What Are Net Assets For Nonprofits?

From an accounting perspective – net assets are the difference in what you own (assets) and what you owe (liabilities). 

                                           Assets - Liabilities  =  Net assets

Since the result of the equation is not called “net liabilities,” it’s clear that a positive amount is implied.  The value of what you own should be worth more than what you owe.  Side note – it’s good for nonprofits to have a profit (positive net assets). 

In other types of businesses, the parallel term is “equity” – denoting ownership interest by the sole owner or the shareholders.   Because there is not an owner in a nonprofit organization, there is no equity.  And therefore, the alternative term (net assets) is necessary. 

Net assets reflect the “value” of the nonprofit and should be divided into helpful classifications (or classes).  The most common classes are donor restrictions, internal designations, capital assets and unrestricted. 

The unrestricted net asset amount is an indicator of the financial health and the financial strength of the nonprofit.   And it makes funding decisions actionable!  

Are your net assets positive?  Do you know the breakdown of your net assets by classification?  Are you wrestling with a funding decision and don’t know if you have the resources to make that financial commitment? 

I’d love to help! Schedule a free call with me via here.