5 Financial KPIs for Nonprofit Organizations
Originally posted 14 July 2016
As the finance leader of your nonprofit organization, you are constantly trying to balance and report against a double bottom line – financials and mission. If you are struggling to make sense of the data and match financials to specific mission outcomes, you are not alone. Providing evidence of social and financial performance on a regular basis is not an easy task.
With big data and information overload, how can you identify what really matters? Here are 5 financial KPIs that can help you assess your nonprofit’s financial situation:
- Visibility ratio – Financial ratio analysis can help you assess your nonprofit’s overall financial condition and flag any patterns that may present a risk. In this case, visibility ratio compares net assets against long-term debt. This can help you measure your overall financial strength and identify the availability of cash and other assets to meet your nonprofit financial obligations.
- Operating reserve – Are your financial resources sufficient and flexible enough to support your mission? This financial ratio will help you answer the question by comparing expendable net assets to total expenses. You should aim to have an operating reserve to cover at least three months of annual expenses, so you can fund programs when unexpected events happen.
- Program efficiency – From a financial perspective, you can measure this by comparing the program expenses against total expenses. This will help you identify how efficient your organization is in fulfilling its mission. This indicator can also tell your donors how much you’re spending on the mission they are supporting rather than administrative costs.
- Revenue reliability – Here you can see your nonprofit’s track record of bringing in recurring financial resources year after year. Nonprofits don’t always receive funding from the same donor or even in the same amount every year. However, with the right tools you can predict a level of income based on historical data and performance.
- Full cost coverage – This measurement will help you assess if your nonprofit is sustainable long term. Make sure to not only set revenue targets to cover direct and indirect operating expenses but also the full cost of running your organization. Surpluses can provide the additional dollars needed to address savings and hidden costs.
These KPIs can help you assess your nonprofit’s financial health, but are you able to track this data in real-time? How much manual work is involved in collecting this data? Here at Unit4, we often see the finance department spending more time collecting data than analyzing it. As a finance leader, make sure you provide the tools to automate manual data entry and collection so that your people can focus on providing valuable insight into your nonprofit’s future, in terms of finance and social impact.