Reporting for Nonprofits: Understanding Your KPIs

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A nonprofit’s financial statements tell the story of an organization’s success. Translating this information into insightful data points can help you better understand where the organization stands financially. Looking at key performance indicators (KPIs), you can gain insight into a particular aspect of your organization, and they can be used to assess the health and growth of your nonprofit over time.  

Key Benefits of Using KPIs  

Our nonprofit CPAs work with you to protect your tax-exempt status and achieve operational efficiencies. Below are five benefits of using KPIs to measure the progress being made toward your organizational goals.  

  1. Clear Measurement of Progress: One main benefit of using KPIs in your organization is to clearly measure the progress being made toward your mission. By defining the KPIs valuable to your organization, you can gain a deeper understanding of where you are today and how you get to where you want to go tomorrow. Whether it’s increasing the number of beneficiaries served, improving fundraising efficiency or enhancing program outcomes, KPIs provide a clear yardstick to gauge your progress. 
  2. Enhanced Decision Making: Making informed decisions is crucial to ensure efficient resource allocation and optimal outcomes. KPIs play a pivotal role in this process by providing actionable data, allowing you to make strategic decisions aligned with your mission.  
  3. Stronger Accountability and Transparency: Your organization operates with the support of various stakeholders, including donors, board members and the community you serve. By utilizing KPIs, you enhance your organization’s accountability and transparency, demonstrating your commitment to effectively manage resources and achieve measurable outcomes. Sharing this information with your stakeholders fosters trust and confidence in your organization’s ability to make a meaningful contribution. 
  4. Efficient Resource Allocation: KPIs provide valuable insights into the efficiency and effectiveness of your programs and initiatives, helping you optimize resource allocation. By analyzing KPIs related to fundraising costs, program expenses and impact per dollar spent, you can identify areas where adjustments can be made to achieve greater efficiency. 
  5. Continuous Improvement: As your nonprofit evolves, you are constantly seeking ways to improve operations and increase your impact. KPIs help identify areas for growth and innovation. By regularly monitoring and analyzing your KPIs, you can spot trends, patterns and potential bottlenecks that could hinder the progress you are trying to achieve.  

Four KPIs to Monitor 

Below are some KPIs all nonprofit leaders should be aware of to monitor their organization’s financial posture compared to the industry. 

1. Current Ratio

Current assets divided by current liabilities 

Target range: Greater than 1.0 

Trend: Upward

2. Liabilities to Net Asset Ratio

Liabilities divided by net assets 

Target range: less than 1.0 

Trend: Downward 

3. Functional Expense Allocation

Program expenses as a percentage of total expenses 

Target range: 75%-85% 

Trend: Upward 

4. Defensive Interval Ratio

Liquid assets divided by average monthly expenses 

Target range: 3 to 6 months 

Trend: Upward 

A Trusted Partner  

Our nonprofit CPAs help protect your tax-exempt status and achieve operational efficiencies, so you can focus on your organization’s purpose and impact. We form collaborative relationships with our clients, guiding them to navigate the unique challenges they face and bring forward solutions to solve them. We will help you understand your organization’s KPIs and create a roadmap to keep them trending in the right direction.

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