The Trees We Live With

When friends and new acquaintances outside of the tree care industry hear that I am the “President of TREE Fund,” they almost always express enthusiasm for my work, although the conversation is often a little more complicated than you might expect:

Friend: Oh cool, I love trees! TREE Fund is the one that does all those tree planting events, right?

Me: No, that’s not us.

Friend: Oh, so you’re protecting the Amazon Rain Forest, right?

Me: No, not really, sorry.

Friend: Ummm . . . so you’re the organization that buys up land and puts it into trust so it stays forever wild, right?

Me: No, we don’t do that either.

And so on, and so forth, sometimes for a few more rounds. In trying to cut to the chase politely on such conversations without diminishing people’s enthusiasm for my work with trees, the phrase I’ve found that seems to most quickly make their eyes light up with recognition is when I say: “We fund science that supports the trees we live with.”

People seem to embrace “the trees we live with” quickly and intuitively: these are the trees in our backyards, our street trees, the ones our children climb, the trees that shade our schools, the formal arrangements that make our civic architecture more grand, the little glades that provide green backdrops to our developments, that killer oak along the fairway that costs us a stroke every time we slice a tee shot into it, the canopy above the cemeteries we visit on Veterans and Memorial Days, and so many others. The “trees we live with” are a part of our everyday lives and experiences.

I know, of course, that the benefits of our research and education programs reach well beyond that simple rubric, but getting people outside our industry to think actively about the myriad choices and decisions that can surround a single familiar tree over its lifetime is a great first step in helping them understand not only what TREE Fund does, but also the benefits that professional tree care anchored in rigorous science can provide.

I’ve yet to meet anyone who doesn’t appreciate “the trees we live with.” Bringing our work home for people that way can help us open the circle to new friends and supporters, one conversation at a time.

Note: This article ran in TREE Fund’s e-Bulletin today. You can subscribe by visiting our website, here, and you could also help us out a lot by making a contribution to the 15th Anniversary Appeal, or by shopping in the TREE Fund Store. The buttons on the homepage should be intuitive in terms of how to do any or all of these things, so thanks for clicking through and following/supporting us!

This live oak stands above my Dad’s grave in Beaufort National Cemetery. I consider it a family friend.

Who Benefits From The TREE Fund’s Work? EVERYONE!

To My Blog Readers and Twitter Followers: The following letter was sent earlier this month to our current TREE Fund donors, asking them to support our unrestricted operations through a gift to our year end appeal. I’d be delighted to add any and all of you to that list, as our work is important and makes a difference. There’s a link at the end of the letter where you can easily make a tax-deductible gift. Thanks in advance for your consideration. I appreciate it! 

Dear Friends,

When I joined the TREE Fund as its new President and Chief Executive Officer last summer, one of the first questions that I posed in a staff meeting was “Who really benefits from our work?” The answer I received from our team was quick, enthusiastic and unanimous: Everyone!

It’s a rare charitable organization that can make such an audacious claim, but in the TREE Fund’s case, it’s fully justified – primarily due to the extraordinary reach and impact of the work done by the tree care professionals we empower.

Few people would argue the environmental, economic and aesthetic benefits of a thriving urban forest. Even fewer, though, ever stop to think about how much thought and effort goes into planting, nurturing and preserving the trees within it. That work is hard, dangerous and often thankless, but its benefits are legion – to property owners, businesses, governments, families, children, retirees, everyone!

Ralph Waldo Emerson famously wrote that the creation of a thousand forests is in one acorn, and the TREE Fund’s mission mirrors that sentiment: we multiply the value of our fundraised assets many times over by investing them in crucial tools – science, safety, outreach, education – to benefit our tree care professionals, thereby strengthening all of the communities in which they live and work. From one to many. From small to large. From individuals to everyone!

I respectfully request your support for this far-reaching work with a contribution to our annual operating campaign, which ends December 31. Our team will be working to expand the TREE Fund’s impact in 2016 while also reducing our dependence on labor-intensive fundraising events. You may make your gift online now at this link.

Thank you in advance for your consideration. Your gift will be well managed, multiplied, and difference making – for everyone!

With best regards,

J. Eric Smith, President and Chief Executive Officer, TREE Fund

Ride On: The STIHL Tour des Trees 2015

At 8:00 sharp this morning, I waved off 80-some cyclists and their support team as they headed out for day five of the seven-day STIHL Tour des Trees, the signature fundraising event for the organization I head: The TREE Fund. I’ve spent the past five days with this extraordinary group of individuals, and I’m absolutely blown away by the remarkable experience they’ve shared with me. They’ve got three more days of hard riding ahead of them, while I’ll be flying up to Troy, New York to serve as keynote speaker for the Committee of 100 Dinner at the Chapel + Cultural Center, where my friend Rick Hartt will be awarded the Sun + Balance Award. While I’m looking forward to visiting with old friends in New York, it’s bittersweet to leave the Tour, and I wish all of its participants following winds, smooth pavement, safe rides and fantastic fellowship. They deserve all of that, and more.

I rode about 190 miles with the group, while also participating in a variety of educational and outreach programs in elementary schools, churches, community centers, arboretums, and other points along the route. The sense of camaraderie and care for each and every member of the team was incredible to experience. The STIHL Tour des Trees is truly a rolling community, with each and every member contributing to the best of his or her ability to raise funds for and spread the word about the importance of tree research and education wherever they go. I have worked in the nonprofit sector for a long time, and have planned, directed, implemented and participated in hundreds of fundraising events over the years. This one is, without question, the most impressive one I have experienced, on all fronts. I’m honored and humbled to head the organization that benefits from all of their efforts.

When I ride, I tend to get songs stuck in my head that play over and over again as a way of keeping the pedals turning rhythmically. This ride, the jukebox in my brain often cued up Parliament’s “Ride On,” a classic funky jam from George Clinton’s awesome P-Funk empire, featuring the following lyrics . . .

Put a hump in your back
Shake your sacroiliac
And ride on
Let’s take a ride

It ain’t what you know, it’s what you feel
Don’t worry about being right, just be for real
We’re gonna do it to the max, when we do it
We’re gonna do it, do it good, when we do it

The line in that song that most stuck out for me on the road, and resonates with me now as I reflect on the experience is “just be for real.” The group of folks on the Tour are an exceptionally accomplished lot in their fields of expertise, but they are also some of the most real people I’ve ever worked with: friendly, forthright, passionate, exuberant, committed and cool. There’s no artifice here, and that’s refreshing after working for so long in the worlds of development, public relations and marketing, where everybody has an angle, and everyone’s on the make. It’s awesome to be reminded how fundraising and community building can be accomplished in such a straightforward, straight talking fashion. It’s not just keeping it real, it’s living it real.

The results of those efforts and attitudes speak for themselves: each rider raised at least $3,500 before participating in the Tour, and an awesome slate of sponsors led by STIHL USA ensured that ride expenses were fully defrayed, so that the funds delivered by the volunteers on wheels are deployed only to empower our research, scholarship and educational programs. The total funding secured between corporate and individual donations is over $600,000 as I type, and contributions are still coming in. (Want to add to the take? Go here and do it soon!).

While this funding is obviously important to us, the outreach and educational opportunities afforded by the Tour are equally significant, as our riders and Team will reach millions of people via print, broadcast and social media coverage, and thousands of people “up close and personal” as they roll through towns, plant trees, visit schools, and remind people how important trees are to our lives — and how much hard science, detailed planning and rigorous work goes into keeping them healthy. I am certain that there are numerous future tree care professionals out there who will cite an encounter with the STIHL Tour des Trees as the spark that first ignited their life’s passion.

I could go on an on, but suffice to say that the STIHL Tour des Trees is a transformative experience — which is why so many folks come back and do it year after year after year. (The most experienced rider this year has completed 19 Tours). Next October, we’ll be biking over 500 miles through my native turf in the Carolinas, and I look forward to being with the group for the entire week. Would you care to join us? If you’re reading this, you know where to find me, and I’ll be happy to help you get signed up. I guarantee you’ll have a life-changing experience among a great group of people in support of a great cause — and what better way could anyone ever ask to spend a week than that?

Ezihlukahlukene

1. Tomorrow, I will be flying down to Orlando, Florida for the STIHL Tour des Trees, which is the principal fundraising event for my employer, The TREE Fund. 85 riders have raised at least $3,500 a piece to support our research programs, and they will ride over 500 miles in seven days, planting trees, participating in educational and outreach programs, and spreading the word about our important work as they go. I will riding with them for the first four days of the Tour — most likely bringing up the rear of the pack, since my training regimen has been limited this summer due to the move to Chicago, bike being in storage, etc. But that’s okay. It’s about the cause and the fellowship at bottom line, and I am looking forward to meeting the amazing group of volunteer riders, some of whom have been doing this on our behalf for over 20 years.

2. I’m leaving the Tour before it finishes because I have been invited to serve as the Keynote Speaker for the Rensselaer Newman Foundation’s annual Committee of 100 Dinner in Troy, New York, at another place of former employment: The Chapel + Cultural Center at Rensselaer. The community there will be honoring my former colleague and always friend, Rick Hartt, with the Sun + Balance Award, the highest honor given to those who support and serve the Church at Rensselaer. I am looking forward to being back on campus in Troy, and to visiting with many of the folks I worked with during my time there.

3. Closer to home: Marcia and I attended the Jazz Institute of Chicago Gala last night at the lovely Drake Hotel on Michigan Avenue. We have been very impressed by the public programming they offered during our first summer in Chicago, and their educational programs are equally formidable. I had seen one of their up-and-coming student stars, Isaiah Collier, play a couple of times over the summer, and he delighted last night as well during the silent auction and reception to open the evening. Remember his name: I am certain he will be making an increasingly large splash in the years ahead, as he is a truly gifted sax player, with a great career ahead of him. The headliners for the evening were the Rajiv Halim Quintet with special guest Rudresh Mahanthappa, and they offered a great high energy set, including cuts from Manhantappa’s latest album, Bird Calls, which has been earning regular spins in our apartment in recent months. Expect to see it when I do my 24th Annual Best Albums report in December. A fun evening, all around — though it was probably a good thing that I was not attending as a Cubs fan, since things were not going well at Wrigley Field last night during the Gala.

DSM to ORD

Assuming all goes well with final house sale closing tomorrow morning, tonight will be our last night as full-time residents of Des Moines, Iowa. We will be in temporary housing in Chicago until September 15, when we will move into our fabulous new apartment in 340 on the Park in Chicago. Marcia started her new job a couple of weeks ago, and I will be starting mine in late August after a trip to Savannah, Georgia to visit my mother and scout some wintertime properties. (I’m waiting to announce my new gig here until its been officially and formally announced in public by my new employer — but that should be soon, if you’re curious).

I’ve spent about as long in Des Moines as I spent at the Naval Academy, and about twice as long as I spent in Idaho, and I view those three life experiences in the same light: none of them were final destinations, and they weren’t necessarily where I wanted to be at the time, but they were important steps forward toward bigger and better things. Annapolis led to an amazing career at Naval Reactors and to meeting Marcia. Idaho led to Albany, where we happily lived for nearly two decades and raised our only child, and I learned how to be a strong nonprofit executive. Des Moines gave Katelin a great start to her own nascent career and is now leading Marcia and I to Chicago, and we are both very excited about the personal and professional opportunities and experiences ahead of us there.

As I relax and reflect on my last full day as an Iowa resident, I would like to share the following lists of some things I will miss when I leave, and some things I will not miss when I leave. Maybe these will be illustrative and helpful for future transplants to Des Moines. I certainly would have liked to have known about some of them four years ago.

Some Things I Won’t Miss When I Leave Iowa:

  1. The Iowa Caucuses: I’ve recently written at length about this here. At bottom line: I think Iowa’s “First in Nation” status is bad for America, and I do not like watching political candidates behaving badly in my backyard for media attention. Related: State Governor should not be a “for life” position. Enough on both fronts.
  2. Restaurants Being Closed on Sunday: While there are a (very) few eateries that buck this trend, dining out options on Sunday in Des Moines are generally limited to brunches patronized by hungover twenty-somethings. Related: The state of dining in Des Moines is pretty haphazard, even on days other than Sunday. Caveat Emptor.
  3. Big Agriculture: The romantic myth of the family farm is a core part of the cultural narrative in Iowa, but the reality is that most of the State’s big farms are just as much corporate conglomerates as anything else traded on Wall Street. I like to eat, but I don’t like having my electoral interests dominated by agricultural concerns, and I don’t like living in a State that slops hard at the trough of Federal farm subsidies, while begrudging its own more vulnerable citizens the safety net and healthcare support to which they’re entitled. Also, having driven through all 99 of Iowa’s counties, I’ll be okay never seeing a corn field again. Or smelling another industrial hog confinement.
  4. Fascination With Shiny New Things: There are some amazing cultural and historic treasures in Iowa, and it has been dismaying to watch them struggle for resources while half-baked, non-charitable enterprises masquerading as nonprofits hoover up funding because they’re new, shiny, and targetted toward the young professional demographic that local media love and/or managed by the otherwise inexperienced scions of a few privileged Iowa families. Even in the short four years that I’ve been here, I’ve watched several of these shiny new things develop rust and fall apart, wasting funds that could have been better deployed elsewhere. A little more discretion, discipline and taking the long view from funders and the media alike would make a big difference here.
  5. Living in the Wrong American Nation: Marcia grew up in Minnesota, and we quite like it there, so it seemed that Iowa — its immediate neighbor to the South — would be culturally similar enough that it would be an easy transition to live here. But it wasn’t, in more ways than I can cite in a short list like this. A couple of years ago, our sense that Iowa was somehow fundamentally different from Minnesota and Upstate New York (our home for the prior twenty years) was made more clear for us when we read an article on the Eleven Cultural Nations in America today. Iowa is culturally part of The Midlands, and Minnesota and New York are part of Yankeedom. And there’s a much bigger difference there than you might think, trust me. Fortunately, Chicago is also part of Yankeedom. Welcome home.

Some Things I Will Miss When I Leave Iowa:

  1. Katelin: Our daughter has found a great job, a great apartment, and a great boyfriend in Des Moines, and she really has proven the rubric that Iowa’s Capital City is a great place for young professionals to begin their careers. So she’ll be staying here for now as we move on. Fortunately, it’s a short flight or easy drive between our two cities, but we won’t be able to take our lunchtime walks together as frequently as we have for the past couple of years. She is keeping Rosie and The Bumble for us, and I think she considers this a fair trade.
  2. The Salisbury House Library: I have enjoyed my job at Salisbury House, though I have been frustrated by the lack of robust, long-term community support it receives, in large part because of the “Shiny New Things” phenomena noted above. I’m proud that I balanced the long-broken operating budget and helped preserve the House’s future, but it deserves more than just hanging on by the skin of the staff’s collective teeth. While I appreciate all of the House’s elements (architecture, gardens and forests, furnishings, fine art, etc.), I feel most fortunate to have had the opportunity to work with the Weeks Family’s library and rare documents collections for the past three and half years. I’m not sure that I will ever again have the chance to be so close to so many important cultural treasures, most especially the James Joyce collections that I love so much. What a gift to have held his papers in my own two hands.
  3. Des Moines Farmers Market: I’m sure we will find a farmers market that we like in Chicago, but the May to October market in downtown Des Moines is really something special, one of the places where the real remnants of the small family farms still hold court and offer their wares. Even when we didn’t really need anything, it was always nice to put on our Naval Academy, UAlbany or Minnesota team colors (to combat the overwhelming number of Cyclone and Hawkeye shirts on display) and go walk slowly around the market, having something fresh for breakfast, people watching, and picking up a couple of jars of Juan O’Sullivan’s exceptionally delicious salsa, which I often incorporated into a variety of tasty home-cooked dishes, along with tasty seasonings from Allspice.
  4. 4300 Ashby Avenue: We had a great house on a great street in a great neighborhood in Des Moines. Easy access to both of our offices, a couple of restaurants we liked within walking distance (one of them even open on Sundays!), and a very nice sense of community among a group of neighbors who take great pride in living on “America’s Prettiest Christmas Block.” While my own Christmas decorations would be rated “adequate to credible” at best, it was nice to be part of something that the community valued and celebrated. Plus, our house was built like a freakin’ brick bomb shelter, so it felt solid, rooted, and substantial. I hope the new owners enjoy it as much as we did.

Financial Basics for Nonprofit Managers

I’ve had the opportunity to raise, manage, invest and spend a lot of money over the course of my nearly 30-year career, and without patting myself too hard on the back, I’d say that I’m pretty darn good at doing so — despite having little formal training in the financial and accounting disciplines.

I am certainly not alone among nonprofit executives in my lack of textbook-based financial training, in large part because those individuals who choose to pursue such skilled financial degrees are not innately going to be drawn to a professional sector known for its low compensation, high personnel turnover, risks of financial insolvency, governance by unpaid amateurs, and fuzzy wuzzy management practices.

No, it takes a weird, warped and special personality type to purposefully choose such a work environment — and those possessing said personality type are generally more apt to prefer ballet to balance sheets, Renoir to revenues, and punk rock to sunk costs, while also understanding “liquidity” to be a measurement of after-work intoxication resources, and “utility” to be a closet. Note well, though, that I say these things with nary a shred of condescension or disdain, since I am the owner of one of those special personality types myself.

So given this two-strike functional handicap, how did I get to the point where I can confidently create complicated budgets, deftly parse the details of a balance sheet, swap accounting jargon with alpha bean counters, and manage other people’s money in a way that doesn’t embarrass me or them?

It wasn’t easy, and I had to figure most of it out for myself . . . so it recently occurred to me that it might be helpful to others if I created a little primer for up-and-coming nonprofit managers and executives, to help the next wave learn from my own experiences. I’m selfless like that, you know, because that’s the nonprofit way. Huttah!

First and foremost, I followed the best professional advice I’ve ever been given, and I consciously, actively became an expert in the financial workings of my various organizations. I may not have known as much as a marginal first year accounting student much of the time in my early professional days, but if I knew just a little more than most of my colleagues, that was generally enough for them to defer to me when confronted with financial quandaries. If people believe you are an expert, and if you confidently and consistently talk and walk like an expert, then amazingly enough, eventually, you actually really become an expert.

It’s true! Try it!

Another key to my success was making sure that I had a real financial expert available to me for consultation at all times. This was pretty easy, since financial types tend to be somewhat socially awkward, meaning they generally don’t mind if you take credit for their work and expertise, so long as you express gratitude by visiting their cubicles every so often with snacks and/or properly filled-out travel reimbursement forms in hand. Then, once I reached the point of being able to hire my own staff, I always prioritized having an exceptionally talented, scrupulous, and well-trained financial professional on my team, which required me to learn even more of their arcane practices and language, further bolstering my own expertise in the process.

Having those financial language skills is crucial to an up-and-coming nonprofit executive. If you don’t parlez le money vous, then your staff financial professionals and your board treasurer are just going to talk through, around, or over you. You’re going to look lost at staff or board meetings as a result, which does not inspire confidence, even among the kitten-handling types. Conversely, few things are as dazzlingly empowering at a staff meeting as successfully translating and taking decisive action on a jargon-filled statement emerging like squid ink from your accountant’s maw, especially if you can use some cool acronyms and juicy terms of trade in the process, just to keep the non-financial experts in the dark.

To help you in this regard, I’ve compiled a list of ten very important concepts — and the language used to frame them — that you’ll likely need to master in order to convince your staff, colleagues and board that you’re a seasoned nonprofit financial expert, in large part because most of them will have no idea what you’re talking about. Ready? Let’s do this . . .

  • Chart of Accounts and the General Ledger: Your Chart of Accounts is just the listing of all of the buckets (called “accounts” in accounting speak) into which your business transactions can be dumped. While there are some common buckets/accounts that most nonprofits will share, your Chart of Accounts should also be tailored to the unique nature of your own enterprise. Don’t make it too complicated, though, and make sure your buckets’ labels make it clear what gets dumped where, e.g. if your Chart of Accounts has a “Marketing” sub-sub-account under the “Cookie Sale” sub-account under your “Fundraising  Event” account, and it also has a “Cookie Sale” sub-sub-account under the “Marketing” sub-account of your “Office and Administration” account, then which one do you pick when the printing bill for your Cookie Sale Posters arrives? The General Ledger is the official and formal record of your business transactions, classified via the Chart of Accounts for easy access and analysis, if you’re doing it right. Most of us use pre-packaged or off-the-shelf software (e.g. Intuit’s QuickBooks or Blackbaud’s Financial Edge) at this point for our general ledgers, and there are both server and web-based systems available. I prefer the safety of the latter, having once watched one of my employees blow up the former.
  • Profit and Loss Statements and Balance Sheets: Profit and Loss Statements (call them the “P&L” for maximum meeting dazzle) are reports that list your organization’s revenues, then subtract from those revenues the costs of running the business. The bottom line difference between revenues and expenses is called net income (or, sometimes, profit. . . gasp!), and you generally want this to be a positive number. (But wait?!? We are nonprofits?! How can we show a profit on our P&L?!? Hang on, Scooby, we’ll get to that in a minute . . . it’ll be okay, I promise). The Balance Sheet is a statement of the financial worth of your nonprofit that lists all assets (things of value owned by your organization, including both current and fixed assets, more on that below), then balances them with your organization’s liabilities (amounts owed to others) and capital (fixed assets and money invested in the nonprofit, again more on that below). Assets = Liabilities + Capital on the Balance Sheet, always. The P&L Statement covers a period of time (e.g. First Quarter, Fiscal Year 2014), while the Balance Sheet covers a point in time (e.g. March 31, 2014), so don’t trip up while trying to be cute by asking for “the first quarter balance sheet” or the “June 15 P&L.” Your General Ledger software should be able to easily and quickly produce these reports, assuming your financial professional is relatively up-to-date on his or her General Ledger entries, and also considers your needless, last-minute requests for information to be a priority. 
  • Profit for Nonprofits: Why, oh why, do I keep referring to profit?!? We are all nonprofits, so we must lose money every year to have negative net income, by definition, right?!? No! Wrong! Bad wrong! (Insert sound of me rubbing your nose in your P&L here) Bad! Bad nonprofit manager! Here’s the deal: any nonprofit corporation that spent every single penny it earned (or more), as it earned it, would quickly become an ex-nonprofit corporation. The real difference between nonprofit and for-profit corporations is what happens to the positive net income when revenues exceed expenses: in a for-profit corporation, the surpluses are distributed to shareholders as income or dividends; in a nonprofit corporation, the surpluses must (eventually) be applied toward to the nonprofit’s mission. Some amount of running surplus is generally required on a year-to-year basis just to meet basic payroll and operating requirements. Some larger surpluses may support organizational mission by being placed in endowments (say “permanently restricted”), with earnings providing long-term revenue streams. Some surpluses may be ear-marked by your board for specific mission-based needs, and held until such time as the funds may be paid to meet those needs (“board designated” or “temporarily restricted” in the jargon). At bottom line, and over the long term, all nonprofits must make more than they spend, or they will cease to exist as effective entities. You do not want to be the manager who drives a nonprofit organization into insolvency, as that’s one of the very, very, very few things serious enough to keep you from getting another job in our sector. If you’re forced out of our cozy little world, then you will have to jump to the corporate side, where you only get a multi-billion dollar golden parachute for destroying your company’s finances. And who wants that?
  • Current Assets vs Fixed Assets: As noted above, assets are things of value owned by your organization. Current Assets are things that could readily turn into cash within a year or less, e.g. money in a bank account, inventory that can be sold, marketable investments, and accounts receivable (more on receivables below). The ability to turn things into cash quickly is called “liquidity,” even outside of Happy Hour. Fixed Assets are things of value like buildings, land, equipment and long-term investments that can’t readily be turned into cash within a year without having an impact on your nonprofit’s operations, e.g. if you are a museum, you can’t sell your entire collection without seriously degrading your ability to satisfy your nonprofit mission, hence your collections should be considered fixed assets. Most nonprofit managers will spend the lion’s share of their time dealing with current assets, which we need to pay bills and buy lollipops, though most nonprofit organizations will have more of their worth defined by their fixed assets, which seems damnable because we can’t pay the printing bill for the Cookie Sale Posters with them.
  • Cash Basis vs Accrual Basis: Getting your hands around this vast, slobbering bantha of an accounting concept  is the key to advancing from Nonprofit Padewan Noob to Nonprofit Jedi Warrior, for sure. Personally, if I could go back in time to the moment when the first primordial accountant crawled out of the ooze and convinced Executive Director Dimetrodon that accrual based accounting was the wave of the future, I’d redirect a comet to obliterate that exchange, and we’d all happily manage our businesses the same way we manage our personal finances: either we have money in the bank to pay our bills (yay!), or we don’t (uh oh!). That’s cash basis accounting at its most basic, where transactions in the general ledger reflect the point when cash (or equivalent instruments) changes hands: we put five dollars in the bank on Monday, we take three dollars out on Tuesday to pay a bill, we’re still two dollars up, right now, so we could plan on buying a cookie or a cup of coffee on Wednesday if we wanted, so long as we don’t go to Starbucks to get it. But accrual basis? Oh, accrual basis! Bane of board meetings! Destroyer of balance sheets! Sapper of Executive Director souls! I can’t do justice to the horrors here in a single paragraph, but suffice to say that an accrual basis accounting system (under which most of us operate, alas) is one that records revenues and expenses at the time a transaction is said to occur, regardless of whether cash or other current assets change hands or not, while also looking at the life expectancies of fixed assets and only applying pro-rated portions of expenditures for those long-term acquisitions as expenses in any given accounting period. And, yes, I know that all sounds like gobbledegook and is completely alien to anything you encounter in managing your own real world financial affairs, so to spread the confusion out, I cover key accrual basis concepts in their own bullets below. You might want to charge your light saber before reading on.
  • Receivables and Payables: While an annual fund pledge for $10,000 does not change anything for you on a cash basis until the check clears (no matter how much your development director crows about it), it is recorded as a “receivable” on an accrual basis, and increases your organization’s assets on the balance sheet. Conversely, when you receive a bill from Hair Club for Men with a 90-day grace period, nothing changes on a cash basis, though it is recorded as a “payable” on an accrual basis, and decreases your organization’s assets on the balance sheet. If you tally up everything that’s owed to your nonprofit, those are your “accounts receivable” (which the cool accounting kids call “AR”), while the sum of everything your nonprofit owes to others is called your “accounts payable” (repeat after me: “AP”). Unfortunately, you can’t take presumed credit for your organization’s deliverable outcomes and outputs in advance this way, much to your grant writer’s chagrin. 
  • Capital vs Expense: More accrual basis linguistic madness here, where “expense” can be used as a verb, and “capital” has nothing to do with upper and lower case letters. When you expense an item, you post an expenditure against your revenues that reduces your assets — but not all expenditures are expenses. (What?!?) The most common expenditures-that-are-not-expenses for most of us will involve capital investments, which are the fixed assets we acquire that have long-term value and use. For example: let’s say you spend $100,000 to buy a party bus for your clients, and that party bus has a life expectancy of ten years. At the time of the purchase, you convert one asset (cash) into another (party bus), but you have not changed the total value of your assets on your balance sheet, so no expense occurs. How, then, do you actually expense the party bus? Read on!
  • Depreciation: So after one year of riding the party bus with your clients, its value has gone down by ten percent, because it has a ten year life expectancy. How do you mark this anniversary? By expensing ten percent of the purchase price of the party bus in your general ledger, reducing the value of the assets on your balance sheet by $10,000. Then you repeat that annually for the next nine years, until your party bus is fully depreciated, at which point it has no value on your balance sheet, though it may still be fun to ride around in while drinking with your clients. This concept can be tricky to deal with: some assets do not depreciate (e.g. art collections), some assets’ real world value declines far faster than depreciation schedules indicate (probably the case with the party bus), so if you sell them at market price, you still may have to post a loss on your books, etc. If you own a lot of land, building, equipment and other property, your accumulated depreciation numbers may be among the largest figures on your balance sheet, even though 95% of your board members will be rendered immediately glassy-eyed if you try to explain this to them. Better to just jump past it as “one of those accounting things” and get to the kittens and lollipops as quickly as you can accordingly.
  • Materials and Subcontracts vs Labor and Overhead: Gah, enough with this accrual nonsense! Let’s jump back, for a moment, to talk about things that make sense in a lucid world without accountants, and to provide a cautionary note in how to look at — and present — your financial successes and failures. Let’s imagine you run a week-long Clown Academy each summer as a fundraiser toward your charitable mission of terrifying children into avoiding circuses. This year, you raised $20,000 in sponsorships, and 100 aspiring clowns paid $200 each (total of $20,000) to participate in the program, for gross revenues of $40,000. Against these revenues, you spent $10,000 in greasepaint, $10,000 in cream pies, and $10,000 in seltzer water, for total expenses of $30,000. Huttah! You netted $10,000 from the Clown Academy, which you proudly report at your next board meeting . . . neglecting to mention that you and five of your deputy assistant subminions worked for three months to plan and execute this (so called) “fundraising event.” What happens if you factor in the cost of your salaries, your healthcare benefits, your payroll taxes, your paperclips and your bad office coffee? Odds are, the Clown Academy is a big, big loser. Financially, I mean. Nonprofit organizations are utterly notorious for writing budgets and presenting results of fundraising events that focus solely on materials and subcontracts: things we buy, stuff we pay for, checks we write that we wouldn’t buy, pay for, or fund if we didn’t do the event. But it is equally important to plan for and report the costs of your human livestock, too, which you can call “labor and overhead” when talking to your board, since that makes you sound less ruthless and inhuman, which is always good in our business. If you inherit a bunch of fundraising events when you take on a new management position with a nonprofit, the first thing you should do is find out how much staff time is consumed in running each of them, and then quickly kill a few of the ones that are upside down when Materials and Subcontracts and Labor and Overhead costs are factored in, just to show you mean business. You’ll be amazed at what a game changer this can be.
  • Audits and Internal Controls: Once your nonprofit gets big enough to have any real meaningful impact, you’re likely to have to undergo an annual independent financial review, where you will pay an outside agency a lot of money to come in and tell you that you don’t really know what you’re doing. These grouchy outsiders, called “auditors,” will spend a lot of time hunkered down with your financial professional(s), throwing bones around, spilling Diet Coke everywhere, muttering incantations, and frequently popping into your office to wave their hands and moan “GAAP! GAAP! GAAAAAaaaAAAaaAAAAaaaaaP!” What does it all mean? Well, GAAP means “generally accepted accounting principles,” which are a set of standards for financial accounting that we’re all supposed to comply with, because it amuses the auditors and other accountant types to watch us struggle with accruals and depreciation and receivables and whatnots. The auditors will also generally want to look at your internal controls, which are the policies and procedures that you must have to preclude fraud, waste, abuse and mismanagement, or the appearance thereof. Auditors love it when you say “or the appearance thereof,” by the way, so be sure to work that in whenever you can. If all goes well, or the appearance thereof, then the auditors will provide your board with an audited financial statement that essentially says you are in compliance with GAAP, you have sound internal controls, and the papers you gave the auditors when they arrived were accurate and complete to the best of their knowledge. Note well, however, that the auditors will also generally provide 473 carefully-crafted disclaimers, so that if they made a mistake, or the appearance thereof, in their audit, then it is still your fault, not theirs. Also, while getting a “management letter” from your auditor may sound like a good thing — since you’re an important manager, after all — it actually is a bad thing: it’s the way the auditors tell the Board that you’re a knucklehead, or the appearance thereof. Do not want!

And that’s it! If you can master these ten very important concepts and glibly and fluently discuss them, then I guarantee you that your staff and board will consider you to be a financial wizard in no time straight. If you want to go a few levels deeper, then I highly recommend The Jossey-Bass Handbook of Nonprofit Leadership and Management, which is an excellent resource for staying that crucial one step ahead of your board, colleagues, and staff.

Or the appearance thereof.