Accounting vs. Plain English - the problem with "unearned" revenue

I went to business school.  I learned a lot of very useful things there, but when I give people the 30 second version of why it was so important to me and my career, it all boils down to this: college taught me how to speak French and Latin and a little Old English...but in business school, I learned how to speak Accountant and Consultant and a little Finance.  And a good part of what I do professionally is translating from one of these business languages into plain english.

Many folks get frustrated that such translation is necessary.  Can't we all just use a common language for all this?  But that's like getting frustrated that they speak French in France.  And French has some beautiful words and phrases that you just can't say perfectly in any other language.  Same thing with the business languages.  If you're reading this blog, the odds are that you're not one of the folks who grump around with tea-bags stapled to nasty placards, complaining that everyone should have to speak English here in 'murica.  (If you are, you may continue to complain about not feeling you should have to learn how to speak accounting...you're still utterly WRONG, but you're internally consistent, so go ahead with your wrongheaded old self.  I can't help you in a single blog post.)

So what brings all this up?  I was just doing a tutorial with a client on her balance sheet.  We got into a very emotional discussion when it came to one particular line: unearned income.

Unearned income.  That's accounting speak for "contributions."  In fact, many folks have decided to go with new terminology - they call it "contributed income," which lets you bypass this whole conflict, but that's not nearly as educational...so indulge me for a moment.

When you work yourself to the point of exhaustion trying to bring in enough contributions to support your organization, it might seem like a very low blow to call all of that "unearned" income.

From an accounting perspective, of course, it's pretty cut and dried, without any moral implication of "earned" vs. "unearned."  Earned revenue is anything you sell - from services to tuition to theater tickets to goods created by women working to feed their families in a developing nation.  Unearned revenue is just given to you.  People get tax credits.  It's not about how much work you have to do to get that gift.

But I get why it seems like a brutal designation.  Unearned has so many negative connotations - that we are unworthy of these dollars, that we have not worked hard to get them, that we have perhaps swindled and bamboozled our way into them through overly trusting patrons.  I can tell you - most donors who bother to look at financial statements for your organization won't bat an eye if you name that category of income as "unearned."  If they care to examine them, these donors speak business well enough that it won't occur to them that "unearned" is not such a nice thing to say in plain english.  Corporations have unearned income, people have unearned income...things like investment income, annuities, various benefits...prepayments for goods/services yet to be delivered...

It's that last category that makes me think that instead of playing linguistic games and just renaming the category "contributed income," truly embracing an understanding of unearned income might be a great idea for an organization and its leaders.

When a company receives money for goods or services that have yet to be delivered, that gets put on their books as unearned income.  That's a great way to see the donations that people make to your organization.  They're willing to support you, to pay you in advance for all the things you will do to meet your mission...but it's a prepayment.  They expect something in return.

When we think about "gifts," we think about something that is freely given.  The transaction here is that you make a solicitation, and if that person says yes, you get a gift.  That's it.

With an advance payment, the transaction shifts: I make a solicitation, my donor agrees and gives me money, and I now own an obligation to deliver what I've promised, whether that's specific programming or the continued existence of my organization to press on towards my mission.

That's a much better way of understanding your donations.  A healthier understanding, a more elegant understanding, a more robust understanding.  When you internalize that understanding so that it permeates all of your communications with donors, it will make you more attractive to donors.   And when your board appreciates this new understanding, they'll understand development that much better (stewardship isn't optional; development and good governance are locked together; etc.).

Just another lesson in cross-cultural linguistics.  More or less, with tongue in cheek.  This has been a friendly reminder from your development shrink that anything that causes an emotional knee-jerk reaction is worth examining closely.

No comments:

Post a Comment