Nancy
Forum Replies Created
-
Liquid Unrestricted Net Assets (LUNA) or sometimes called Expendable Unrestricted Net Assets is a calculation that takes the net balance sheet value of buildings/equipment out of the Unrestricted Net Assets number. There are several reasons for this – first the balance sheet value of property may bear little resemblance to the fair market value of the building. The balance sheet value is based on the cost – in some cases the appraised property valueis significantly more and in other cases it may be substanially less. The second reason is that it takes time to turn property into cash hence the terms Liquid and Expendable.
I do a lot of analysis using this measure as well as others pulling the data from the 990s. Here are some examples –
When training a group of Grantmakers, I did a chart of of a dozen local nonprofits all doing $5 million in revenue but all with different missions, funding streams, and ages. This way I was able to show that trying to set specific ratios didn’t work because of the breed differences.
I often do salary studies. When doing one for a local mental health provider, I was able to identify ten or so nonprofits of a similar size. The nonprofits have a similar funding structure and age. This made it possible to determine that while my nonprofit was not the best in breed it was a close runner up and that the ED was under-paid.
For a number of years, I worked for the state association of nonprofits. Every year I woul compare our state’s financials, number of members with the other state associations. I would also factor in the total number of nonprofits by state and the total population. It is worth a pat on the back when to find that our state had the highest percentage membership of existing nonprofits.
These are some examples of how this data can be used.
-
Jeffrey,
Some time ago, I figured out that nonprofits were a lot like dogs. There are giant great danes like hospitals and universities. There are small yippy dogs like the two or three person advocacy nonprofits. There are working dogs like human service groups and there are poodles like some of the arts group.
This realization came to me while watching the Westminister Dog Show. First dogs are judged on the Best of Breed. The Best of Breed competes for Best of Show. The Best of Show is not the prettiest dog or the smartest dog or the fastest dog. The Best of Show is the dog that represents his/her breed better than his competitors. If the beagle wins, it means it is a better beagle than the runner-up corgi is a corgi.
When using ratios, you need the compare the same breed of nonprofit. Factors that determine breed similarity are size, age, mission, and funding. I use LUNA a lot which is Liquid Unrestricted Net Assets. A new nonprofit is not going to immediately accumulate net assets. A nonprofit largely funded by reimburseable government contracts will find it difficult to build sizeable net assets. Museums with a mission of preserving treasures need those net assets. Organizations dealing with am immediate crisis need to be spending now and not accumulating wealth.
This is a link to a piece, I wrote fifteen years ago. My thinking has not changed.
-
In my many decades of work in the nonprofit sector, the major issue with strategic planning is ignorance of the organization’s staff and financial resources. Most plans focus on growth and demand additional personnel and money without any thought of where this investment capital is coming from. This is especially true in human service organizations that exist on government contracts – these contracts offer little opportunity to stash money away to use for future endeavors.
The budget and strategic plan have to be developed simultaneously and both have to be realistic. Always choose a strategic planning consultant that demonstrates a good understanding of the organization’s financial position.
-
I use 990 Online, https://efile.form990.org/ for preparing the 990. I like it because each step of the way, ypu can click on the question which provideds IRS back up info.
-
When discussing overhead, I ask folks if they would want to fly in an airplane if ticket costs only covered the pilots’ and flight attendents’ salaries plus the fuel. I think most people would say “No”. Airlines need overhead for inspections, maintenance, and upgrades to make sure that the craft is safe. All too often, funders (often local government) only want to include direct salaries and supplies in grants and no overhead. Just like this could create safety issues for an airline, it creates financial insecurity for a nonprofit.