The commercial term “equity” becomes “net assets” on a not-for-profit’s statements. These terms capture the residual value in an organization – or what would be left over after liabilities are subtracted from assets.
A qualified opinion is an audit opinion indicating that the financial statements cannot be verified to generally accepted auditing standards, or that they have not been prepared in accordance with generally accepted accounting principles. See our Glossary for more definitions.
The only way not-for-profits can build up their net assets is to make more money than they spend. Watch that bottom line!
Financial Management, Assets, Revenue, Expense, Financial Statements
Working on recruiting a Treasurer for your board? Small charities in particular may find this a tough position to fill. Some have more success recruiting an accountant or seasoned financial manager to an advisory position, where they can support a less experienced individual who takes on the Treasurer’s responsibilities.
Assets are items that your company owns. These can be tangible or intangible, and they can be current or capital. See the glossary for more detailed definitions.
Equity, also known as Net Assets, represents the organization’s residual value – the amount of value left over after Liabilities have been subtracted from what you own.
If your organization had no liabilities, then its assets would equal its equity. This may be the case for very tiny organizations, but otherwise rarely happens. Most organizations accrue liabilities in the normal course of day to day operations.
For instance, if you open a credit account with a supplier, they will invoice you for goods or services and allow you a period of time – often a month – in which to pay. For that month, you are officially in debt, although you aren’t in any trouble! Your balance sheet needs to show that the supplier has a claim on a portion of your assets. You own a certain amount of cash, receivables and other assets… but your organization’s residual value is lower by the value of the outstanding debt.
Is your Treasurer approaching the end of their term? Instead of relying on general board nominations, consider asking them to find their own replacement well in advance of their last meeting. This also increases the chance for an overlap period to support the incoming Treasurer as they learn the ropes.
A narrative budget may encourage less-experienced board members to participate more fully in your organization’s planning process. A narrative budget replaces the “pageful of numbers” approach with descriptive text illustrated by graphs and enough figures to convey the key items. Of course, you still need detailed financial projections to support the process
Not-for-profits often look for accountants to fill the Treasurer’s role. Lots of individuals have relevant experience to bring to a not-for-profit’s financial management, through varied career or volunteer work. When it comes to providing good financial leadership, the ability to think and plan systematically can be as important as accounting know-how.
Think carefully before discounting your prices. Discounts may offer a way to respond to market pressures or to close a deal with a good customer. In some cases there may be a norm; for instance, in the visual arts world, art consultants usually receive a discount. However, in many circumstances artists would do well to stick to their stated price. Don’t give up too easily!
Competition – and scarcity – can both be important determinants of a strong pricing strategy. Competition can be challenging, but it also creates a market: that’s why you’ll often see clusters of galleries or craftspeople in the same area. Scarcity, too, has pluses and minuses. Where you’re the only game in town, you may be able to charge a premium – or you may find yourself down on your luck when demand goes elsewhere.