A lot of people working in Non-Profit, or Not-For-Profit, organizations are uncomfortable with basic business ideas. They don’t like to think that they’re “in business”, rather as the Victorian aristocracy looked down on people who were “in trade”. Non-Profits see themselves as working for the betterment of the community or the world, not to squeeze money out of customers and clients and to get filthy rich in the process.

emo-non-profit-vs-for-profit

This is a little unfair. Many for-profit companies operate very deliberately for the common good. But more importantly, non-profits are still businesses.

Non-profits need to bring in enough money to cover their expenses, or they will shrivel away. They need to have enough cash on hand to pay their bills, or they face bankruptcy. If they want to expand their services to the community, they need to generate a surplus in order to fund the expansion. These are simple business realities.

In analyzing the health and sustainability of a non-profit, there are no other tools than those that are used for all other businesses, such as:

  • Balance Sheet, to see what it owns, and where its funding comes from
  • Income Statement (P&L) to see what money came in during the year, and what it got spent on
  • Budget to forecast and control revenues and expenditures
  • Cash Flow Forecast to check for day-to-day needs

When we work with non-profits (whether hospitals, halfway houses or international development funds) we may change some of the terminology – “Income and Expenses” instead of Profit and Loss, “Net Assets” instead of Equity, “Additions to Net Assets” instead of Retained Earnings. But we still teach them to analyze, to compete, and to make constant improvements.

And of course they love playing Income/Outcome! Here’s part of a blog post from Acumen Fund: “The training was different from most financial training, as it was through a game, somehow akin to monopoly. Little did we know that Eliza was the co-founder and inventor of a family of simulation games to teach finance. Each group was given a board and some “cash” -$80,000 – representing our equity. We bought land, machines and started on production. We then ran those companies for “12 months”. After every month we had to close our books and produce the financial statements. Learning finance had never been this sweeeeeeet!”

And that’s what they need to learn in order to survive and thrive – and to provide more and better service to their community.