Your nonprofit proves its value to the communities and individuals it serves daily, which is why ensuring the economic stability of your organization is paramount. If maintaining your nonprofit’s financial metrics hasn’t been a top priority or necessity before, there’s no time like the present to change your financial management strategy. Not only will having the organization’s key metrics at your fingertips make you a more effective leader, the general accessibility of this data will go a long way when it comes to promoting honest and transparent management practices and financial accountability within the organization. Both of which are qualities regularly scrutinized by stakeholders and government entities alike.
Read on to learn more about the value of minding your nonprofit organization’s metrics.
A Win-Win Scenario
Sometimes all it takes is just the thought that your every move is being scrutinized to make your skin crawl. But rather than fear the inquiries of outsiders, how about arming yourself with financial metrics and benchmark reports from which important decisions can be made and opportunities can be seized.
Many of our most successful clients maintain a flash report or financial scorecard to monitor key financial metrics relevant to the sustainability of their programs. Some of these metrics are as follows:
- Cash On Hand
How many days can your nonprofit operate if no additional funds were received before investments would need to be liquidated? How long before the organization would need to acquire borrowed funds to stay afloat? This is important information to have when making decisions that could significantly impact your future. Look closely at your organization’s total operating expenses and divide the total by 365 to get a clear picture of how much cash you need to have on hand to each day to function properly. Most experts recommend maintaining enough cash to cover three to six months of operating expenses.
- Profitability by Program
Whether funded by grants or contributions, every program has an impact on the organization’s bottom line. Making informed decisions about critical organizational issues like hiring or fundraising requires a true understanding of each program’s profitability. Determining program profitability oftentimes requires the allocation of overhead based on specific drivers for each cost category. An understanding of how each program relates financially with other programs (e.g. some programs may be loss leaders to attract dollars to another more profitable program).
- Current Ratio
Review your organization’s assets and liabilities that are receivable/payable in the next reporting period. Does your budget allow for the ability to pay any short-term debt that may be maturing in addition to upcoming operational expenses?
- Investment Benchmarking
Overseeing an organization’s investment performance is one of the most important roles for management and the board of directors. An organization’s investment policies should have an established benchmark to evaluate the performance of its portfolio. The benchmark should reflect the organization’s long-term asset allocation target, and should be analyzed on an ongoing (monthly, quarterly, etc.) basis.
In reality, there is no shortage of metrics you can use to track the financial wellbeing of your nonprofit and each can give you unique insight into your organization’s short- and long-term stability. Tracking this financial data and benchmarking it against historical trends will not only help you become a more effective organization, the data you collect can be used to demonstrate your accountability to its stakeholders, the IRS, the general public and others.
Email Rea & Associates to find out if you are tracking the right metrics and how you can dive even deeper into your organization’s data.
By Ben Antonelli, CPA (Dublin office)