Four Financial KPIs to Measure Nonprofit Success
As a nonprofit leader, your sights are naturally focused on growth, fundraising and driving your mission forward. But in order to successfully facilitate those objectives, your strategy requires an increasing focus on financial and organizational health.
By developing financial metrics and key performance indicators (KPIs), you can more effectively target your organizational goals, identify and analyze successes and challenges, demonstrate trends over time and facilitate strategic decision-making.
These four KPIs are a good place to start:
- Financial Ratio Analysis: Conducting financial ratio analysis provides nonprofits with critical financial insight into the organization’s overall financial health as well as liquidity. Additionally, this can shed insight into the organization’s ability to manage debt. The simplest calculation is the ‘Current Ratio’ which measures current assets versus current liabilities.
- Operating Reserves: To ensure your financial health continues in the future, it’s critical for nonprofits to keep a reserve for unbudgeted expenses or possibly even to capitalize on growth opportunities. The target number of operating reserves will vary from organization to organization; however, it’s largely advised to aim for at least three (3) months’ cash to cover unexpected outlays.
- Program Efficiency: An important metrics for donors, in particular, is the relative ratio of program cost versus operational expenses. Program expenses can be more directly tied to fulfilling the organization’s mission, so understanding how those financials compare to administrative costs (e.g., payroll, office rent/utilities/equipment, insurance, etc.) can be a fruitful effort.
- Fundraising Expenses & Contributions: If your nonprofit relies heavily on donor contributions and grants, it’s important to understand the relationship between total contributions and expenses actually used for fundraising. Essentially, this calculation will help nonprofits see the cost of each dollar raised and ultimately create more effective strategies for fundraising and the application of future contributions.
MFA’s Nonprofit Team can work with your organization to identify and calculate key performance indicators and provide a strategy for measuring the overall financial health of your nonprofit. Please contact us if you’d like to schedule a time to discuss your organization’s financial efficiency.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice.
The information contained herein should not be construed as personalized investment advice. Investment in securities involves the risk of loss, and past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this document will come to pass. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that your portfolio will match or outperform any particular benchmark.
Information presented was obtained from sources deemed qualified and reliable; however, MFA makes no representations as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any forward-looking statements are believed to be reasonable; however, MFA gives no assurance that such expectations will prove to be correct.