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March 29, 2017

3 Ways You May Be Letting Your Non-Profit Go Under Without Realizing It

It is never suggested that you destroy your non-profit. You have worked very hard to ensure that it is successful, and you wish it would grow wings and help everyone in the world who is in need.

Unfortunately, some of the things that you may be doing in your business may be hurting it instead of helping it. If you are noticing that your business is becoming stagnant, or other issues are coming up, you may be guilty of sabotaging your business without realizing it.

Too Many Liabilities

No business can start without money, and if your non-profit has more assets than liabilities, that is a good thing. The technical term for this difference is known as ‘net assets’. Positive net assets are very important for a non-profit because it can help to smooth over an income cycle, or give the organization the capital it needs for expansion. This is one of the reasons why having a strong equity ratio in your business is key to long-term financial health for non-profits.

However, non-profits do have a lot of financial responsibilities, and they are constantly faced with the potential of incurring more. Taking out loans and paying balances over time instead of paying out in full can gradually pull net assets down. If it is not rectified in time, it can pull the net assets into the negative. If you do not keep your liabilities in check, your non-profit will suffer. In other words, debt is not your non-profit’s friend.

Also, keep in mind that the IRS may not be too happy about how many liabilities are listed on your organization's nonprofit tax forms.

Lack of Income Diversification

It is one thing to have a non-profit that is financially starving, but it is another to have a mix of resources that are unbalanced. When there is a perfect balance of income streams, your non-profit will nourish. On the other hand, only concentrating on one income stream or relying on too many can be a fatal blow to your organization.

It can be frustrating to get into the habit of income diversification. However, it can prevent financial tsunamis in your organization by spreading financial risk to several other sources. You may not be able to get your organization to overconcentrate on revenue sources, but you can get them on board to diversify revenue streams.

Some examples are:

• Fundraising

• Applying for grants

• Government contracts

Taking Donors for Granted

In the early days of your organization, you may have had only one donor. This person cared about your mission and what your organization was trying to do, and you made sure the donor stayed informed. However, as your donor list grew, so did the potential for your organization to capsize.

If you fail to keep all your donors updated on what is going on in the organization, and you treat them like a number instead of real people, they will abandon your organization quickly. Did any of these sound familiar? Is your organization guilty of one or more of these actions? If so, take a step back, go back to the drawing board and create solutions that will help your organization thrive instead of die.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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