Do you know the value of your organisation or company? I am not talking about added value, or about values you have in your work. Not even about the value of the sheer existence of your organisation or company to society or clients. I am referring to ‘cold’ financial value. Do you know what you’re worth?
To give you a clue as to where to look: do you know the balance sheet of your organisation? Not by heart, but in general? Most likely, you don’t. At least in my experience of small company owners and NGOs – most of them have no idea. And in some cases they do not even produce a balance sheet at year’s end.
You may wonder what is so bad about that. Apparently, you haven’t felt a need for this to date, so why should you now?
Here is why.
If you are an NGO you may want to see whether you are building up a reserve out of small profits generated by an excess of income over expenditures. This reserve shouldn’t be too big of course – after all you are not working for profit and donors do not provide you with grants to make a profit. But a modest reserve does come in handy, even for an NGO. For instance, if you have a reserve you know that you can bridge a gap in between funder payments or possibly even a gap in between projects. Or that you can make certain investments not covered by any project grant, just because you have an amount of money available to your organisation that is not earmarked for a certain budget line. In short, a modest reserve can render your organisation more stable and can help improve sustainability of your organisation. For this reason, funders in general will not disapprove of you building up some kind of reserve as long as you are open about it and do it right.
You can be open about this in your annual financial statement where your balance sheet will show the size of your reserve and your profit and loss statement can show what was added to your reserve in a given year. You can also describe your organisation’s aims with the reserve: what size are you aspiring to and what is the rationale behind that? For instance, you might be looking for a reserve the size of 3 months’ operational costs so that in the event of a loss of an important grant you would have some time to start economising, downsizing, reorganising, etc.
The same is true for small companies, with as added value that having insight into your reserve may also help in case you need a bank credit or are wondering about prospects for your pension.
This is, in a nutshell, why I believe it is worthwhile to know your balance sheet value. And why you might like to invest a bit more time in your annual financial statement at the end of the year to create a balance sheet. It isn’t rocket science, but if you need assistance, do let me know!