When it comes to the financial well-being of your non-profit organization, monitoring key metrics is crucial. A full checkup on your financial health lets you see where you’re doing well and where you can improve. By carefully looking at your Receivables, Payables and Cashflow, you can make smart choices that will help your organization stay financially stable.
This blog looks at a checklist to evaluate the advanced financial health of your non-profit. By the end, you’ll have a clear understanding of the steps you can take to enhance your financial operations, guaranteeing your mission remains well-funded and sustainable for years to come. Let’s look at the most important things to evaluate:
Financial Reporting And Analysis
Strong financial reporting and analysis are essential for making strategic choices. That includes:
- Regularly creating financial statements like balance sheets, income statements, and cash flow statements.
- Analyzing financial trends to identify areas of improvement or potential challenges.
- Calculating key financial ratios like liquidity, profitability, and solvency ratios.
Financial KPIs
Financial KPIs are measurable metrics that track your progress towards achieving financial sustainability. Here are some key KPIs for the advanced financial health of your non-profit organization:
- Fundraising efficiency measures the cost of acquiring new donors and retaining existing ones, tracking metrics like cost per acquisition and donor retention rate.
- Program efficiency measures the cost of delivering programs, tracking metrics like cost per participant or cost per unit of service delivered.
- The grant success rate is an important metric that measures the percentage of grant proposals that are funded, allowing you to track and analyze trends for improved grant writing strategies.
- In order to keep cash flowing efficiently, cash flow management includes tracking indicators like average collection and payment periods.
Revisit How Slowly Or How Quickly You Pay Vendors
Managing your payables well is an important part of being financially healthy. If you pay your suppliers too soon, it can cause cash flow issues, but if you pay them too slowly, it may affect relationships and your organization’s reputation. Here are some strategies to optimize your vendor payments:
- Assess Current Payment Terms
Start by looking over the payment terms you have with the vendors you use. Are these terms being followed, or are there regular delays? Determine the root causes of any delays and resolve them without delay. It might be due to internal errors or cash flow challenges.
- Negotiate Favorable Terms
Talk to your vendors about how you can improve payment terms so that they cooperate in your cash flow cycle. Longer payment terms can give you some breathing room, but make sure they are reasonable and mutually beneficial. Accounting firms can help with these negotiations by using their knowledge to secure favorable terms without jeopardizing vendor relationships.
- Set up a payment schedule
Creating a structured payment schedule can help you manage outflows more effectively. Set specific dates for processing payments and stick to them. This not only makes sure that bills are paid on time, but it also helps people accurately estimate how much cash they will need.
- Use Technology
Invest in expense management software and/or payables management software that automates payment processes. This lowers the risk of errors made by people, makes sure payments are made on time, and gives you real-time information about your payables.
Revisit How Quickly You're Collecting Funds From Donors And Grantors
Getting contributions and grants is important for the long-term health of your non-profit. Delays in receiving contributions and grants can disrupt your cash flow and limit your ability to execute programs. Here are some ways to improve the way you collect:
- Streamline Donor And Grant Management
An effective method for managing donors is necessary. It needs to keep track of gifts from donors, payment plans, and messages. Accounting firms can help you set up a donation management system that works with your accounting software. This way, you can see all of your earnings at once.
- Follow Up Strategically
Create a plan for following up on pledges and grant funds that are past due.
- Offer Multiple Payment Options For Donations
Make it easy for donors to contribute by offering multiple payment options. Methods such as mobile payments, bank transfers, internet payment portals, and credit/debit cards are all part of this. The more convenient it is for donors to pay, the quicker you’ll receive funds.
Monitor Cash Flow Metrics
Proper cash flow management is crucial for the financial stability of your non-profit. Here are some key metrics to monitor:
- Net Cash
Track your net cash, which is your cash balance minus current liabilities. This metric provides a clear picture of your available funds after accounting for short-term obligations.
- Days of Cash on Hand
Calculate how long your organization can cover its operating expenses with the existing cash without receiving additional cash inflows. This metric is critical for assessing your liquidity and financial health.
- Cash Ratio
Monitor the cash ratio, which compares your cash and cash equivalents to current liabilities. A higher cash ratio indicates better liquidity and the ability to meet short-term obligations.
- Metrics Related to Bank Covenants
Keep an eye on any financial metrics required by your bank covenants. Meeting these metrics is essential to maintain good standing with your lenders and avoid potential penalties.
Building a Culture of Financial Wellness
An important first step is to do a financial health check. To achieve long-term advanced financial health for your non-profit, consider these additional points:
- Invest in Your Finance Team:
Having a skilled and experienced finance professional managing your non-profit’s finances is beneficial. - Develop a Financial Management Plan:
Create a detailed financial plan that includes your income goals, projected costs, and plans for maintaining financial stability. - Cultivate Donor Relationships:
Building strong relationships with donors is crucial for consistent fundraising success. Partnerships are strengthened by regular contact, updates on the impact of their donations, and expressions of gratitude.
Next Steps
By applying this financial health check and welcoming ongoing financial wellness practices, you enable your non-profit to thrive. A non-profit that is financially stable is better able to make a permanent difference for the causes it supports. It is also essential to know what is required when the time comes to be audited. Have a look at our ‘Expert Non-Profit CPA Tips: 10-Point Audit Checklist’.
Array Accounting is here to help you by working side by side with you. We offer a full range of financial services for non-profits, such as:
- Outsourced Accounting
- Budgeting and Financial Forecasting
- Grant Management Support
- Outsourced Controller
- Financial Reporting and Analysis
- Fractional CFO Services
Schedule a free consultation and enquire about our non-profit accounting services today. Together, let’s make sure your organization has the financial resources it needs to fulfill its mission and create a positive change in the world.
FAQ
It’s an assessment of your organization’s financial well-being, identifying areas for improvement to ensure mission fulfillment.
Analyze payment terms with vendors, optimize donation collection processes, and consider maintaining adequate cash reserves.
It suggests heavy reliance on debt, potentially impacting long-term financial stability.
We offer services like outsourced controllers, financial reporting and analysis, and fractional CFO services, all tailored to your organization’s needs.
Setting financial goals helps align financial management with the organization’s mission and strategic plan.
