Streetsmart Financial Basics for Nonprofit Managers

Chapter 12Capital: Not a Four-Letter Word

For a major wellspring of financial health—or lack of it—look no further than a nonprofit's capital structure. Its degree of liquidity will determine how fast it can move. Its profitability will determine its ability to sustain itself. But as a barometer of financial vitality, and sometimes as an indication of financial sophistication, the decisions a nonprofit makes about how it acquires and deploys its capital are unsurpassed.

The capital structure of a nonprofit is so important that it will help determine how well the organization carries out its day-to-day business. One reason why this happens is that capital buffers an organization from external ups and downs. For instance, owning a capital asset is usually less expensive in the long term than leasing it. More subtly, the greater control that comes with ownership can prevent such institutionally draining crises as having to move every few years because the landlord raises the rent. These are just two ways that a good capital structure insulates an organization from threats to its stability.

There is a popular cynical observation that money talks, roughly translated as greed rules. But what that phrase can also mean is that we talk with money. Every purchase or investment decision is a way of expressing ourselves and our choices. This is why, as noted in Chapter 2, the real bottom line is not revenues minus expenses but rather the ability of the nonprofit to continue to attract money ...