Income portfolios

As suggested in Chapter 3 the income support of SPOs is naturally conceived in terms of “portfolios,†for three reasons. First, it is the rare SPO that produces just one type of benefit. Second, as benefits theory articulates, different types of benefits are associated with different sources of income. Third, SPOs span a very wide variety of missions, services and hence benefits; thus, the particular mix of income sources is not formulaic, that is, no one size fits all. Rather, the key question for any SPO is – what specific combination of earned income, contributions, government support, and investment income best supports the particular mission and circumstances of the organization? More generally, it is sensible for SPOs to think in terms of portfolio mixes in multiple ways. SPOs manage portfolios of programs, assets, and investments as well as income sources. These portfolios of course are interrelated. Investment portfolios, for example, consisting of cash, stocks, bonds, and real estate holdings, determine the level of investment income, as well as its volatility or risk, a potentially important component of an SPO’s income mix, as considered in Chapter 8. There can be a fine line as well between investment portfolios and earned income. For instance, an SPO might own a mission-related business (for example, a museum’s off-site gift stores) whose net sales can be seen as either earned income or returns on investment. Asset portfolios, which may include real estate, equipment, financial assets, intellectual capital and social capital, also influence the ability of an SPO to generate different forms of income. For example, financial assets generate investment income, physical assets such as attractive buildings and grounds can generate earned (rental) income, intellectual capital can lead to earned income opportunities through licensing of patents or marketing of expert knowledge, and social capital in the form of community relationships can translate into capacity for charitable fund-raising. (It is also important to recognize that some assets can be a net drain on revenue, for example, depreciating equipment or buildings, or art collections in storage.)