The concepts of “fixed assets” and related “depreciation expense” are widely understood in all realms of business, commercial and nonprofit sectors alike. In a simple example, a $100,000 fixed asset purchase with a useful life of ten years generates $10,000 in annual non-cash depreciation expense. It’s such a familiar concept that frequent readers of financial statements are unlikely to pause. And yet, the concept of “depreciation” a has deeper meaning. This annual $10,000 or monthly $833 expense is a largely-overlooked reminder of a future reinvestment need and could easily be taken as a cue to add this amount or more to a reinvestment reserve fund. And yet the prevailing nonprofit mindset is heavily biased towards scarcity and often precludes this thinking. “Please, not one more thing.”
Nonprofits often approach capital expenditures (capex) with less planning rigor, with the overwhelming majority of time spent by management and nonprofit boards on the income statement. Rarely are capital budgets approved in the annual budgeting process and even more less likely are balance sheets. And yet capex, especially technology and equipment, provide the best opportunity for productivity with any organization. Additionally, sustainability demands constant planning for the future.
How is your organization positioned for tomorrow? Contact is at RADAR Nonprofit Solutions to discuss your strategic goals.