One of the oddities of nonprofit accounting practice is the way it bundles all kinds of money into a single blob. Earned income, annual contributed income, and incoming capital money all show up in the Income Statement in a way that can cloud analysis of financial health, and distract us from a frank assessment of financial balance. The result can be opaque rather than transparent financial reports, particularly during a capital campaign. Worse, opaque reporting leads to hazy strategy both by organizations and by the funders that seek to help them.
- Working Capital: used to cover predictable shortfalls in operating revenue, essentially providing an internal line of credit that can be borrowed and then repaid.
- Risk & Opportunity Capital: funds that cover the unexpected, or to support experimentation that may or may not lead to future revenue.
- Change Capital: funds applied specifically to change the scope, scale, or reach of an organization — an ”investment in the alignment of an organization’s fixed costs to its reliable, recurring revenue.”
- Recovery Capital: emergency repair funds that help an organization recover from financial or physical damage.
- Facilities & Equipment Capital: funds raised for physical infrastructure.
- Endowments: large chunks of principal to generate investment income.