Net Assets
Quick Definition
The nonprofit equivalent of equity — what's left when you subtract total liabilities from total assets, broken down by whether funds have donor restrictions.
What Is Net Assets?
In a for-profit company, the bottom of the balance sheet shows owner's equity or shareholders' equity — basically, what the owners "own" after debts are paid. Nonprofits don't have owners, so instead they report net assets. The concept is the same (assets minus liabilities), but the breakdown is different because it reflects donor intent.
Under current accounting standards (ASU 2016-14), net assets are split into two categories: without donor restrictions and with donor restrictions. Net assets without donor restrictions is the total value of everything your organization owns that doesn't have strings attached — your unrestricted cash, property, equipment, and any accumulated surpluses from past years. Net assets with donor restrictions includes everything where a donor has specified how or when the money can be used.
Your total net assets represent your organization's overall financial position. A positive and growing net assets balance generally indicates financial health. A declining balance — especially declining unrestricted net assets — is a warning sign. Negative net assets (more liabilities than assets) means your organization is technically insolvent, though many nonprofits have operated in negative territory temporarily during capital campaigns or facility expansions.
Why It Matters for Nonprofits
Net assets are the single best indicator of your nonprofit's financial health over time. Your board should be watching this number at every meeting. Are unrestricted net assets growing, flat, or shrinking? A nonprofit that's been drawing down unrestricted net assets for three years is heading toward a crisis, even if the bank account looks fine today because of restricted funds.
Grant funders and auditors also scrutinize net assets. A healthy unrestricted net asset balance signals stability and good management. It shows you're not living grant-to-grant or paycheck-to-paycheck.
Example
A tutoring nonprofit's Statement of Financial Position shows: Total assets = $750,000 (cash, investments, furniture, computers). Total liabilities = $150,000 (accounts payable, deferred revenue from a grant received but not yet spent). Net assets = $600,000, broken down as: $250,000 without donor restrictions and $350,000 with donor restrictions ($200,000 temporarily restricted for specific programs, $150,000 permanently restricted endowment). The board sees that while total net assets are strong, the truly flexible money — $250,000 without donor restrictions — represents only about four months of operating expenses. They prioritize an unrestricted fundraising push.
Key Takeaways
- ✅ Net assets = total assets minus total liabilities (the nonprofit version of equity)
- ✅ Split into 'without donor restrictions' and 'with donor restrictions' under current standards
- ✅ Unrestricted net assets are the truest measure of financial flexibility and health
- ✅ Negative net assets signal financial distress — even if cash flow seems okay right now
How Holdings Helps
Holdings gives your nonprofit a real-time dashboard showing your asset and liability balances, so you always know your net asset position without waiting for quarterly reports.
Related Terms
Fund Accounting
An accounting system that tracks money based on the restrictions donors and grantors place on it, rather than just tracking overall profit and loss like a for-profit business.
Restricted vs Unrestricted Funds
Unrestricted funds can be spent on anything the nonprofit needs; restricted funds must be used for the specific purpose the donor or grantor designated.
Statement of Financial Position
The nonprofit equivalent of a balance sheet — it shows what your organization owns (assets), what it owes (liabilities), and what's left (net assets) at a specific point in time.
Operating Reserve
Unrestricted cash (or liquid assets) set aside to sustain your nonprofit through unexpected shortfalls, emergencies, or gaps between expected revenue — typically measured in months of operating expenses.
Statement of Activities
The nonprofit equivalent of an income statement — it shows your revenues, expenses, and change in net assets over a specific period, broken down by restriction type.
Fund Accounting
An accounting system that tracks money based on the restrictions donors and grantors place on it, rather than just tracking overall profit and loss like a for-profit business.
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