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As in life, there is no one-size-fits-all approach to measuring business progress.
While there are standard variables for business performance reporting, such as profit margins, cash flow, overhead, and sales performance, most growth-oriented businesses are interested in additional key performance indicators (KPIs) that are specific to their products, niches, and industries.
These factors work well in an organization where the bottom line of the business is to improve the bottom line, but how do you measure the success (or outcomes) for a non-profit organization?
When a non-profit’s mission isn’t rooted in a profit margin, but rather, the impact they have on the community, there is no one direct answer; for every organization is different. Regardless of the type of the outcome they must measure, a non-profit with a streamlined financial management system in place is able to run reports faster, track progress more quickly, and identify areas of opportunity for growth and/or change to help the organization provide better, more efficient services and help predict future needs related to their cause.
Here are 3 ways non-profits can set-up their financial systems to provide better financial intelligence for measuring outcomes:
Tracking Overhead
As with any business, non-profits require funding to provide services. The staff needs to get paid, utilities need to be paid, and money needs to be set aside for rent and supplies. All of these operation related costs are known as overhead. When it comes time for reporting, many non-profits with limited funding are squeezed into reducing overhead, while other areas of performance, such as membership levels, donors, and community outreach are overshadowed.
With an optimized financial system in place to automatically track overhead, non-profits are better prepared to identify realistic areas where spending cuts, or additional funding, are needed. This system also allows management to monitor and adjust their budgets before reports are run and presented to the board. It also creates better-balanced reports so they can focus on the organization’s progress holistically rather than just paying attention to operation costs.
Tracking Cash Flow
A lot of non-profit organizations work within tight budgets. Many operate on incredibly thin margins and are continually looking for assistance in funding their programs and services. Because budgets need to be maximized, organizations need to have an incredibly strong handle on their cash flow. Organizations need to know when and where every single cent comes from and when and where that cent is spent. A streamlined financial system can deliver detailed cash flow reports that do more than just provide a snapshot of the amount of cash the organization has on hand; these reports can identify where money is being overspent and if funds are being appropriated correctly. With a better handle on cash flow, non-profits can be more effective in budget management and plan better budgets for future years.
Tracking Donations
If cash is the life-blood of any business, one could say that donors and donations come in a close second for non-profits. Many organizations continue to track donations using spreadsheets or in fundraising-specific programs. This can create a time consuming process for exporting the data and inputting the information into the agency’s financial system to run reports. An optimized financial system allows for efficient input of donor information and provides faster reporting and better searching capabilities; not to mention fewer errors caused by simple human error in the data re-entry process. Instead of manually reviewing dollar amounts across a slew of spreadsheet data, organizations can quickly search and find their biggest donors, establish donor-specific funds, and gain a better sense of what the organization should expect to take in for the year.
