Money, money, money. We all need it, right?
Like most nonprofit organizations, United Way of Southwest Colorado generates revenue each year through a variety of sources. In the last month alone, we received funds for corporate sponsorships (Thank you, Chevron for the San Juan Brewfest.); grants (Thank you, Ballantine Family Fund, for your contribution to our collaborative work.); and auctions (Thank you, Four Corners Broadcasting, for a record-breaking Radiothon.). The goal for a nonprofit is to bring in enough money to support its mission for the community – payback is typically in the form of non-monetary things such as educational attainment, improved health or greater financial stability for people in the community.
Lately, our volunteer reviewers have been going through the financial statements of nonprofits that have applied for grants. Sometimes, we see that an organization spent more than it generated during a year. Other times, we see that an organization may have earned more than it spent – does that disqualify it from being a nonprofit? No. The excess funds will either be put back into the organization for future work, or might even be saved or invested for those leaner years where revenue may be short of expenses. It is different from a for-profit business in that there are neither owners nor shareholders who will receive those excess funds.
You may think that nonprofits should be operating on a shoestring – excess funds show that the organization does not need contributions, right? No, I would say that people should give to those organizations that serve a community need effectively. If an organization has been successful at raising money and managing expenses such that they have built a nice reserve, then that is a good place to invest your donations. Remember, the payback is in community outcomes. A financially solid organization with great community outcomes is the best of both worlds and something all nonprofits should strive to be.
Should we avoid those organizations with losses on their books? Not necessarily. We all have rough years from time to time. A major donor leaves, a grant closes, a fundraiser gets rained out ... any number of things can happen to significantly affect revenue. Other times, an organization must increase investment in equipment, software, training, staff, etc., to successfully carry out its mission. This may be reflected on financial statements as a loss for the year. Consider that a loss is manageable if an organization has built savings. Also, timely investment in the right areas helps a nonprofit to succeed – reasonable spending on overhead costs should not be viewed negatively. Finally, remember that community outcome (not cash) is the intended payback for all of that work and expense.
Our local nonprofits do wonderful things while managing some complicated business models. You may look at any number of things to decide if you want to contribute to a cause. The financials are certainly one important piece of the puzzle, but remember to balance that with the payback to the community in terms of outcomes.
At United Way of Southwest Colorado, we do this work for you to help maximize those returns for the community. Thank you for Living United.
Lynn Urban is president and CEO of United Way of Southwest Colorado.