when net isn’t net

I’m infamous for my “you can’t write a check on gross” stance. But I’ve recently run into the situation where Net Income, my focus, wasn’t really Net Income.

Here’s how it happens. Many ministries and non-profits will do work in-house. Sometimes it is “lick-and-stick” work—adding postage or stuffing newsletters into envelopes. Others will handwrite the major donor envelopes. Some hire professional help to do appeals but take care of newsletters themselves. No matter, it seems like a good cost saver—and maybe it is. But maybe not.

Hopefully you’re tracking printing and postage costs and “netting” them out against the gross. You are doing that, right? OK. Good.

Here’s the deal. If you don’t keep track of the time spent internally doing whatever it is you’re doing AND if you don’t multiply those hours by that person’s wage AND subtract it from that impact’s gross income just like it was a vendor’s charge, then you aren’t seeing the true net. You’re fooling yourself about net income, which in today’s economy is a very bad plan.

Here’s what people usually say at this point in the conversation, “but Thomas, I’m not actually having to pay for that work to be done. That person is already on the payroll. I’m really saving money.”

Au contraire!

Remember, every time you have one of your employees do something like handwriting envelopes or designing newsletters, they cannot do something else. The question to ask is, “can I hire this done or does it have to be done by an employee?” For instance, if you could hire a freelancer as cheaply as you calculate an employee can do it, then you really should have that employee doing something else that builds the ministry—like calling and thanking donors. You probably can’t hire an outsider to do that as well as an employee could do it. Any choice to do something is a choice NOT to do something else. Plus, those fixed costs can sneak up on you.

And one more thought, your people might prefer to do handwriting or designing rather than actually talking to real, life donors. But is that what is best for your organization? That is your call, but be sure you know what the real, honest to goodness net is.

So how about it, ever had this faux-net sneak up on you?

Steve Thomas
Partner, Oneicity

(photo credits: daveynin, jurvetson)

Steve Thomas

Steve Thomas

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