Does your board have a quick and easy way to assess your nonprofit’s financial performance? It does if it has a dashboard with carefully chosen and up-to-date key performance indicators (“KPIs”). Dashboards can also be set up to provide critical information to multiple audiences regarding specific goals and fundraising campaigns. Here’s how you can get started:
Your Nonprofit’s “Business” Drivers
To facilitate informed, timely decisions, you must first select the right KPIs. For a financial dashboard, these will depend largely on factors such as your organization’s revenue streams, key expense factors, budget, and strategic goals. To include the most useful metrics, identify your nonprofit’s “business” drivers.
Additionally, determine which factors affect the reliability of your revenue streams — and which influence expense levels. Then create KPIs that monitor those factors. Also think about the level at which you want to track your KPIs. You could monitor them by individual program or function, or at the organizational level.
Staging Financial Stability
Say that a nonprofit theater company’s board is concerned about financial stability and liquidity. The theater’s primary business drivers are proper pricing and maximum attendance. Its dashboard might include such KPIs as:
- Operating results,
- The level of liquid net assets without donor restrictions,
- Current debt ratio (total liabilities / total assets),
- Progress toward a desired number of months’ cash on hand (cash on hand + current unrestricted investments / average monthly expenses),
- Number of tickets sold, and
- Average revenue per performance.
Over time, this nonprofit likely would need to adjust its KPIs as its strategies, priorities or programs change. What was “key” in one year may not necessarily be key in the following year.
Other important metrics
Certain KPIs are popular among a variety of nonprofits, including:
- Current ratio. This reflects an organization’s ability to satisfy debts coming due within the year. Divide current assets by current liabilities. A ratio of “1” or more generally means you can meet those obligations.
- Projected year-end cash. Based on the current cash position plus budgeted cash flows through the end of the fiscal year, this projects liquidity and ability to satisfy upcoming commitments.
- Year-to-date revenue and expense. This measures actual results against a budget and reveals whether revenues and expenses are in line with expectations or within a reasonable range.
- Program efficiency ratio. The ratio assesses mission efficiency by showing how much funding goes to programs vs. administrative or other expenses. Calculate it by dividing program expenses by overall expenses.
Once you successfully establish a financial dashboard, you may want to use the tool for other purposes. Some nonprofits create dashboards to monitor hiring stats, board accountability, risk management and social media use.