Back to school!! Even though the Pandemic is not fully behind us the future is still ahead and we must all respond accordingly. For our children and those working to educate them it means a tenuous return to the classroom. For the past several months we have learned much of what the schools have been doing to ready their buildings and staff for being back in the classroom full time. With the increased need to add physical barriers, intense cleaning, and additional technology, our school clients have been working tirelessly to be as prepared as possible. Much of the funding for these necessities has been with Federal dollars, posing additional challenges to requirements for how the money should be spent. We have been helping our government, school, and nonprofit clients navigate the complexities of accounting for Federal funding. We are now entering the time when audits will determine compliance in accordance with the most up to date regulations. In preparation for the fiscal year 20-21 audit cycles, we once again held our annual school conference. Our Partners met virtually with our clients and shared important accounting and auditing updates to ensure there would be no “surprises” when audit season arrived. In a period of time when change is the normal and fear of the unknown is more prevalent than ever, we take seriously our role in making sure our clients are up to date. Our Partners have also been very busy over the past few months expanding their reach to other groups. Jeff Kowalczyk and Edmund Fosu-Laryea were both featured speakers at the PICPA annual school conference. Jeff also presented at PASBO and for the PICPA local government/nonprofit conferences. Our Partner Steve Kutsuflakis has been working closely with a Delaware private school where he serves on the Investment committee – helping the organization make critical decisions regarding funding and investment of funds while ensuring the school remains on track to meet the needs of their student population. I have been serving on the Covid grants review committee in conjunction with the Delaware Community Foundation. It is encouraging to witness all of the work being accomplished through mission driven individuals and organizations. It serves as a continued reminder that we will collectively move beyond the pandemic. We are busy planning two important events for this fall. Our 4th annual nonprofit story telling event is scheduled for November 2nd. We have a tremendous line-up for this popular event. We will be virtual once again this year but are hopeful that we will return in person in 2022. We have a diverse group of professionals lined up including representatives from Your Part-time Controller, Young, Conaway, Stargatt & Taylor, WSFS, AB Bernstein and Delaware Business Times. Our second event will be a webinar for the benefit of the local government community. We are working to put together an agenda that will bring current important information to this all-important sector of our communities. We are also excited to announce that after more than 40 years in the same location our offices are moving! We are scheduled to be in our new offices by the end of the year and we are looking forward to our new open space designed to be state of the art and welcoming. As we work on the design and amenities, we have our staff as well as our clients in mind. We will be sharing more as our move gets closer. In the meantime, we encourage our clients – existing and potential – to reach out to us. We are excited to be your trusted advisors and to do all that we can to assist as you navigate your financial obstacles.
By Jeffrey A. Kowalczyk, CPA, CFE, CGAP
Key performance indicators nonprofit leaders should track
At the beginning of the pandemic, many nonprofit organizations saw a sharp decline in donations and participation. Amidst the uncertainty, donations dropped by up to 17 percent in April, May, and June. While the downward trend eventually reversed, and donations ended the year two percent above 2019 numbers, the decline brought to light the need for nonprofits to maintain a close eye on key performance indicators (KPIs).
KPIs are metrics leaders have prioritized, are updated regularly, and serve two functions. First, they provide nonprofit leaders the opportunity to keep an eye on the health of the organization. Second, they can be used to help new and existing donors decide where their finite resources are best contributed. Donors want to support a cause they care about, but they also want to know how their funds are being used.
This article will explore which KPIs are essential to track and how to calculate them.
Track these KPI’s
There is a seemingly limitless supply of ratios you can track when it comes to finances; however, the following ratios are often indicators of nonprofit organization health and financial impact.
- Current ratio: This ratio allows organizations to see their ability to pay short-term organizations. Experts recommend this is at least 1:1 for most organizations.
- Calculation: current assets/current liabilities
- Liquidity: Your liquidity ratio allows leaders to understand how flexible they can be in a crisis or if a new opportunity emerges. Much like personal budgeting, experts recommend having 3-6 months in cash reserves.
- Calculation: cash on hand/average monthly expenses
- Administrative expenses: Tracking the percent of funds that go towards administrative costs will allow you to decide if you’re spending too much on administrative costs. This should be below 20 percent.
- Calculation: management, administrative, and general expenses/total expenses
- Program efficiency: On the other side of administrative expenses, program efficiency lets leaders and donors know how much of their donation is going toward actual charitable programs. Experts recommend staying around 75 percent.
- Calculation: program service expenses/total expenses
- Fundraising expenses: Fundraising is necessary to bring donations into a nonprofit, but it should not cost more than the funds you bring in. There are two ways nonprofits generally report fundraising expenses:
- 1. Fundraising costs unrelated to special fundraising events. This is reported on the statement of functional expenses as fundraising expenses. This figure is generally less than 20 cents per contribution dollar.
- 2. Fundraising costs directly related to special fundraising events. This is reported as a contra-revenue and will often be higher than 20 percent of event revenues, depending on the nature of the event. Organizations should perform year-over-year comparisons of event revenues to event expenses to ensure events continue to serve the organization’s needs.
- Recurring unrestricted revenues: Knowing the total amount of recurring income allows a nonprofit organization to better budget each year.
- Total of any recurring income, not including one-time grants, gifts, and contributions.
- Liabilities to assets: When used correctly, debt can be helpful. However, too much debt can eventually catch up with an organization and cause problems. Debt should not be more than 50 percent of your assets.
- Calculation: total liabilities/total assets
- Full-cost coverage: If the building your organization owns needs repairs or if any equipment needed replacing, is your organization prepared for the cost? Budgeting for the depreciation of the assets and payment of debt principal allows organizations to have cash on hand when equipment needs replaced.
- Calculation: add in the cost of depreciation, payments to debt principal, and a surplus when calculating annual budgets.
Knowing you are on the right track
In addition to tracking the KPI’s for your nonprofit organization, having a benchmark can help leaders know they are on the right track. Start by monitoring against your previous years’ data. This will allow you to see when you are growing or need to work harder in a specific area. Second, identify three to five comparable nonprofit organizations and track your KPI’s against theirs regularly. Form 990 for nonprofit organizations is public record, which means you can pull their reports every year and compare your organization’s performance to theirs.
Key performance indicators are an excellent way for business leaders of all kinds, especially nonprofit organizations, to monitor the health of their organization and determine what areas need more focus. We can help your nonprofit establish, understand, and track its KPIs. Give us a call today!
Also read our blog article
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