How Your Organisation Makes Money
Question 6 of 6: How do I do it with others? · The whole story
Why it matters, even if numbers aren’t your job
Section titled “Why it matters, even if numbers aren’t your job”Budgets are cut, a project is stopped, hiring is frozen, or suddenly there is money for something new. Without the basics, these decisions feel random. With them, you can understand why they happen, ask better questions, and make proposals that people say yes to.
It works like a household budget, just on a larger scale. Four ideas cover most of it.
1. Money in, money out
Section titled “1. Money in, money out”- Revenue is the money coming in: sales, fees, donations, grants.
- Costs are the money going out: salaries, rent, tools, suppliers.
Some costs stay the same every month (rent, most salaries). Others grow with activity (materials, delivery). Knowing which is which explains why a busy month is not always a good month.
2. Profit: is it creating value?
Section titled “2. Profit: is it creating value?”Profit is what is left when costs are taken away from revenue. If it is positive over time, the organisation is creating value and can invest. If it is negative, it is using up its reserves, and sooner or later something has to change.
Non-profits work the same way: they don’t aim to make money for owners, but they still need to spend less than they receive, or they can’t keep going.
3. Cash: can it pay the bills this month?
Section titled “3. Cash: can it pay the bills this month?”Profit and cash are not the same. A company can sell a lot and still run out of money, because clients pay late while salaries are due now. That is why organisations watch cash flow: the real money moving in and out of the bank account, week by week.
Many businesses that fail were profitable on paper. They simply ran out of cash.
4. What it owns and what it owes
Section titled “4. What it owns and what it owes”The balance sheet is a snapshot at one moment:
- what the organisation owns (money in the bank, equipment, money clients still owe it),
- what it owes (loans, unpaid bills),
- and the difference, which belongs to its owners or members.
It shows how solid the organisation is, and how well it could handle a bad year.
Using this at work
Section titled “Using this at work”- When a decision surprises you, ask: “Is this about revenue, costs, or cash?” The answer usually explains it.
- When you propose something, say what it costs, what it brings in or saves, and when. A clear “this pays for itself in six months” is far more convincing than enthusiasm alone.
- When times are hard, protecting cash usually comes first. Ideas that save money quickly are the most welcome.
For your own money, the same ideas apply at home. The guide on finance basics covers them.
Try today: Think of one decision at work that you didn't understand. Was it about revenue, costs, or cash? If you're not sure, ask someone: most people are glad to explain.
Back to the story
This guide goes deeper into Close Relationships. The story ends here. Check in again: what has changed since you started?