Key performance indicators for NFP accountants

Balance sheet metrics
Current Ratio: illustrates your short-term liquidity and is the ratio of the organisation’s current assets to its current liabilities. Current assets are those that can be converted into cash within a year, including cash, accounts receivable and inventory. Current liabilities include all liabilities due within a year, including accounts payable, leave entitlements, (some) grants in advance. Generally, a current ratio below one may be a warning sign that the organisation doesn’t have enough convertible assets to meet its short-term liabilities. The current ratio formula is: Current Assets / Current Liabilities, and the number generated is the value of current assets to each $1 of current liabilities.

Working Capital: like the current ratio, it compares the organisation’s current assets with its current liabilities but the result is expressed in dollars rather than a ratio. Low working capital may indicate that the organisation will have difficulty meeting its financial obligations. Conversely, a very high amount may be a sign that it’s not using its assets optimally. The formula for working capital is: Current Assets – Current Liabilities, and the resulting dollar value can be considered your ‘available’ cash over which you have discretion to spend.

Reserves to Expenditure is one of our other favourites, expressing the proportion of the annual operating budget that is covered by your accumulated reserves or retained earnings. The formula is Reserves / budgeted annual expenditure.

Expense Cover is another similar metric that highlights your cash runway. The formula is Reserves / (budgeted annual expenditure / 52), the number generated is the number of weeks that your reserves would cover if no further funding was received.

Reserves benchmark: similar to expense cover, some organisations find it helpful to set a reserves benchmark, which is the minimum level of reserves that the Board is comfortable with. You can express this target either as a dollar value or as a number of week or months.

P&L metrics
Budget Variance: this compares the organisation’s actual performance to budgets or forecasts. Budget variance can analyse any level of detail within a budget – from the bottom line result through to individual income or expense line items. The variance can be stated in dollars or as a percentage of the budgeted amount. A positive budget variance value is considered favourable for revenue and income accounts, but it can be unfavourable for expenses – it depends on whether you are trying to reduce costs or you have funding that must be exp[ended by a deadline. The formula for calculating budget variance is: Actual result – Budgeted result to generate a $ variance or (Actual result – Budgeted result) / Budgeted amount x 100 to generate a % variance.

Revenue Source – many NFPs are actively trying to diversify their income streams to ensure long term sustainability. A revenue source metric could simply show the actuals as a percentage or dollar value of the various revenue streams you have, or you could measure against targets set in conjunction with your annual budget.

Expense/Cost of Sales/Gross Margin – some NFP’s may earn their revenue through fee for service so understanding the main cost driver and gross margin is important; am I making enough after direct costs to cover my overheads? Setting a target gross margin as a KPI can assist in ensuring this is met.

Fundraising metrics
Donor acquisition – Donors are essential to securing sufficient revenue for some organisations to meet their operating budget, requiring a robust and successful outreach strategy that builds and nurtures relationships with donors.  As donors directly impact revenue, measuring the performance of the donor acquisition strategy, including acquisition cost v return, provides critical information to help your team inform their strategy, entice larger contributions and improve the volume and quality of the donor pool.

Donor Retention: Assessing the rate at which donors continue to support the organisation over time is a key indicator of donor satisfaction and long-term sustainability. High donor retention is more cost-effective than constantly acquiring new donors.

Fundraising efficiency –  ensures transparency and accountability and that resource allocation is working at its optimal level. By tracking the cost of fundraising relative to revenue generated, non-profits can assess their ability to convert donations into impactful programs.  Regular monitoring helps identify underperforming strategies, allowing the organisation to adapt and improve its fundraising efforts. Donors and stakeholders often scrutinise these metrics, influencing their trust and willingness to support the organisation. Measuring and reporting fundraising efficiency establishes a sustainability and credibility profile that can be shared across the organisation and its stakeholders.

Social media engagement – Monitoring social media metrics including likes, shares, comments, and followers, provides instant feedback on the organisations ability to reach and engage with its audience.

Client satisfaction: Garnishing feedback from the beneficiaries helps assess whether their needs are being met effectively and can guide program improvements. Client surveys provide a plethora of valuable and actionable feedback that builds into KPI strategies across the whole organisation.

NFP accounting
NFP governance
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