Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet its supply. When given two weeks to do a project it takes two weeks and given eight weeks to do the same project it takes eight weeks. When given $1,000 to complete a task it takes $1,000 and when given $10,000 to complete the same task, it takes $10,000. This is “Parkinson’s Law.”
Author Mike Michalowicz published the popular book “Profit First” using the same concept as it relates to revenue. A generally accepted accounting principle is that Income – Expenses = Money for Mission. Profit First theory flips the formula to Income – Money for Mission = Expenses. By taking money for the mission first, the funds available for expenses are reduced, and the focus becomes finding ways to get the same things done for less money.
With this theory, you take a predetermined percentage as profit (this equates to cash flow or money for the mission for nonprofits). The behavior is radically different as you take a predetermined percentage of money from your income first, and only the remainder is available for expenses.
The Profit First theory encourages organizations to allocate money to the mission so that the actual portion of moneys that is available for expenses is obvious which causes spending to be adjusted accordingly. This will not allow you to leave your fiscal management to pure willpower.
By first allocating money to different accounts and removing the temptation to “borrow” for other reasons, your organization will become fiscally strong.
Source: Irene DuPont-Haralambis, Florida Nonprofits Board,
Vice President/Branch Manager First Bank Hillsboro