Leveraging Financial and Nonfinancial Information to Improve Program Success

In this series, we previously discussed the framework of nonprofit financial reporting and financial and nonfinancial ratios. Now, let’s dive deeper into how your organization can leverage financial and nonfinancial information in programs and in developing reserves.

Financial Statements

Management and governance may receive financial statements throughout the year, but do they understand the information? These decision makers may benefit from a brief training on how to read financial statements. This training not only benefits the organization but also grows your board and staff members’ knowledge and skills.

Financial Ratios

Once you have identified the most relevant financial ratios for your organization, develop a practice of tracking and reporting on these ratios regularly. For example, if you generate monthly or quarterly financial statements, consider incorporating these ratios into your templates. By frequently calculating and reviewing these ratios, it won’t take long to understand what the norm is for your organization. Only then can you identify specific and measurable goals and plans to improve or change your results to meet your organization’s goals.

Cash Monitoring and Planning

To understand and monitor your cashflow needs, try instituting a process to monitor cash activity and budgets. Many organizations have created cash forecasts and budgets in recent years, which allows them to update and monitor their cash needs – similar to a budget. Understanding cash flow trends is important for planning and preparedness. You may uncover trends in this process that will help you better plan. For example:

• Are there seasonal cash inflows or outflows that may be relevant for decision-making?
• Does it take longer to collect cash from different funding sources?
• Is there an unmet need in the future for another source of funding, such as access to an external line of credit or an operating reserve?

Liquidity and Reserves

Have you considered how establishing reserves may contribute to short- or long-term organizational goals? If not, consider evaluating whether your organization can establish reserves by accessing available net assets without donor restrictions . Often, organizations may identify a need for establishing reserves for the following reasons: 

• Planning for potential program expansion or operational growth
• Planning for larger capital projects and investments
• Expected needs to supplement cash inflows due to seasonal trends in cash
• Delayed collection of receivables
• Other goals or objectives of the organization

When developing reserves, it may be beneficial to start by reviewing current policies and considering how the organization will budget and monitor reserves.

Stay tuned for the next blog in this series to learn more about leveraging ratios for community and organizational impact.

Previous Posts in this Series:

Setting the Foundation to Interpret Nonprofit Financial Statements

Using Financial and Nonfinancial Data to Calculate Key Ratios