Operating Outside of Supply and Demand
When we think about business, we are often hung up on the traditional method of supply and demand to which we’ve become accustomed--big box stores that make purchasing and staffing decisions based on what heads out the door. In the nonprofit world, things aren’t so simple. They’re filling a need that defies (and often supplements) models build on supply and demand, typically at no cost to the clients they serve.
Profit, in the nonprofit world, is actually kind of complicated.
Your two jobs
Nonprofit organizations are actually two businesses. First, there’s the work of your organization--what your mission tells the community you’re committed to. This is the work that is most obvious to people, and what you’re passionate about doing. Your second job is money...more specifically, raising it.
Your mission and your money, help determine your staffing, your future programs, and all growth, so it is essential that you’ve got a few dollars banked away.
Showing a profit
When a nonprofit organization shows a profit in their books, it can send the wrong message. Board members and others may question the commitment to the mission when there’s money leftover, or the overall allocation of resources. Of course, profit in nonprofits is never that. Instead, it is used to cover emergency expenses, donor droughts, and larger projects.
For nonprofits, “profits”, if ever they arise, are often meager and always useful for the greater work of the organization. Explaining this in your financial reports and board meetings easily alleviates concerns.
Setting minds at ease
The easiest way to make people feel comfortable about something is by remaining totally transparent. If you make your financial health a priority and work to keep accurate, easily accessible records, your employees, board, and community will support you. By working with a nonprofit accountant, you can establish a financial plan that helps you achieve your goals and operate outside the rules of supply and demand.
Building toward profit
Under the guidance of a professional, your organization should be able to build a “profit”--extra money for bigger projects, unexpected staffing needs, or emergency situations. One way to do this is by performing and revisiting financial forecasts to see how and where money is spent and whether or not it adheres to your plans and expectations. Don’t forget about extra costs like building maintenance, equipment expenses, etc. when you’re planning--these costs sneak up because we often don’t figure them in. Make sure you’re keeping these separate from growth expenses, which occupy a different category.
By doing this, you’ll be able to see where you have room for improvement, which your accountant can help with. Over time, you’ll establish a plan that is transparent, effective, and sustainable.