Nonprofit Financial Management - Means to an end inverted

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A significant difference between private and public sector is what I call ‘means to an end inverted’ where in private sector, the thing you do is the means to an end which is money; in the public sector, money is the means to an end which is the thing you do. That being said, serving the public is a business when you are being paid for a deliverable.

 Schools, service organizations, sporting clubs, emergency services, and social welfare programs all have two things in common: they are there to provide citizens or members a service, and they are accountable to the funders. Whether the program is funded through federal, state/provincial or local taxes, or through donations, service fees, or membership dues, the concept is the same.

 Why is the inversion of Means to an End important for those who operate in the nonprofit and public service sectors? It has to do with the philosophy of why you do what you do, and if you are doing it for the right reasons. Entrepreneurs are there to make money… period! It does not matter how good the widgets you produce are, or how great of a service you provided, if you are not making money, you are out. And not just making money, you need to make a given amount of money called Return on Investment (ROI). If your efforts only generate a return of 2%, then why not put your money into a GIC and receive 3% while you sleep until noon?

 That being said, if you do what you do for the wrong reasons, it will not be done with the required passion therefore will not likely achieve the same results as those who do if for the right reason. Unfortunately, I have witnessed those who do what they do for the wrong reason; which makes me question why they are in the business they are in. Yes, I am talking about both private and public sectors.

 As this guide is about public sector, let me illustrate the two different philosophies with an example:

 You operate a family support program, have been given a budget of $1,000,000, but only spend $900,000. In private sector you would be hailed a hero and probably be given a bonus. However, in public sector this surplus most likely means a number of families did not receive the support they desperately need. If you grasp this concept, this is the right place for you; if you do not agree with the above, you should probably consider a career in private sector.

 That being said, let’s dispel the myth servants of the public are lazy and do not have accountability for their actions. First, as indicated earlier, serving the public is a business if you are being paid for a deliverable, and if you do not achieve it, you will be fired. (Or should be.) Second, soldiers, police, firefighters, border patrol, search and rescue, and medical responders are servants of the public, and willingness to die for us is anything but lazy or lacking accountability.

 As far as financial management in the public sector goes, even if an organization does surplus money at year-end, most will use it to purchase a new piece of equipment or on training, the purpose of both is to provide you better service. I cannot emphasize enough; our objective is the service we deliver versus purchasing a new yacht for the investor.

 This all being said, there are cases where politicians and bureaucrats are in the game for the wrong reasons, and money is spent frivolously. A system of taxation to pay for common essential services and to support those legitimately in need is essential in a civilized world, as long as those who are charged with the responsibility do it with care. This is as far as I will go with political arguments.

 Regarding private clubs such as sporting groups, even though they are not in the business of serving the public, they are accountable to their membership versus an investor. You could look at the public service as being similar in you are accountable to the taxpayer; however, there are many recipients of public services who are not taxpayers therefore it is different.

 For accountability to membership, the expectation is you deliver the programs with due care to financial management, and should you sway from this responsibility, you could have a large number of unhappy people; with this, you risk losing your job, or worse, the club loses its members.

 I hope you have a clear understanding of what I am saying by ‘Means to an End Inverted’ and you have adopted this philosophy as it is essential to be successful in the public sector.

 


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