A
Accounts Payable
Money owed by an organization to its suppliers and/or vendors for goods or services purchased.
Accounts Receivable
Money owed to an organization for goods and services it has sold or that has been committed to it as a grant or donation.
Grants receivable is an example of accounts receivable.
Accrued Expenses or Liabilities
Refers to expenses that are recognized before they have been paid.
Examples include accrued salaries, accrued sales tax payable, and accrued rent payable.
Accumulated Depreciation
The total amount of decline in value charged against a fixed asset since the time it was placed in service. It is an accounting term that illustrates the cumulative effect of the general wear and tear or obsolescence of the fixed asset.
Adaptability
In terms of capitalization, having flexible funds that allow for adjustments or pivots.
It is important for an organization to have plenty of liquid resources to manage day-to-day operating needs before it can set aside resources for adaptability and durability needs. If an organization has more funds set aside for durability (e.g., an endowment), but no liquid resources to manage the day-to-day, that is what we call mis-capitalization.
AIA Document G702
A form created by the American Institute of Architects to document the costs of work completed as of a certain date and the cost of work yet to be completed under a construction contract.
Often used to track amounts that can be advanced by a lender to a borrower under a construction loan and helpful to ensure that there are sufficient funds remaining to complete and pay for the contract.
Amortization
The action or process of gradually writing off the initial cost of an asset.
Appraisal
A formal report usually created by a certified real estate appraiser evaluating a real estate property to determine its value.
Assets
Resources that can provide current or future economic benefit to an organization, or anything that you own that has value.
Examples include cash, short-term investments, accounts receivable, grants receivable, inventory, prepaid expenses, buildings, furniture, equipment, vehicles, and long-term investments.
Assumed Name
An alternate name under which an individual or a legal entity may conduct business. Also known as a DBA or “doing business as” name.
In a loan transaction, it is critical to know the correct legal name of an entity and document it accordingly and accurately.
Also see certificate of incorporation.
Audit
A financial statement as of a certain date, usually covering a twelve-month period, prepared by a Certified Public Accountant (CPA).
The audit includes an opinion letter, a statement of financial position (balance sheet), a statement of activities (income statement), a statement of cash flows, and notes. An audit can provide either an unqualified or qualified opinion. An unqualified opinion states that the organization appears to have followed all accounting rules appropriately and that the financial reports are a reasonably accurate representation of the company’s financial condition. A qualified opinion highlights certain compliance issues or limitations in the company’s statements.
See review, compilation and Generally Accepted Accounting Principles (GAAP).
Authorization of Borrowing
A resolution passed by a board of directors or trustees acknowledging and approving the incurrence of debt. Also known as a borrowing resolution.
Available Net Assets
The estimated amount of net assets without restrictions that are NOT invested in property and equipment or set aside in special board-designated reserves. Essentially this is the amount of net assets without restrictions available to support operations.
Another way to calculate the availability of resources is to take the financial assets of the organization and subtract restricted and designated net assets. You will often see this calculation in the liquidity and availability note in audits. You can take this calculation one step further and subtract liabilities to arrive at a more conservative measure.
Also known as undesignated net assets without restrictions.
B
Balance Sheet
Statement showing an organization’s financial position (assets, liabilities, and net assets) at the close of business on a particular date.
Also known as statement of financial position. This statement changes daily.
Balloon
The final payment of a loan which is larger than the previous payments, arising when the amortization is longer than the maturity of the underlying note.
See amortization.
Basis Points
A fraction of a percentage point, equal to one one-hundredth of a percent. Used to describe interest rates, i.e., 50 basis points is the same as half of one percent, or .5%. Also see points.
Board-Designated Net Assets/Reserves
Unrestricted net assets that have a defined use or purpose, as determined by an organization’s board of directors.
Note that this is an internal designation and different than net assets with restrictions (from an outside donor).
Book Value
The value of an asset based on the original cost less any accumulated depreciation, amortization or impairment cost made against the asset.
See also Market Value.
Borrowed Money/Funds
See debt.
Borrowing Base
A mechanism for monitoring that funds advanced under a line of credit bear some proportionality to either the asset being financed or the source of repayment.
The borrowing base is comprised of the assets (typically current receivables) against which the loan is borrowed and is used by lenders to calculate how much of the loan commitment may be drawn at any given time.
See line of credit (LOC).
Borrowing Resolution
Bridge Loan
A loan made, often on a short-term basis, in anticipation of being repaid by permanent or long-term funding. Also refers to loans made against contract receivables or capital campaign pledges, expected to be repaid as those funds are collected.
Building Code
Regulations, ordinances, or statutory requirements of a governmental unit relating to building construction and occupancy.
Building Permit
Permission granted by a local government to build or renovate a specific structure at a particular site. More than one permit may be required, depending on the situation.
Building Reserve
A capital improvement reserve fund. Money set aside to pay for repair and replacement, where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain.
These are often big-ticket items, like replacing the roof, which may be difficult to accommodate in a single year’s budget. Also known as a replacement reserve. Typically, the reserve is unrestricted, but a board-designated fund.
The sum necessary for a building reserve can be determined by reasonably estimating the costs of improving and replacing capital equipment and facilities over a defined period of time, based on projected life spans for each system. There are a number of ways to determine this, the most common of which is a Systems Replacement Plan (SRP).
Business Model
How an organization raises and spends money in support of its mission, or how an organization delivers and supports its activities through a cost structure and revenue strategy that comprises earned and contributed sources.
By Laws
A document outlining the governance of and what activities a legal entity may or may not engage in.
This includes defining the officers, outlining the board composition and terms, the frequency of board meetings, the authority to enter into contracts for borrowing money and other purposes, and the number of signatures required to bind the entity legally.
C
Capital
The funding and financing available for an organization to achieve its mission over the long term. Capital is reflected in the composition and distribution of assets, liabilities, and net assets.
It can be generated through surpluses, special fundraising, and/or borrowing. While revenue pays for business as usual, capital supports extraordinary, time-limited investments that contribute to an organization’s liquidity, adaptability, and durability. Different types of capital serve different purposes.
Also see endowment, change capital, revenue, and working capital.
Capital Campaign
An intense effort (i.e., fundraising drive) undertaken by a nonprofit organization to raise a specific dollar amount within a defined period of time.
The purpose of a capital campaign is to fund a high-cost strategic initiative such as a capital project. This fundraising drive takes place outside of (and in addition to) annual operating fundraising and is usually to raise funds for a facility (or capital project), an endowment, and/or reserves, though could be undertaken for a large strategic operating or programmatic initiative.
Capital Expenditure
An organization incurs a capital expenditure (CapEx) when it purchases an asset with a useful life of more than one year (a non-current asset).
It’s important to understand the difference between an expenditure and an expense. Though related, they’re actually different and have some important nuances.
An expenditure is the total purchase price of a good. For example, a company buys a $10 million piece of equipment that it estimates to have a useful life of 5 years. This would be classified as a $10 million capital expenditure and would be listed on the balance sheet as a long-term asset.
An expense is the amount that is recorded as an offset to revenue on an organization’s income statement. For example, the same $10 million piece of equipment with a 5-year life has a depreciation expense of $2 million each year. Other expense examples would be anything “consumable” within a year, e.g., paper, pencils, utility expenses, payroll.
Capital Improvement
A facility or equipment upgrade (as distinguished from maintenance or repair) that has a life of more than one year, and that adds to an organization’s fixed asset base.
While sometimes considered an “expense,” this item should not show up on the Statement of Activities. Instead, it should be capitalized and depreciated over its useful life and show up on the Statement of Financial Position as an increase in fixed assets and therefore on the Statement of Cash Flows in the investing section.
Capital Project
See facility project.
Capital Stack
The capital stack represents the capital invested by each lender of an investment and the relationship between each of those lenders.
The higher you are on the capital stack, the lower your risk profile and the lower your returns. Conversely, the lower you are on the capital stack, the higher your risk but the greater your potential returns.
Capital Structure
The nature, composition, and magnitude of the assets, liabilities, and net assets comprising the balance sheet.
A healthy capital structure (i.e., enough liquid and available assets to comfortably cover liabilities) helps organizations to take risks, innovate, and pursue new opportunities.
Capitalization
The distribution, nature, and magnitude of an organization’s assets, liabilities, and net assets. Also known as capital structure.
Organizations can make choices about how they are capitalized, understanding the relative risks and merits of various options—e.g., whether to buy a building or grow an endowment. Also, the term “capitalized” refers to the purchase of fixed assets which do not appear on the income statement, but on the balance sheet, where they are depreciated over their useful life.
Case Statement
A case for support, written primarily for a capital campaign, that outlines an organization’s history, current status, future plans, including facility plans, and fundraising objectives.
The case statement helps align board members, funders, and supporters to a shared organizational vision.
Cash
Legal tender – currency, bills, coins – that can be used to exchange goods, debt, or services. You can think of cash as anything you would deposit to your bank account.
Cash Equivalents
For an investment to qualify as an equivalent, it must be readily convertible to cash and be subject to insignificant value risk.
Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less. Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds.
Cash Flow
The receipt and disbursement of money in and out of an organization.
Cash Flows from Financing Activities
Payments (outflow) and/or receipts (inflow) from lines of credit, notes payable, term loans. The amount of cash generated (or used) by the organization’s financing activities.
Cash Flows from Investing Activities
Payments for acquisitions (outflow) of real property or investments, or receipts from sales (inflow) of marketable securities or from sales of fixed assets. The amount of cash generated (or used) by the organization’s investing activities.
Cash Flows from Operating Activities
The sum of the organization’s overall surplus or deficit plus depreciation and cash changes in working capital items, (e.g., accounts and grants receivable, inventory, accounts payable, accrued liabilities, and deferred revenue).
The amount of cash generated (or used) by the organization’s operations.
Cash with Temporary Restrictions (Current)
Cash with time or purpose restrictions that are set to be satisfied within twelve months.
Cash with Temporary Restrictions (Non-Current)
Cash with time or purpose restrictions that are set to be satisfied after one year.
Certificate of Incorporation
A document usually issued by a government authority, such as a secretary of state, documenting that a legal entity has been formed, including when and where and its full legal name.
Certificate of Occupancy (C of O)
A document from a local government building department that authorizes use of a certain space for specified activities by a certain number of people.
Often required on construction projects prior to the entity occupying the space being allowed to move in. A temporary certificate of occupancy (TCO) may be issued to allow some uses for a defined period of time while final steps are taken to obtain a C of O.
Change Capital
Change Capital is a concept NFF pioneered to distinguish reliable, repeatable revenue from one-time infusions of capital.
Change Capital is defined as an investment that is:
- Extraordinary, 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 have a strategy to 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 programs or operations.
- Supporting growth, downsizing, or other adjustments to the size and scope of an organization.
Change Capital is not intended to be used as a substitute for revenue. For example, it should not be used to cover structural or unplanned deficits, pay for an existing program, or cover ongoing, regularly needed improvements (e.g., facility maintenance). Instead, the spirit of Change Capital is to ensure that an organization emerges from a planned period of extraordinary change entirely stable and sustainable.
Unfortunately, in our client work, NFF has often seen that change can 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 an organization pursuing Change Capital should conduct in-depth strategic and 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:
- Case for Change Capital in the Arts
- For Ambitious Nonprofits, Capital to Grow (New York Times)
- All Flexible Funding is Not Created Equal
- Top 10 Traits Nonprofits Need to Make Change
- Building Is Not Buying
Change in Net Assets Without Restrictions
The change in net assets without restrictions is calculated by taking revenue without restrictions (including non-operating) less total expenses (including non-operating).
The change in net assets without restrictions is a representation of a “bottom line” without restrictions.
Change in Total Net Assets
Change in total net assets is calculated by taking total revenue (including restricted and non-operating) less total expenses (including non-operating).
Clean-Up
Term used to describe the requirement by the lender that a line of credit balance be partially or completely paid down for a pre-defined period, usually a minimum of 30 days, during a one-year cycle.
This is meant to demonstrate that the line of credit is being used for short-term liquidity needs rather than permanent working capital. Also known as an annual clean-up period.
Closing Costs
Expenses involved in closing a loan, which may include lawyer’s fees, real estate surveys, title searches and insurance, fees to file deeds, mortgages and UCC-1, and closing fees paid to the lender.
Closing Fee
A fee charged by a lender to provide a loan to a borrower. Considered compensation for the costs involved with underwriting the loan and holding the commitment available for a specified period of time until closing.
The fee may be paid in installments: at application, at acceptance of the commitment, and at closing.
Also known as a commitment fee or facility fee.
Collateral
Asset pledged to a lender to secure repayment of the loan; also called security. If the borrower defaults under the terms of the financing documents, the lender may have rights to take the collateral in order to get repaid.
Commitment Fee
See closing fee.
Commitment or Commitment Letter
A statement in writing outlining and acknowledging the terms of a lender. This is generally issued after the lender has obtained credit approval and is a binding commitment, subject to whatever conditions are stipulated in the letter.
Community Development Finance Institution (CDFI)
Community development financial institutions (CDFIs) are private financial institutions that deliver responsible and affordable loans to help low-income, low-wealth, and other disadvantaged people and communities.
CDFIs finance nonprofits and community businesses that spark job growth and retention in underserved markets across the nation.
Compilation
A financial report as of a certain date, usually covering a twelve-month period, put together, but not reviewed or audited, by a Certified Public Accountant (CPA).
It includes a statement of position (balance sheet), a statement of activities (income statement), a statement of cash flows, and may or may not have notes. The CPA states no opinion about the accuracy of the statements.
Compound Annual Growth Rate (CAGR)
An estimate of average annual percentage growth over a specified period of time.
Construction Documents
Drawings, specifications, and legal documents setting forth in detail the requirements for the construction of the project.
Construction Loan
A loan, usually short-term, which is made to finance construction of real estate, which could be new ground-up construction, renovation of an older property, or additions to an existing building.
The funds are disbursed as needed or in accordance with a pre-arranged plan, and the money is repaid upon completion of the project, often from the proceeds of a long-term loan, e.g., a mortgage.
Construction Manager
A licensed general contractor who provides pre-construction services, professional management and technical services, including helping identify cost-effective means of meeting facility requirements.
See project manager.
Contingency
A provision for an unseen event or circumstance.
In a capital (or facility) budget, an amount budgeted (usually a percentage of total construction costs) to cover unexpected hard costs or soft costs. Contingency can also be used in preparing the annual operating budget.
Contributed Revenue
Revenue received from individual, foundation, corporate, and/or government donations with no products or services provided by the organization in direct exchange for the funds.
Also see earned revenue.
Contribution
A gift or donation of money or its equivalent (e.g., time, material goods, services) to a nonprofit organization with no exchange of products or services.
Cost
An investment made towards the purchase of an asset intended for future benefits (e.g., an investment used to purchase fixed assets, prepaid expenses, inventory). The future benefit is held in the asset.
The purpose is the purchase of an asset, which directly impacts the capital structure (i.e., balance sheet) of the organization, and can be used when referring to the purchase of asset side of the balance sheet.
Credit
Generally, a contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, usually with interest.
Credit Enhancement
A form of subsidy that induces a lender to make a loan, typically in the form of a third-party loan loss or payment guarantee.
It often allows lenders to provide more financing than they could under ordinary circumstances, or lend to borrowers that do not meet traditional risk standards.
Credit/Financial Analysis
Process used to understand and analyze the financial history and future prospects of an organization.
May be done to help the organization understand its financial underpinnings, determine the likelihood that an organization can complete a project successfully, or determine the likelihood that an organization can repay a loan.
See underwriting process.
Creditor
A person or institution to whom a debt is owed. Said another way, an individual or institution that extends credit to another party to borrow money, usually by a loan agreement or contract.
Also see credit .
Current Assets
Current assets are expected to be consumed, sold, or converted into cash within one year.
They are usually presented in order of liquidity on the balance sheet and include cash and cash equivalents, accounts receivables, inventory, prepaid, short-term investments, and other short-term assets.
Current Debt
Obligations due in one year or less from the date of a financial statement. It includes advances under lines of credit, notes with maturities of one year or less, and the current portion (amount due in the next twelve months) of long-term debt.
Current Grants & Pledges Receivable
Money owed to an organization within the upcoming twelve months that has been committed to the organization as a grant, donation or pledge.
Current Liabilities
Obligations that will usually be repaid within one year.
Current Portion of Long-Term Debt
Amount of principal on long term debt due within one year. Interest is not included in this amount.
Current Ratio
Comparison of current assets to current liabilities, commonly used as a measure of short-run solvency.
A ratio of 1:1 means an organization would have just enough cash to cover current liabilities if it ceased operations and converted its current assets to cash.
D
Days Payable
The number of days on average it takes for an organization to pay bills that it owes to outside vendors.
Days Receivable
The number of days on average it takes for an organization to collect receipts it is owed.
Debt
The liabilities resulting from an organization borrowing money from others that they will have to repay with interest over time. Accountants usually distinguish between short-term debt and long-term debt.
Debt Forgiveness
When a creditor forgives some or all of the outstanding balance of the loan or borrowing, whether the debt is from credit cards, bank loans, taxes, or a mortgage.
Therefore, the organization will not have to pay back the loan or borrowing. To receive debt forgiveness, a borrower typically must apply for or qualify for a forgiveness program.
See creditor.
Debt Service
Required payments of principal and interest for a loan.
Note: Financial statements prepared on an accrual basis will show interest expense on the Statement of Activities, while changes in principal balance will appear on the balance sheet.
Default
There are two types of default: Payment default occurs when a borrower fails to make a scheduled payment of interest or principal on a loan. Technical default occurs when a covenant of the loan is violated.
Deferred Revenue
Payment received from a client for a transaction that has not yet occurred, or services not yet provided (e.g., subscription purchased for performances held on future dates, tuition for upcoming classes).
This situation creates an obligation, and thus a liability, for the organization to provide goods or services in the future. For example, if an organization cancels classes due to restrictions placed on the organization due to a pandemic, the organization will have to pay back the tuition owed to the student or family for the classes it did not hold.
Deficit
The excess of expenses over revenue during an accounting period (usually 12 months). Deficits can be measured before or after depreciation, and before or after non-operating activities.
See surplus.
Depreciation
A non-cash expense associated with reducing a fixed asset’s book value due to general wear and tear over its defined accounting or useful life.
Accumulated depreciation can also be used as an approximation of the amount needed to replace fixed assets over time.
Developer
The entity which hires an architect and contractors to design and complete a facility project. The developer need not actually own the facility being improved, e.g., a building tenant can be the developer when undertaking leasehold improvements.
Direct Expenses
Expenses that can be traced back to a program, product, or service directly associated with a nonprofit’s mission-fulfillment.
They include such items as program staff, systems, materials, and travel required to deliver specific services.
Dividend Income
Money that is paid out of the profits of a corporation to the shareholders.
Durability
In terms of capitalization, having funds to meet future needs such as the repair and replacement of fixed assets.
It is important for an organization to have plenty of liquid resources to manage day to day operating needs before it can set aside resources for adaptability and durability needs. If an organization has more funds set aside for durability (e.g., an endowment), but no liquid resources to manage the day to day, that is what we call mis-capitalization.
E
Earned Revenue
Revenue received by an organization in exchange for its products or services, e.g., tuition, ticket sales, or performance-based government contracts.
See contributed revenue.
Economies of Scale
Theory that the more you produce of a good or service, the less it costs for each additional unit, i.e., efficiency.
Endowment
An endowment refers to the donations, property, and assets a nonprofit organization receives for generating investment income. Most endowments are designed to keep the principal amount intact while using the investment income for charitable efforts.
Endowment funds may provide income in perpetuity (permanent endowment) or for a specified period (term endowment). Endowment funds are also part of net assets with donor restrictions. While the corpus of an endowment is typically permanently restricted, unrestricted investment reserves (sometimes called board-designated, or quasi endowments) can serve the same function while providing leadership with flexible use. NFF encourages nonprofits to prioritize raising flexible forms of capital since endowments need to be large enough to generate adequate annual income and may compete with other fundraising efforts.
Also see net assets with restrictions.
Engagement Letter
An engagement letter is a written agreement that describes the relationship to be entered into between two unrelated parties (e.g. vendor, consultant, service provider, etc.). The letter details the scope of the agreement, its terms, and costs.
The purpose of an engagement letter is to set expectations for both parties involved.
Environmental Site Assessment
A report usually issued by an environmental engineering firm to determine the risk or presence of environmental contamination on a piece of real estate.
If the real estate is pledged as collateral to get a loan, the lender will usually require (at the borrower’s expense) an environmental report as a condition of making the loan. If Phase I finds Recognized Environmental Conditions (RECs), it may recommend Phase II be conducted, which includes testing of actual soil, soil vapor, and groundwater for the presence of contamination in order to determine appropriate remediation.
Equality
Equality means each individual or group of people is given the same resources or opportunities.
Equity
Equity recognizes that each person has different circumstances and allocates the exact resources and opportunities needed to reach an equal outcome.
Expenses
A regular payment that an organization incurs to generate revenue (e.g., a regular payment made to pay for salaries, rent, interest). This term is used when referring to the income statement.
The purpose is the payment necessary to earn revenue, and directly impacts the profitability of the organization.
F
Facility Fee
See closing fee.
Facility Project
Any project that involves a change in a facility.
For example, the acquisition of a building or other physical space through purchase or leasehold; a renovation; a construction project; a relocation; a change in number of sites (i.e., expansion or consolidation); or a major equipment purchase.
Also known as a capital project.
Feasibility Study
A determination of the likelihood that a proposed idea, plan, or project will fulfill certain economic and operational objectives. Often undertaken to predict the viability of a new venture, facility project, or capital campaign.
Financial Asset
A liquid asset that receives its value from a contractual right or ownership claim.
Cash, stocks, bonds, mutual funds, bank deposits, and receivables are all examples of financial assets. Unlike land, property, or other physical assets, financial assets do not necessarily have inherent physical worth or even a physical form. Rather, their value reflects factors of supply and demand in the marketplace in which they trade, as well as the degree of risk they carry. (Source Investopedia)
Financial Equity
Represents the difference between an asset’s book value and the amount of borrowed debt associated with that asset. Also refers to the amount a developer or owner invests in a project.
In for-profit accounting, it refers to the difference between total assets and total liabilities and may be called “owners’ equity.”
Financial Intermediary
An entity that acts as a link between two parties in a financial transaction. Examples of financial intermediaries can include pension funds, commercial banks, investment banks, and CDFIs.
Financial Standards Accounting Board (FASB)
An independent body established in 1973 by the Security & Exchange Act that is responsible for establishing and interpreting generally accepted accounting principles (GAAP) or standards.
Financial Accounting Standards 116 (contributions made and received) and 117 (financial statement format) govern the financial accounting of the nonprofit sector. Note that FASB is not a compliance agency; it does not monitor or review audited financial statements.
Financial Statement
A report that quantitatively presents the financial health of an organization.
A complete financial statement includes a Statement of Financial Position (balance sheet), a Statement of Activities (income statement, profit & loss statement, a Statement of Cash Flows, and often a statement of functional expenses.
Financial statements are usually compiled on a quarterly and annual basis. The term financial statement may be used to describe the statement of activities alone, which does not provide a complete picture of an organization’s financial health/situation.
Fixed Assets
In accounting terms, the book value of the physical items an organization owns (e.g., property, building, equipment, leasehold and/or other physical improvements) that cannot easily be converted to cash. Often called property & equipment (P&E).
See also book value.
Fixed Price Contract
In construction, a contract between the owner/developer and the general contractor where the contractor agrees to complete the project for a sum fixed in advance regardless of cost.
Fixed Price Contract
In construction, a contract between the owner/developer and the general contractor where the contractor agrees to complete the project for a sum fixed in advance regardless of cost.
Full Cost
An NFF enterprise cost framework that encompasses operating expenses and depreciation (income statement), plus a range of balance sheet costs for short- and long-term resource needs.
The “Full Cost of Doing Business” is both an income statement and balance sheet view of all costs required for an organization to effectively deliver its programs/mission.
After covering day-to-day operating expenses – including overhead, or indirect expenses – nonprofits need surpluses sufficient to address their very real balance sheet costs. These costs come in the form of cash in the bank to meet liquidity needs (working capital); cash in the bank or liquid investments to protect against the reasonable market and environmental risks and take advantage of new opportunities (reserves); investment in new property and equipment (fixed asset additions); and debt principal repayments.
G
General Conditions
The portion of the construction contract document in which the rights, responsibilities, and relationships of the involved parties are itemized. Items include security, job site insurance, temporary structures, demolition, and utilities.
Items include security, job site insurance, temporary structures, demolition, and utilities.
General Contractor
The main contractor for a project who provides on-site management of the construction project and performs the actual construction work or hires smaller, more specialized subcontractors to perform specific tasks.
Generally Accepted Accounting Principles (GAAP)
A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board (FASB).
GMP Contract
Guaranteed Maximum Price contract. This term is used in construction projects to define the most money that the agreed upon construction specifications can cost.
Also referred to as fixed price, as distinct from contracts priced at time plus materials. GMP contracts are thought to protect the client from unexpected cost overruns.
Good Standing Certificate
A document issued by a government authority, usually a secretary of state, affirming that a legal entity such as a corporation or partnership has complied with all of the filing requirements to be authorized to do business in that state.
It does not warrant anything regarding payment of taxes owed to the government authority.
Grant
An award of money given by a government agency or other organization (e.g., foundation, corporation). A gift: it does not have to be paid back.
Grants Receivable
Money owed to an organization that has been committed to the organization as a grant, donation, or pledge.
See also accounts receivable.
Guarantee
A formal obligation by a third party to provide repayment of a loan owed by another entity should that entity default on the loan. The guarantor may be an individual, corporation, partnership, foundation, or government agency.
H
Hard Costs
The direct (or physical) funds spent to construct a building or structure, also known as “bricks and mortar” costs.
Not to be confused with soft costs (e.g., legal, financing, architect’s, fundraising consultant and similar fees required for the project but that are not visible in the physical structure).
HVAC
An acronym referring to Heating, Ventilation, and Air Conditioning systems, which in a modern building usually come as a package.
I
Impact Investing
Broadly describes investments that intend to generate positive social or environmental impact along with financial return.
Impact investments can be made in nonprofits, for-profits, and investment funds and include both investments that generate market-rate, risk-adjusted returns as well as concessionary returns. Impact investments differ from charitable donations in that impact investors expect to at least be repaid (and often to earn additional interest or profits). Impact investments differ from regular investments in that the impact investor sets clear social goals for the investment and measures how well they are achieved. The term “impact investing” was coined in 2008, but the practice is decades old. In recent years, impact investing has received growing attention from individuals and institutions interested in developing new ways to unlock resources to achieve social goals. To learn more, visit the Global Impact Investing Network.
Impairment Cost
An impairment cost is an accounting term used to describe a drastic reduction or loss in the value of an asset. Impairment can occur because of a change in legal or economic circumstances, or as the result of a casualty loss from unforeseen hazards.
In-Kind
Non-cash items of value, such as specialized volunteer labor, donated goods or professional services. Specific accounting rules govern the recognition of in-kind revenue and expenses.
In-kind expenses equal in-kind revenue on the income statement, in other words for every dollar of in-kind revenue there is a corresponding in-kind expense.
Income Statement
A summary of the revenue and expenses, showing the profitability of an organization over a period of time.
Also known as statement of activities or profit and loss statement.
Indirect Expenses
Indirect expenses are expenses that cannot be traced back directly to a program, product, or service directly associated with a nonprofit’s mission-fulfillment.
They include such items as: fundraising staff and systems, management salaries, occupancy, and other infrastructure. There is no “right” ratio of direct to indirect expenses – the right expense mix is the one that leads to measurable mission outcomes. Indeed, growing organizations often see indirect expenses rise as they build their infrastructure ahead of new program delivery.
An organization’s full costs typically exceed the combination of direct and indirect expenses. Full costs include additional investments to strengthen the balance sheet (also known as the Statement of Position). For example, nonprofits that have facilities (or other fixed assets) to maintain and debt (or other liabilities) to pay down need to raise revenue in excess of expenses to support these investments.
See Full Cost.
Indirect Rate
Reflected as a percentage; for each dollar of direct expenses paid, the Federal government will also pay a set amount of indirect expenses.
This percentage is determined by using complicated formulas and a complex negotiation process between the government agency and the nonprofit. As a result of a 2015 Office of Management and Budget (OMB) ruling, this percentage must be a minimum of 10%.
See direct expenses.
Inter-Creditor Agreement
A legal document outlining the rights of two or more lenders with loans to the same borrower.
Often defines the positions of the lenders with respect to priority of collateral filings, principal and interest repayment, and priority of repayment in the event of liquidation of the borrower or collateral.
Interest
Usually expressed as an annual percentage, one of the costs of using money that a lender charges a borrower for the use of the principal over time.
See full definition of principal.
Interest Expense
The cost incurred by an entity for borrowed funds. It represents interest payable on any borrowings: bonds, loans, or lines of credit.
Interest Income
The earnings generated from an organization’s cash balance, typically from interest-bearing bank accounts.
Also, the revenue earned by a lender for use of their funds (e.g., loans to borrowers) or an investor on their investments (e.g., bond investments) over a period of time.
Internal Revenue Service (IRS) Determination Letter
A document issued by the Internal Revenue Service to a nonprofit organization confirming its status as exempt from paying federal income taxes and stating the type of exempt organization – for instance, 501(c)(3) – and the date of that exemption.
Investment
An investment is an asset or item acquired with the goal of generating income or appreciation.
Appreciation refers to an increase in the value of an asset over time. When an organization purchases a good as an investment, the intent is not to consume the good but rather to hold it into the future to create wealth. An investment always concerns the outlay of some resource today – time, effort, money, or an asset – in hopes of a greater payoff in the future than what was originally put in.
L
Leasehold Improvements
Renovations to leased space to suit the renter’s needs. These may be paid for either by the landlord or the tenant.
Legal Opinion
See Opinion of Counsel.
Letter of Credit
An instrument or document issued by a bank guaranteeing the customer’s payment up to a stated amount during a specified period, for which the customer is charged a fee. It substitutes the bank’s credit for the buyer’s and eliminates the seller’s risk.
It may be a commercial letter of credit, more often seen in international commerce, or a standby letter of credit.
Letter of Intent (LOI)
This is a non-binding document that declares the preliminary commitment to do something, such as applying for a grant.
Liability
Funds owed by an organization or claims against its assets.
Examples include accounts payable, accrued salaries and benefits, accrued payroll taxes, deferred revenue, outstanding balances under lines of credit, construction loans, mortgages, notes payable, and other types of long-term debt.
Lien
A legal claim against an asset which is used to secure repayment of a loan.
Limited Liability Company (LLC)
A business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability, and all profits and losses pass directly to the owners without taxation of the entity itself.
Limited Partnership (LP)
A limited partnership is required to have both general partners and limited partners.
General partners have unlimited liability and have full management control of the business. Limited partners have little to no involvement in management and have liability that’s limited to their investment amount in the LP. A limited partnership is usually a type of investment partnership, often used as an investment vehicle for investing in assets such as real estate.
Line of Credit (LOC)
A loan in which the lender allows advances up to a specific amount over a specific period of time until the maturity date.
It is usually revolving, meaning amounts repaid can be re-borrowed up to the total committed amount and/or the limitations of a borrowing base.
Liquid Net Assets
The estimated amount of unrestricted net assets NOT invested in property & equipment (P&E) or board-designated reserves. Essentially this is the liquid amount of unrestricted net assets available to support operations.
Also known as undesignated unrestricted net assets.
Liquidity
In terms of capitalization, having cash to meet operating needs.
It is important for an organization to have plenty of liquid resources to manage day to day operating needs before it can set aside resources for adaptability and durability needs. If an organization has more funds set aside for durability (e.g., an endowment), but no liquid resources to manage the day to day, that is what we call mis-capitalization.
Loan Closing
Legal session where final loan documents are executed. The loan may or may not be funded at this time.
Loan Documents
Documents containing the terms of the loan and outlining the rights and obligations of the borrower and the lender.
May include the following: the loan agreement which details the terms of the loan including interest rate and repayment; the note or promissory note whereby the borrower promises to repay the obligation; any security agreements or mortgage, outlining the collateral securing the loan; a guarantee agreement that obligates another party to make payments if the borrower is unable; and, subordination or inter-creditor agreement that outlines the rights and collateral position of each creditor when more than one lender extends credit to the same borrower.
Loan Term
The amount of time over which a borrower is expected to repay the loan.
The loan term may not be the same as the amortization, which determines the periodic repayment amounts and whether there is a large or balloon principal balance due at maturity.
Loan-To-Value Ratio
The ratio of the amount of money a lender is willing to lend divided by the appraised or other value of the property.
Long-Term Debt
Debt obligations that are due in more than one year, including term loans and mortgage loans.
Also see debt.
Long-Term Grants & Pledges Receivable
Money owed to an organization more than a year in the future that have been committed to the organization as a grant, donation or pledge.
M
Market Value
The amount for which something can be sold in a given market; often contrasted with book value (e.g., the original purchase price of the investment).
Maturity Date
The date on which a loan obligation must be repaid.
Mis-capitalization
Uneven, inappropriate, or inadequate funding and financing. Mis-capitalization includes under-capitalization (insufficient amounts of funding) and goes beyond.
Mis-capitalized organizations have limited adaptive capacity, lacking the flexibility to adjust their programming and operations in response to changes in the environment and demand for their work. Adaptive capacity is evidenced by the strength of the balance sheet (i.e., sufficient savings and reserves) and the ability to regularly generate revenue in excess of expenses.
Mis-capitalization is a common problem among nonprofits. Excess cash is often mistakenly seen as “hoarding,” even though savings are usually indicative of long-term planning and risk management. Buildings and endowments are typically the only forms of capital associated with long-term stability, yet often these assets contribute to financial instability, particularly when other more liquid forms of capital aren’t built alongside them.
Other contributors to mis-capitalization include current nonprofit accounting and reporting practices, which conflate capital with revenue. Capital investments (whether for change or other capital purposes, such as facility projects) are typically not separated from regular operating revenue and, therefore, distort the revenue reality by making an organization look healthier than it may be. As a result, most organizations lack enough of the right kinds of money at the right times to change, grow, innovate, take risk.
Months of Available Net Assets (Without Restrictions)
The number of months an organization could operate with current available reserves if revenue were to suddenly cease. It is the amount of net assets without restrictions, less board-designated reserves and the equity in any property held.
Mission-Related Investment (MRI)
While there is no legal definition for an MRI, this term is generally applied to impact investments that are part of a foundation’s endowment and have a positive social or environmental impact while contributing to the foundation’s long-term financial sta
While there is no legal definition for an MRI, this term is generally applied to impact investments that are part of a foundation’s endowment and have a positive social or environmental impact while contributing to the foundation’s long-term financial stability and growth.
While a program-related investment (PRI) is treated similarly to grants for tax purposes, an MRI is fundamentally a financial investment rather than a grant.
Months of Cash
The number of months the organization could operate with current cash reserves if revenue were to suddenly cease. It is the cash position at a point in time (usually at fiscal year-end) divided by the average monthly operating expenses before depreciation.
Months of Undesignated Unrestricted Net Assets
Number of months of truly liquid and unrestricted net assets available to meet daily needs.
Mortgage
Security instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on property as collateral for the repayment of a loan.
N
Net Assets
The difference between total assets and total liabilities, effectively an organization’s net worth. Net assets are categorized as without donor restrictions, with temporary restrictions, and/or with permanent restrictions.
Also see net worth.
Net Assets Released From Restrictions
Funds that have been transferred from net assets with restrictions to net assets without restriction due to the satisfaction of donor-imposed stipulations with respect to timing or purpose of the contribution.
Net Assets with Board Designations
Net assets with donor restrictions are subject to self-imposed limits by action(s) of the governing board. Board-designated net assets may be earmarked for future programs, investments, contingencies, purchase/construction of fixed assets, or other uses.
Net Assets with Permanent Restrictions
Funds with donor-imposed stipulations that the principal not be spent. (e.g., traditional endowments) Some or all of the earnings are available for specific programs and/or general operations.
Also see endowment.
Net Assets with Restrictions
The portion of a nonprofit’s net assets that is subject to external donor-imposed restrictions. The restrictions can be temporarily restricted as to time and purpose, or permanently restricted for endowment.
Net Assets with Temporary Restrictions
Accumulated net assets with a donor-imposed time or purpose restriction that, once satisfied, are released from restrictions and become unrestricted.
Net Assets without Restrictions
The portion of a nonprofit’s net assets that is not subject to donor-imposed restrictions.
Net Fixed Assets, or Net Property & Equipment
The net book value of property and equipment (fixed assets) after subtracting accumulated depreciation.
Also see property & equipment, fixed assets.
Net Grant
An NFF-coined term to describe the total grant amount minus the expenses the organization incurs to manage the grant itself (e.g., reporting requirements, proposal writing, and funder updates).
For example, a grant of $50,000 with reporting requirements that cost $10,000 is a net grant of $40,000.
Funders should consider thinking in terms of net grants to support the funder-related requirements that are entirely separate from the actual intention of the grant and ensure that their requirements are commensurate with grant size.
Net Worth
Net worth is the value of the assets an organization owns, minus its liabilities. Net worth can be described as either positive or negative, with the former meaning that assets exceed liabilities and the latter that liabilities exceed assets.
Positive and increasing net worth indicates good financial health. Negative and decreasing net worth, on the other hand, is cause for concern as it might signal a decrease in assets relative to liabilities.
See also net assets.
Net Working Capital
Current assets minus current liabilities. It’s a calculation that measures an organization’s short-term liquidity and operational efficiency.
Net working capital is also known simply as working capital.
Non-Operating Activities
Revenue and expenses not directly related to the organization’s program or other main activities, or one-time in nature.
They can include capital campaign grants, bequests, expenditures related to capital (or facility) projects, gains/losses in the investment portfolio (whether realized or unrealized), and one-time or extraordinary transactions such as the sale or write-off of assets, or forgiveness of loans.
Non-operating activities may also be used to account for dollars passed through an organization (e.g., re-grant funds). They may also be referred to as “below the line” activities, meaning they are excluded from the calculation of the operating surplus or deficit – the “bottom line.”
Non-Operating Debt
Debt that does not relate to the organization’s main business, program activities, or day-to-day operations (e.g., loans to finance fixed assets and buildings).
Non-Operating Expenses
Expenses not directly related to an organization’s programs or activities, or one-time in nature, such as one-time, extraordinary expenses or realized or unrealized investment losses.
Non-Operating Net Assets
Resources with temporary restrictions not directly related to the organization’s programs or activities, e.g., capital campaign funds.
Non-Operating Revenue
Revenue not directly related to an organization’s programs or activities, or one time in nature, such as capital campaign receipts, bequests, realized or unrealized gains on investments, and revenue with temporary or permanent restrictions.
Non-Use Fee
A fee paid by the borrower on the average amount of the commitment that was not drawn or used.
A typical non-use fee is 0.5% (50 basis points). Typically assessed on revolving lines of credit but may also be assessed on other types of loans.
Charged by a lender as compensation for keeping an undrawn line of credit available to the borrower.
Note
A document signed by the borrower evidencing the debt.
O
Occupancy Expenses
All costs relating to the rent, utilities, security, insurance and maintenance of program and office space.
Officer’s Certificate
A certificate signed by an officer of the corporation stating that at a duly called board meeting the referenced board resolution was adopted and that resolution remains in effect.
Also see authorization of borrowing and borrowing resolution.
Operating Activities
Items that relate to the organization’s main business or program activities. They may also be referred to as “above the line” activities (meaning they are included in the calculation of the operating surplus or deficit – the “bottom line”).
Also see non-operating activities.
Operating Debt
Debt used to support an organization’s main business or program activities and day-to-day operations (e.g. line of credit (LOC)).
Operating Expenses
Funds spent on the organization’s main business or programming activities.
Excluded are one-time, extraordinary, or capital items such as funds passed through to other agencies, capital costs related to investment in property, losses from sale of property, and realized/unrealized investment losses.
Also see operating activities.
Operating Reserve
Funds set aside to be used to offset possible operating losses due to unexpectedly low revenue or high operating expenses. Also known as a rainy-day reserve.
Operating Revenue
Funds received that help fund the organization’s main business or programming activity. Revenue that is without restrictions or released from temporary restrictions to cover operating expenses.
Excluded are one-time/episodic sources of income (such as capital campaign receipts, bequests, realized/unrealized investment gains, gains from sale of property, and other extraordinary items) and all restricted revenue.
Opinion of Counsel
A letter provided by an attorney representing the borrower in a debt or loan transaction affirming that the documents the borrower is signing represent a binding commitment on the borrower to repay the indebtedness according to the outlined terms.
A non-contravention opinion also affirms that the execution of the loan documents does not violate any other obligations the borrower may have.
Overhead
Comprised of administrative and fundraising expenses that are important and necessary for all nonprofits to deliver effectively on their programs/mission.
It is often referred to in the following categories:
Administrative expenses (sometimes called Management & General): Finance/Accounting/Human Resource (HR) staff salaries, audit and legal fees, IT (Information Technology) systems, executive management salaries, training, and insurance.
Fundraising expenses: Development staff, direct mail, event expenses, mailing expenses, donor management software.
These categories are used for reporting on audits (in the Statement of Functional Expenses) and IRS 990 (in addition to program expenses). By nature, overhead expenses cannot be clearly attributed to a specific program. Some components of overhead (often staff expenses) can be allocated to different programs, but this is often imperfect, imprecise, and arbitrary. There are no universally accepted standards for how to allocate.
Overhead Ratio
The formula for overhead ratio is: (Administrative + Fundraising Expense) / Total Expenses.
This ratio is an increasingly disregarded approach to assessing nonprofit impact given:
Outcomes are better measures of a nonprofit’s effectiveness and impact
Some administrative/fundraising costs can be arbitrarily allocated to different programs
Different organizations will allocate expenses differently
Appropriate overhead (administrative/fundraising) is necessary to deliver on mission/impact
Owner
In the context of real estate, the owner is the party that signs the deed, which is a document evidencing who holds title to the property.
Owner’s Representative
The person designated as the official representative of the owner in connection with a project, especially in monitoring construction progress on-site.
Also see project manager.
P
Pass-Through Revenue
Funds provided to an organization that must be spent on behalf of or passed through to a secondary recipient, e.g., re-grants. This will create a corresponding pass-through expense.
Permanently Restricted Net Assets
Funds with donor-imposed stipulations that the principal not be spent, e.g., traditional endowments; some or all of the earnings are available for specific or general operations.
Phase I
Points
Traditionally the fees paid by borrowers to induce lenders to make a mortgage loan.
Prepaid Expenses
Future expenses paid for in advance before receipt of the future benefit and recognized typically as a current asset.
Examples include insurance premiums and rent that may be paid for a twelve-month period at the beginning of the year.
Prime Rate
A national average rate of interest charged by banks, commercial lenders, and other financial institutions, published in The Wall Street Journal and other sources.
Principal
The amount of money that is borrowed, and that the borrower must pay back.
Distinct from interest, which is the amount owed for using or borrowing the funds.
Pro Forma
Statement showing the projected annual revenue and expenses of an organization (or project).
Pro Forma Income and Expenses
Statement showing the projected annual income and operating expenses of an organization to reflect a future event such as completion of a project.
Profit and Loss Statement
Also see income statement.
Program-Related Investment (PRI)
Program-related investments are a type of impact investment, associated primarily with foundations, that support philanthropic efforts and are intended to result in the return of principal under the terms of the investment.
PRIs include loans, loan guarantees, linked deposits, and equity investments in nonprofits or social enterprises. PRIs come in many shapes and sizes, depending on what mission and financial goals the foundation is aiming to achieve. The return on investment is typically low, and capital is often recycled among charitable investments. For example, a foundation may create a low- or 0%-interest loan pool from which a group of their grantees can borrow from on an ongoing basis.
PRIs are one set of investment options in a growing and evolving number of financial vehicles that seek to blend social and financial return. While the number of organizations making PRIs is still small, interest continues to rise in the United States as institutions recognize the need for more creative approaches to achieving social outcomes.
Also see mission-related investment (MRI).
Project Manager
The individual assigned or hired to manage and coordinate all aspects of the project.
Also see construction manager and owner’s representative.
Promissory Note
See note.
Property & Equipment (P&E)
The book value of the physical, long-term, tangible assets that an organization owns (e.g., property, building, equipment, leasehold and other improvements) which cannot easily be converted to cash.
Often called fixed assets, P&E depreciates over time (except for land, which does not depreciate).
The value of these assets is recorded at the book value (the original cost) of the asset, not the market value (the value at which it could be sold).
R
Racial Equity
The condition that would be achieved if one’s racial identity no longer predicted, in a statistical sense, how one fares.
To get there, we must eliminate racial disparities and improve outcomes for everyone through the intentional and continual practice of changing policies, practices, systems, and structures that prioritize measurable change in the lives of people of color. (sources: racialequitytools.org, raceforward.org)
Ratio Analysis
Conversion of financial numbers into ratios, often used as a tool to evaluate financial trends and the health of an organization.
Real Estate Broker
A licensed agent who acts as the middle person between a buyer and a seller of property. A broker, acting as a tenant’s representative, can identify suitable spaces and negotiate a lease that meets the tenant’s needs.
Realized Gain
The difference between the original price of an investment and the price at which it is sold.
Recovery Capital
Capital that helps organizations recover from financial shortfalls or restore an impaired capital base by funding much-needed repairs to facilities/equipment, and/or reducing or restructuring debt and other obligations.
Renovation
General term applied to the process of upgrading an existing building, which can range from minor changes to major reconstruction.
Gut rehab refers to major reconstruction, typically involving demolition of all but the structural elements of a building before renovating it.
Replacement Reserve
See building reserve.
Request for Proposals (RFP)
A request sent to prospective consultants or contractors once the scope of the project is clearly defined, which includes everything requested in an RFQ (request for qualifications),
Plus a proposal of how the consultant would approach the work and what fees would be involved.
See also request for qualifications (RFQ).
Request for Qualifications (RFQ)
A request sent to prospective consultants or contractors asking for basic information about areas of expertise, references from former clients, services, methods and fee structure.
See also request for proposals.
Reserves
Money set aside to pay for future anticipated / unanticipated expenses.
Reserves can be established for many purposes, including emergencies/rainy days, capital improvement and building replacement needs, future investments and opportunities, mitigating future risk, and general operations.
Restatements
Revisions of an organization’s earlier financial statements. The need for restatements can result from fraud, misrepresentation, or a simple clerical or calculation error.
Revenue
Funds received for services, donations from individuals, grants from foundations and corporations, support and contract payments from government agencies, income from fundraising activities, and investments.
NFF defines reliable revenue as distinct from capital.
Revenue is an estimate of the amounts of earned and contributed revenue with a track record of recurrence. In the case of contributed support, reliable revenue typically requires a fully built development capacity with a history of bringing in institutional and/or individual support year after year.
Review
A financial report as of a certain date, usually covering a twelve-month period, put together and reviewed – but not audited – by a Certified Public Accountant (CPA).
The review includes a statement of position (balance sheet), a statement of activities (income statement), a statement of cash flows, and may include notes. A review is not considered as rigorous of a financial report as an audit but relies on a higher level of due diligence than a compilation. A review of financial statements ensures compliance to GAAP and no material misrepresentations, but does NOT review internal controls for fraud, test numbers with source documents, or provide an opinion. It provides assurance, but not verification. Also see audit, compilation, and Generally Accepted Accounting Principles (GAAP).
Revolving Line of Credit
See line of credit (LOC).
S
Scope of Work
A detailed description of what is to be completed for a specific project.
Security
See collateral.
Security Agreement
A legal document that creates for the lender a security interest in a specified asset or property that is pledged by the borrower as collateral.
Security Interest
The lender’s legal claim on assets pledged as collateral.
Short-Term Debt
Debt due one year or less from the date of a financial statement, including advances under lines of credit, notes with maturities of one year or less, and the current portion of long-term debt (amount due in the next twelve months).
See debt.
Soft Costs
Funds spent on items other than hard costs or “bricks and mortar,” incurred in developing a real estate project. These costs include financing fees, fundraising fees, interest costs, inspection fees, permits, architectural fees, legal fees, etc.
See hard costs.
Stakeholder
Anyone with concern for or about an organization, such as board members, trustees, subscribers, members, clients, staff, donors and donors, foundations, corporations, and volunteers (former or current).
Statement of Activities
Summary of the revenue and expenses of an organization showing the profitability of an organization during an accounting period. Also known as income statement or profit and loss statement.
See income statement.
Statement of Cash Flows
Summary of the sources and uses of cash that reconciles cash at the beginning of the year with cash at the end of the year, organized into three categories:
cash flows from operating activities, cash flows from financing activities, and cash flows from investing activities.
See cash flow.
Statement of Financial Position
A financial statement that reports an organization’s assets, liabilities, and net assets at a specific point in time. It provides a snapshot of what a company owns and owes, as well as the organization’s net worth.
See balance sheet, net worth.
Subordinated Loan
A loan that is behind the claim of another secured senior lender (or lenders).
It is repayable in liquidation only after other debts with a higher claim or priority have been satisfied. Loans can be subordinated with respect to payment, lien position, or both.
Surplus
The excess of revenue over expenses during an accounting period (typically 12 months). Surpluses can be measured before or after depreciation and before or after non-operating activities.
Also see deficit.
Survey
A document prepared by a surveyor or other qualified entity uniquely identifying the location and boundaries, including the legal description, of a real estate property. Usually required by the purchaser of the property and a mortgage lender.
Swing Space
Interim space occupied during a construction/renovation project.
Systems Replacement Plan (SRP)
A tool NFF uses to forecast the savings needed to fund the replacement schedule for systems and equipment of a building.
NFF puts the information provided from a survey into a financial model that forecasts the savings needed to fund the replacement schedule of specific systems and equipment.
T
Temporarily Restricted Cash (Current)
Revenue with time or purpose restrictions that are set to be satisfied within twelve months, releasing the unrestricted revenue to the organization within the year.
Temporarily Restricted Cash (Non-Current)
Revenue that will not be released from time or purpose restrictions for organizational use for more than a year.
Temporarily Restricted Net Assets
Accumulated net assets with a donor-imposed time or purpose restriction that, once satisfied, become released.
Term
The length of time that a loan is outstanding.
Term Sheet
A term sheet is a nonbinding proposal issued by a lender (or investor) that shows the basic terms and conditions of a loan (or investment).
The term sheet often serves as a starting point for negotiating and refining a more detailed set of terms and conditions that are documented in legally binding documents that are executed after the underwriting is complete and approval is obtained.
Title Insurance
A form of indemnity (i.e., a comprehensive form of insurance compensation for damages or loss) for the policyholder that protects against issues with titles:
Such as conflicting ownership records, tax liens, lawsuits, easements, and other defects, any of which could result in financial damage to the owner, or otherwise prevent them from enjoying unencumbered rights to the property.
Title Reports
Any of several types of reports, such as searches, commitments, and insurance policies, prepared by a title insurance company documenting the ownership history of a real estate property and any outstanding liens.
Triple Net Lease
A lease in which the tenant pays, in addition to rent, its portion of property maintenance and repairs, taxes, and insurance related to the operation of the property.
If only one or two of these expense categories are the responsibility of the tenant, the lease is referred to as single- or double-net, respectively.
U
UCC (Uniform Commercial Code)
A set of standards for all U.S. states to follow for certain types of commercial transactions.
A UCC filing serves as public notice of a lender’s claim on certain assets of a borrower.
Also known as a UCC-1 or a UCC-1a, for the name of the form used for it.
See security agreement.
Underwriting
Process used to analyze the financial condition of the organization and its project (where applicable) in conjunction with the terms and conditions of a loan and the ability of a loan applicant to meet those terms and conditions.
See credit analysis.
Undesignated Net Assets
Unrestricted net assets less board-designated assets and net investments in plant and equipment. This balance represents net assets generally available to meet operating needs.
Unrealized Gain or Loss
The increase or decrease in the price of an investment (from the original purchase price) that has not been sold, sometimes referred to as a “paper” gain or loss.
See realized gain.
Unrestricted Liquid Net Assets
The estimated amount of unrestricted net assets NOT invested in P&E or board-designated reserves. Essentially this is the liquid amount of unrestricted net assets available to support operations. Also known as undesignated, unrestricted net assets.
Use the calculation below to assess how many months of liquid cash you have available to pay your bills:
Months of Unrestricted Net Assets –
Unrestricted Liquid = (PPE* – PPE Debt)
Net Assets (Total Expenses / 12)
*PPE: Property, Plan & Equipment
Unrestricted Net Assets
Funds that have no external restriction as to use or purpose.
Unsecured Debt
A loan obligation that is not backed by the pledge of specific collateral.
W
Working Capital
The amount of liquidity (unencumbered cash and near cash) an organization has on hand or accessible (e.g., through a line of credit).
Working capital covers predictable periods when cash outflows exceed cash inflows due to seasonal or cyclical volatility. It can be used to bridge payment delays or cover expenses while waiting for revenue to come in. The strict accounting definition is: current assets less current liabilities.