![\"Money](\"https:\/\/www.artsjournal.com\/artfulmanager\/wp\/wp-content\/uploads\/2016\/02\/17121706878_0b0d1e7a11_q.jpg\")
<\/a>Flickr: Pictures of Money<\/p><\/div>\n
There are many such principles for nonprofits, at various levels of depth and complexity (the Nonprofits Assistance Fund has a great bundle of them<\/a>). But one approach that keeps spinning in my head is the four principles<\/a> developed (and recently revised) by the financial software folks at You Need A Budget (YNAB)<\/a>. These are intended for personal financial management (not organizational), using cash-based accounting (not accrual). And they don’t focus on (or even mention) nonprofits. But still, the four rules have some utility and simplicity worth attention (video available below):<\/p>\n Of course, there are many disconnects between YNAB’s rules and the complex, accrual-based, IRS-approved financial life of a nonprofit arts organization. But as a set of basic and integrated principles, it’s pretty darn cool.<\/p>\n\n
\nEvery dollar flowing into your enterprise needs to be assigned a specific purpose. YNAB encourages you to ask: “What does this money need to do before I get paid again?” That’s a cash-accounting- based question, so an organizational form might be: “What does this money need to do?”<\/li>\n
\nYNAB considers “true expenses” as including all monthly, infrequent, and big-ticket future costs, normalized over time. So, considering your future holiday purchases and dividing them by 12 will smooth your cash flow and ease your anxiety. This rule shouldn’t be confused with “true costs,” which tends to mean capturing fixed and overhead costs related to any project. But the idea of normalizing all recurring, occasional, and infrequent expenses makes a lot of sense.<\/li>\n
\nThe YNAB team recognizes the tendency to consider a budget, once constructed, as an ever-fixed mark…inducing guilt and panic whenever it turns out to be inaccurate or inapplicable. Their response is: get over it. You can’t know the future when you make your budget, so accept and adapt it as you discover new things.<\/li>\n
\nThis one is actually an elegant bundle of many financial issues for individuals and organizations. In the nonprofit world, we talk about “cash reserves” and “liquidity,” and use a bunch of scary ratios to figure out how quickly we’d run out of cash in a crisis. YNAB’s approach is to encourage people to develop a time cushion between when they get a dollar and when they spend it. They used to call this “living on last month’s income,” but that proved to be too rigid and mechanical for people with variable income. This is a friendly and flexible approach to building slack into your financial plan.<\/li>\n<\/ul>\n