Nonprofit finance terms and concepts
- Extra-ordinary, and of limited duration: it is not meant to function as regular earned or contributed revenue.
- Flexible: how the organization chooses to spend the investment matters less than what it achieves.
- Understanding: the funds are meant to support periods when the organization is experiencing volatility in its pursuit of change. During these periods, organizations must take risk and have room in their budgets for trial and error. As a result, Change Capital can, on occasion, cover planned temporary operating deficits.
- Must support long-term sustainability: Once the capital is spent, the organization should be able to more fully cover costs using reliable revenue, until their next period of change.
Organizations use Change Capital for a variety of purposes, which include but are not limited to:
- Supporting projects (e.g., technology, facility, services) specifically intended to improve the efficiency or quality of its programs or operations
- Supporting growth, downsizing, or other adjustments to the size and scope of the organization.
Change Capital is not intended to be used as a substitute for revenue. For example, it cannot be used to cover structural or unplanned deficits, paying for an existing program, or cover ongoing, regularly-needed improvements (ie., facility maintenance). Instead, the spirit of Change Capital is to ensure that an organization emerges from a planned period of extra-ordinary change entirely stable and sustainable. Unfortunately, in our client work, NFF has often seen that change can actually negatively reverberate throughout an organization for many years after the period of change has ended. This is one of the reasons why NFF advocates that organizations pursuing Change Capital should conduct in-depth business planning to effectively tie its goals for change to financial models that ensure recurring revenue after the change is over.
NFF has written extensively about the need for change capital in a sector that rarely has the opportunity to pursue transformation with support that is patient, flexible, and well-planned. To read more about our ideas on Change Capital, visit these pages:
Months of Unrestricted Net Assets -
Unrestricted Liquid = (PPE* - PPE Debt)
Net Assets (Total Expenses / 12)
*PPE: Property, Plan & Equipment