What governs the profit of a nonprofit, so to speak, is what they do with it; not that they don’t make it.
In the nonprofit world of museums, there are three main categories of revenue: Museums, among other nonprofits, employ a wide spread of tactics to bring in income.
Restricted gifts, when donations or grant funds are earmarked as project-based (temporary restrictions) or endowment (permanently restricted) can represent a large portion of a museum’s holdings; but they can’t be liquified.
(It is, however, a not-so-secret secret that institutions can borrow funds from their temporary restricted accounts to pay operating expenses.