A healthy balance sheet is built through a well-functioning business model.
A business model is made up of the programs, operations and resources that collectively advance an organization’s mission. Your organization’s business model is apparent in the structure and composition of revenue and expenses on your Statement of Activities. A well-functioning business model is one that reliably generates unrestricted revenue in excess of expenses, producing unrestricted surpluses.
Put simply, surpluses strengthen the balance sheet because they often amount to an increase in cash. Deficits weaken the balance sheet by eroding liquidity and driving up liabilities.
Because of this direct relationship, every decision your organization makes about how to run and support its programs and operations will impact its balance sheet and its financial health.
Management Tip: Budget for annual surpluses sized to support your balance sheet goals. At least quarterly, monitor your progress toward surplus targets at the management and board levels. Be prepared to make difficult decisions if you find your organization repeatedly off track. |
