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With the impact of the COVID-19 pandemic and continued economic uncertainty, some nonprofits continue to struggle with financial sustainability. This can mean your board of directors is taking a greater interest in your organization’s financial performance. Key performance indicators (KPIs) can help focus your board’s attention on important metrics.
Although organizations will see quite a bit of overlap, a nonprofit’s KPIs will depend largely on the organization’s specific characteristics. That includes its revenue streams, key expense factors, and budget and strategic goals. Put another way, you need to identify your organization’s “business-drivers.”
Determine which factors affect the reliability of your revenue streams — and which factors influence whether your expenses rise or drop. Then create KPIs that monitor those factors. Consider the level at which you want to track selected KPIs. You could monitor them by individual program or function, or at the organizational level.
Over time, you’ll likely need to adjust your KPIs as your strategies, priorities or programs change. What’s “key” today won’t necessarily be key in five years. For each KPI, you should develop a target, which may be based on your current budget or part of your strategic plan.
Seven financial KPIs have emerged as must-haves for nonprofits, including:
Don’t stop with just financial KPIs. Nonprofits can use KPIs in nonfinancial areas of the organization such as:
Just tracking numbers won’t be meaningful for your board members. Solicit input from them. Although they might not name specific indicators, their priorities can create appropriate KPIs you can use to facilitate informed, timely decisions.
Doeren Mayhew’s nonprofit CPAs and advisors specialize in working with organizations to help them create and implement KPIs to closely monitor their overall financial position. To obtain assistance with developing KPIs for your nonprofit organization, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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