• Skip to main content
  • Skip to primary sidebar

Social Velocity

Creating more strategic, financially savvy, and confident nonprofit leaders and organizations.

  • Consulting
    • Financial Model Assessment
    • Executive Coaching
    • Strategic Planning
  • Book
  • Clients
  • Speaking
  • Blog
  • About
    • Nell Edgington’s Bio
    • Media
  • Connect
  • Tools
Home » Financing » Adding Equity to the Nonprofit Balance Sheet

January 22, 2009 By Nell Edgington 6 Comments

Adding Equity to the Nonprofit Balance Sheet

FacebookTweetLinkedIn

Expanding on the argument for equity holders in the nonprofit sector, there has been a call for restructuring nonprofit accounting standards (FASB) to introduce equity capital.  The idea, proposed by Sean Stannard-Stockton, from Tactical Philanthropy, and George Overholser of the Nonprofit Finance Fund, is that we make a distinction in nonprofit accounting between revenue used to buy services (nonprofit operating revenue) and revenue used to build the nonprofit organization (philanthropic equity).  For too long nonprofits have been forced to carve out a piece of their ongoing operating revenue to build the infrastructure necessary to do their work.  That means that the infrastructure is ultimately lacking and the sector is undercapitalized.

In order for nonprofit organizations to become sustainable we must provide them the capital necessary to build their capacity and their infrastructure.  A nonprofit organization should not have to scrape together operating revenue in order to hire a Development Director, or forgo an earned income venture because they can’t find the initial investment required to make a go of the business, or not grow to scale because they don’t have the infrastructure to ensure that the program quality will survive growth.

The idea is simple, yet profound.  If we make a simple distinction on the balance sheets of our nonprofit organizations, we begin to recognize and have the ability to analyze the strength of the organization that is delivering the service.  In addition, nonprofits gain the ability to fundraise for philanthropic equity, or capacity capital (as I discussed in an earlier post), to build a stronger organization instead of apologizing for the “administrative costs” of the organization.

Once we make such a simple change we can start to understand which organizations are effective and which aren’t, which require further investment and which do not.  We start to create a structure and a system around which we move away from the increasingly dangerous position of taping together our social benefit delivery system and move to a much stronger position of well-capitalized, fully functioning, efficient organizations that are effectively delivering critical services to our society.

Related Posts

  • train in snow
    Why Nonprofits Need to Balance Truth and Hope
  • Building Better Nonprofits: A Podcast
  • Let's Stop Undervaluing Our Nonprofit Leaders
FacebookTweetLinkedIn

Filed Under: Financing, Nonprofits Tagged With: capacity capital, Nonprofit Finance Fund, philanthropic equity, Tactical Philanthropy

Reader Interactions

Comments

  1. Jim Verzino says

    March 2, 2010 at 9:33 pm

    How often do the decision makers that decide on accounting standards for non-profits (is that the FASB) meet? I think the GAAP standards are only changed once every 10 or 20 years or something.

    Do you know how often this group makes decisions?

    Reply
  2. Nell Edgington says

    March 3, 2010 at 12:40 pm

    I don’t know, but that’s a great question. I think much needs to change in the accounting standards for nonprofits in order to address the changing reality for those organizations.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

Free Training

Consulting Services

If you want your nonprofit or foundation to do and be more, Nell can help you get there

Ready to Learn More About Working with Nell?

Book a Discovery Call
Reinventing Social Change Book

FREE GUIDE: Find Your Social Change Joy

  • Figure out what you LOVE to do
  • Make time for it
  • Find your way back to Joy

Featured Blog Post Topics

  • Social Changemaker Interviews

  • Smart Strategic Planning

  • Effective Philanthropy

  • Networks for Social Change

  • The New Nonprofit Leader

  • A Groundbreaking Board

  • Reinventing the Nonprofit Sector

  • From Fundraising to Financing

Recent Posts

Woman with magnifying glass

You Can Turn Any Challenge into Opportunity

Marching soldiers

A Social Change Army is Amassing

It’s Not All Up to You

To Save the World, Save Yourself

Imagine the World You Want to See

Categories

  • Abundance
  • Advocacy
  • Board of Directors
  • Capacity Building
  • Capacity Capital
  • Financing
  • Fundraising
  • Individual Donors
  • Leadership
  • Marketing
  • Networks
  • Nonprofits
  • Philanthropy
  • Roadblocks
  • Social Change
  • Social Movements
  • Strategy
  • Consulting
  • Book
  • Clients
  • Speaking
  • Blog
  • About
  • Connect
  • Tools

© 2022 Social Velocity | Privacy Policy | [email protected] | Tel: 512-694-7235