Making Deficits and Loving It

December 2022

’Deficit’ is an ugly word. It reeks of failure, financial problems, bad management.

But what if an organisation has already built up large balances in their bank accounts, or has significant investments? Every new surplus will continue to add to this, and balances will keep growing. The only way to return this money to community purposes is to run a deficit.

In a business, a deficit is failure, because a business exists to make profits. In a not-for-profit ‘deficit’ only means that you have spent more money than you have received in a given year. And a ‘surplus’ means you haven’t used all the money you have been given. For most not-for-profits surpluses and deficits should be roughly equal, as some years there may have been more than needed, while in others that extra is spent.

In reality we do not see a lot of deficits at CCA. Overall, community organisations seem to hate deficits as much as businesses. But in a business, profits can be paid out to the owners. In a not-for-profit they have nowhere to go.

This may well be a psychological effect. We’re all motivated by profit in our private lives (which is sometimes barely enough to make ends meet), and we do not like to see things going backwards. To shift our thinking to the fact that the idea of ‘surplus’ or ‘deficit’ is entirely meaningless in the not-for-profit world is not easy.

So maybe we should think of a ‘deficit’ in other ways: running a deficit means that organisation has given more money than it took from the community in that year. That’s got to be a good thing.