Demystifying capitalization

Capital funds are not just for bricks, mortar and technology. A well-capitalized organization has the financial resources to fulfill its artistic mission according to its strategic plan, is nimble and able to take advantage of programmatic opportunities when they arise, can withstand fluctuations in revenue and the economy and operate with a sustainable business model that produces regular surpluses.

Our Metropolitan Atlanta Arts Fund recently hosted a training on capitalization for over 30 nonprofit executive leaders and board members. Led by nonprofit finance expert Rebecca Thomas, the group took a deep dive into the importance of capitalization for long-term organizational health.

What were the key takeaways?

• Operating reserves are vital!
• Endowments are a tool, but they aren’t the best solution for all organizations. Organizations often need flexible funds for everything from unexpected facility damages to staff transitions. Endowments lack that flexibility.
• Nonprofit executives must pay attention to restricted funding. At first glance, an organization may appear to have enough funding to meet current liabilities, but many nonprofit leaders and board members fail to distinguish between restricted funding and unrestricted funding.
• Capitalizing a nonprofit does not just happen and it’s not about simply having a strong fundraising year. It takes planning and focused effort. Organizations that are serious about capitalizing should make it a priority in their strategic plan.