Balancing the Mission Checkbook

I will gladly pay you Tuesday for a hamburger today

Nonprofit organizations get very excited when someone promises to give them more resources. The potential to accomplish a little more mission in the world can overshadow that nagging question implicit with any promise to give: when, exactly, is that check coming?

That can be a powerful question, and it isn’t asked with nearly enough emphasis or understanding of consequences.

Many charities contact Nonprofits Assistance Fund seeking a bridge loan. They have a promise to give, but they need to do the work now, or they have current bills to pay. Therefore, access to the cash early is worth the cost of borrowing, even though in the end they may have less total cash after paying for a loan. If there is cash in the bank, then of course borrowing someone else’s cash doesn’t make as much sense, but if the cupboard is bare, digging into next week’s groceries seems like a great idea. What happens next week when the cupboard is bare again? That is a problem for… well… next week.

Economists have found a way to break all this down to a formula. That is, after all, what economists do. The present value calculation helps quantify what it is worth to have early access to something. A temporarily restricted grant that becomes unrestricted in a month is worth just about face value in most cases, but access to that money six months earlier may be worth losing some future value. Part of this calculation has to do with things like inflation (money will buy less in the future), but a great deal of it is also in opportunity costs. Waiting until all the stars have aligned to begin a new program or project may mean a competitor will get there first and consume all the earned and donated.

Weighing the present value of money against the opportunity costs is not an exact science. No simple formula will cover all the potential outcomes, and this is the place where boards of directors, advisors, and staff can lead, in the truest sense of the word. Someone must go first in promoting the value of resources and the value of opportunities and pointing a direction. Someone must lead the way.

The upcoming Finance and Sustainability conference is a great opportunity to share a day with other leaders to know what trade-offs make sense, and what deals are best left behind. Those reimbursable contracts which require a nonprofit to spend the money up-front? That’s not just ensuring services are delivered before paying, it’s upping the value equation for payer. As Wimpy knew well, “I’ll gladly pay you Tuesday for a hamburger today” not only ensures a good meal on tomorrow’s dime, but also means there is some small chance the debt will never be collected. That, too, adds value to the equation. Nonprofits will want to be sure today’s resources generate today’s results, and maybe even a little extra for tomorrow.