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Assessing Nonprofit Financial Health
8-26-2015
Most nonprofit groups track their performance by metrics such as dollars raised, membership growth, number of visitors, people served, and overhead costs. These metrics are certainly important, but they don’t measure the real success of an organization in achieving its mission.
Every organization, no matter what its mission or scope, needs three kinds of performance metrics—to measure its success in mobilizing its resources, its staff’s effectiveness on the job, and its progress in fulfilling its mission.
The fundamental reason for nonprofit financial performance assessment is to determine how well an organization is fulfilling its mission. The financial numbers alone cannot answer this question, but they can provide insight into the sources of funding, the cost of service delivery, and an organization's ability to operate in the future.
To determine the overall health of a nonprofit organization, you need to understand its financial statements. You should be able to find a copy of the most recent statements on the organization’s website or obtain it by requesting it. Evaluating these documents will provide insight into the organization’s financial health and the basis on which management makes strategic and financial decisions. To do this evaluation effectively you need basic knowledge of accounting methods, such as the ability to calculate financial ratios.
Question asked to assess performance
Mission
· What are your organizational goals?
· Is the mission consistent with the stakeholder’s values?
· How does it translate into goals and objectives?
· What are the present obstacles to fulfilling the mission?
Organizational Management
· What is the experience and expertise of management?
· What is the quality of internal support systems?
· What is the administrative efficiency?
Financial Health
· What is the cash flow position?
· How financial stable is the organization?
· Does it have accumulated wealth to sustain it if funding is reduced?
Financial Management
· What is the quality of internal control systems?
· How prudent is the cash and investment management?
· Are non-financial asset prudently managed?
A strong, vibrant board of directors is a clear indicator of a healthy organization. Yet even the best organizations need a periodic check-up to ensure that they cannot just survive but will really thrive in today’s environment. To check your board’s vital signs, or to put in place practices and strategies for a healthy and energized board, the best place to start is with a board self-assessment
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional beforeembarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. For more information on this topic or any other taxation matters, please contact taxes@alameen.ca.
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