Nonprofit Financial KPIs: What to Report to Your Board

A board report with 40 numbers in it gets skimmed. One with eight gets read. The hard part of nonprofit financial reporting is rarely producing numbers. It is choosing the few that show your executive director and board whether the organization is sound, and whether the money is doing what it was meant to do.

This post covers which nonprofit financial KPIs are worth reporting, how to pair them with program data, what a board financial report should include, and what it takes to keep it current without rebuilding it every month.

Why Fewer Measures Work Better

Most reports grow by accumulation. A funder asks for a number, so it goes in. A board member asks a question once, and the answer becomes a permanent line. Years later, the report answers every question anyone has ever asked and few that matter today.

Test each measure with one question: what decision does it inform? If nobody can name one, move it to a supporting schedule.

Boards and executive directors need trends and exceptions, not line-item detail. In our experience, six to 10 measures, each shown against the prior period, cover most of what they need to know.

Financial KPIs Worth Reporting

Sage Canada's guide to nonprofit financial KPIs lists 12 across funding, cash flow, expenses, and debt. These five answer most of what a board asks:

• Cash flow from operations. Whether day-to-day activities generate enough cash to cover costs, without drawing on reserves or borrowing.
• Liquidity. Cash on hand divided by average monthly expenses, shown as months of operating cash. It tells you how long you could keep going if funding slowed. Use unrestricted cash where you can, because restricted cash is not free to spend on general costs.
• Revenue composition. Where income comes from, such as government, grants, donations, and program fees, and how much of it is flexible. Watch the share that comes from your largest source.
• Program expense ratio. Program expenses divided by total expenses.
• Liabilities as a percentage of total assets. A high share can signal difficulty managing debt.

The program expense ratio works best with context. A low administrative share can mean a lean organization, or one underinvesting in the finance team and systems that keep it accountable.

In 2014, the CEOs of GuideStar, Charity Navigator, and BBB Wise Giving Alliance, all US organizations, urged charities not to let overhead ratios stand alone as the basis for trust, and to manage toward results. Report the ratio with its trend and a sentence of context, never alone.

Pairing Financial and Program Data

Financial results show what was spent. Program data shows what it bought. A board needs both, and the most useful measures combine them: cost per participant, cost per meal served, and donations per attendee.

Each of these divides a financial figure by a program count, such as clients, students, visits, or attendees. Used consistently, they let a board compare programs and see whether results are keeping pace with spending.

They usually fail for a practical reason. The program counts live in a separate spreadsheet, kept by another team, using a different idea of who counts as a participant. The ratio gets rebuilt by hand each period, and nobody is sure it is right.

The fix is to agree on one definition for each count and record it where the money is recorded. In Sage Intacct, statistical accounts hold non-financial figures, such as headcount, and let you build metrics that compare them with financial figures. A nonprofit can use that mechanism for the counts it reports on, such as clients served or attendance.

Budget against actual by fund is a separate report with its own purpose. We cover it in our post on nonprofit budgeting for restricted funds.

What a Board Financial Report Should Include

A board report is not the financial statements. The statements are the record. The report is the reading of them. Build it in this order:

1. A short summary. Three or four plain-language sentences on where the organization stands and what changed since last time.
2. The KPIs. Each one with the current period, the prior period, and the trend.
3. Program measures. Cost per participant and the other combined measures, by program.
4. Exceptions. What is off plan, why, and what is being done about it.
5. The financial statements. As backup for anyone who wants the detail.

Send it on a fixed schedule, monthly or quarterly depending on how often the board meets, in the same format every time. A familiar layout is what makes a trend visible.

If your board waits weeks after month-end for numbers, or finance rebuilds the report by hand each time, that is one of the signs in our post on when to upgrade your nonprofit's accounting software.

Building a Nonprofit Financial Dashboard

A nonprofit financial dashboard is the same set of KPIs, kept current instead of assembled once a month. For a small organization, a well-built spreadsheet can do this job. It stops working when producing the report takes days, or when two people calculate the same measure two ways.

Whatever you use, check for these:

• Each KPI defined once and calculated from the ledger, not retyped.
• Drill-down from any figure to the transactions behind it.
• Role-based views, so the executive director sees the summary and program managers see their own programs.
• Financial and program figures on the same screen, from the same data.

In Sage Intacct, which we implement and support, statistical accounts can feed performance cards on dashboards.

Once the measures are stable, setting targets and forecasts against them is the next step. We cover that in our post on the Sage Intacct Planning module.

Next Step

Want to see how dashboards and reports are built in Sage Intacct? Start the self-guided demo on our Sage Intacct page and explore at your own pace.