5 Financial KPIs for Non-profit Organizations
Posted by Alberto Chiang
As the finance leader of your non-profit 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 non-profit’s financial situation:
- Visibility ratio – Financial ratio analysis can help you assess your non-profit’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 assets to meet your non-profit 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 your 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 non-profit’s track record of bringing recurring financial resources year after year. As you know, non-profits don’t receive their money from the same donor or even 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 non-profit 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 non-profit organization. Surpluses can provide the additional dollars needed to address savings and hidden costs.
These KPIs can help you assess your non-profit’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 that automate manual data entry so that you only have to focus on providing valuable insight into your non-profit’s financial future.