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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.

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