2 Accounting Issues You Need to Understand

Sound business practices should not be abandoned simply because there is a “nonprofit” label involved. It’s said that the first pill a pharmaceutical company produces for a new miracle cure can cost $1 billion. The second one (once the research and production costs are taken care of) costs 4 cents. Neither short-term measurement, taken alone, is helpful. If you pay $1,200 in rent on June 1, do you think you paid $1,200 for one day … but received the next 29 days free? Not only is this kind of thinking meaningless, it’s downright misleading.

So it is with fundraising. To communicate an accurate understanding of a fundraising program, we need to calculate revenues and costs over the long haul. A year at minimum. Five years would be an even more helpful and realistic measuring rod.

It’s up to us.

So as I said at the beginning, “Pay attention!” This isn’t a meaningless debate over accounting verbiage; this is a discussion about our business practices. And if we allow overzealous regulators or watchdogs or anyone else define the terms, we’ll find ourselves limited in our ability to raise the much-needed revenue to feed hungry children, save the environment and cure cancer.

It’s up to us to educate donors and regulators about the importance of long-term ROI and how fundraising actually works. Sure, it’s an uphill battle. But who else is going to do it?

Tom Harrison is CEO of Russ Reid and a member of the FundRaising Success Editorial Advisory Board. Reach him at tharrison@russreid.com