Use the invisible balance sheet to stimulate group discussion among informed decision-makers. Refer to the article for discussion of the individual items on the invisible balance sheet. Here is how the exercise works:  

Just like a financial balance sheet, think of an invisible balance sheet measuring your invisible assets, liabilities, and net assets at a specific point in time. The table below lists the sources of invisible assets (IAs) and invisible liabilities (ILs), current and long-term. You find the invisible net assets (INAs), the IAs that haven’t been matched or committed to ILs, by examining the IAs and ILs of the nonprofit you want to examine.  

Give every discussion participant 100 tokens of some kind to assign to IAs, and 100 to assign to ILs. Each token is one share of the total. Then, line by line, assign all the tokens to the lines in the table. As you do so, keep notes on how you interpret each line for your particular nonprofit for baseline purposes. By using 100 tokens, you can think of the shares in terms of percentages adding up to 100 percent, which are comparatively easy to discuss.  

Invisible Assets: How much worth do you attribute to each one? Use the VRIO qualities described in the article to determine how much they are worth to you. Your consideration should reflect your confidence that the promises on which the nonprofit relies will be kept?  Overall, what share of the 100 tokens do you attribute to each kind of IA.  It can help to keep a tally of how you interpret each line for your particular nonprofit.

Invisible Liabilities: How much of your capacity is committed to each type? What are the burdens of keeping the promises for as long as people are counting on them? How confident are counterparties and stakeholders in the promises you have made? Some of your IAs may be matched to ILs. Which promises to you are fully consumed by commitments you have made? 

Invisible Net Assets: You determine the INAs by examining the assigned IAs and ILs and counting the IAs that haven’t been matched or committed to ILs. INAs are available capacity, the ones that are not matched to promises made to you. The leftover tokens must be your INAs, to keep everything in balance. Only by considering the IAs and ILs together do the INAs reveal themselves in the aggregate. You want these to be as high as possible, but they are a residual, only revealed after the matching process shows if any IAs are not committed to fulfilling promises.

  • Regardless, the tokens you assign to one side (assets) must sum to the same number as the other side (liabilities plus net assets) to preserve the balance. 
  • Here are some further suggestions on how to delve more deeply into the exercise to gain additional insights:
  • Interpret the lines in the terminology and language that your specific organization uses as you define IAs, ILs, and INAs.
  • Average or pool across all Board members to get a collective view.
  • Uncover divergent understanding by looking at high and low measures on particular measures.
  • Explore with other qualified stakeholders.
  • Compare views of different stakeholders and explore why they differ.
  • Recognize the return on investment that can be generated from available capacity.
  • Repeat periodically to determine how the proportions are changing.
  • Use the results in your strategic planning and reviews.

Illustration: The following example is designed to illustrate the possibilities of the exercise. It does not reflect a real organization. It suggests a nonprofit with strengths in knowledge capital (20 tokens) and philanthropic capital (21). It receives little benefit from preferential pricing (1). More of its IAs are current rather than long term (77/23). Why? A poor reputation (4) and brand (3) could be reasons.  

Of the ILs, the most significant commitment is to serve consumers below cost (46). In the longer term, this nonprofit is also obligated to fulfill its past strategies (19) and commitments (18). Fulfilling all of those obligations reveals that there are low INAs, which are the capacity for growth and development (total of 14).

Get to work: What invisible balance sheet story can you tell about your nonprofit? A blank invisible balance sheet is provided for you to copy and use, along with an Excel worksheet. The worksheet is set to only accept numbers in the shaded cells between 1 and 100. There are three error-trapping notices in the bottom panel. The first tells you how many IAs are needed to reach 100, the second tells you the same for ILs and/or INAs, and the third one alerts you if the two sides are out of balance.

Download the Excel spreadsheet to complete the Invisible Balance Sheet Excercise for your nonprofit.

Read more stories by Roland J. Kushner.