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Introduction
Purpose
The purpose of this budget analysis is to develop a financial snapshot for Idaho Nonprofit
Center located in Boise, Idaho (INP). All nonprofit organizations who identify by IRS
taxonomy’s and codes are required by law to make an accounting of how they spend and receive
their monies by submitting a yearly accounting of activities which can be found on Form 990.
The IRS form 990 is a rich source of many types of information about a nonprofit. The
scope of this analysis will focus strictly on the aspect of financial health for INP. The goal of this
analysis is to answer questions about cash flow, financial stability and accountability.
An analyst’s toolbox has many useful tools for dissecting budget numbers and translating
them into useable information. For this budget analysis, I have elected to use 7 standard financial
ratio to paint a two dimensional financial landscape for INP. While these ratios are accepted as
meaningful, a discussion of their limitations can be found in the summary section.
Idaho Nonprofit Center (INP)
Idaho Nonprofit Center is a registered member of the National Council of Nonprofits
Organization and is the only state association in Idaho. INP represents the interests of all 4,600
nonprofit organizations in Idaho. As of 2014, INP lists 470 member nonprofits who “come
together to share knowledge, solve problems, pursue common interests, and serve the public
good.”
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INP’s mission is to ‘develop programs and services that inform, promote and connect and
strengthen individual nonprofits and the nonprofit sector”. They have developed and provide the
following seven programs:
● Celebrate Idaho Nonprofit Awareness
Month
● Nonprofit Resource Thursdays
● Annual Idaho Gives 24 Hour
Fundraiser
● INP Statewide Nonprofit Conference
● Public Policy Forum
● INP Regional Nonprofit Forum
● Online Learning Webinar
Financial Snapshots
A nonprofit’s balance sheet and an organization’s 990 tax is a gold mine for determining
its financial health. Using seven specific ratios from the balance sheet reveal significant trends,
identify potential problem areas and measuring the liquidity of assets, thus giving the
organization a snapshot of where adjustments need to be made to stay on sound fiscal ground and
to stay true to their mission and strategic plan.
Idaho Nonprofit Center Balance Sheet for Year Ending 2012
Assets Liabilities Net Assets
Cash 0 Accounts Payable $14,475 Unrestricted $292,525
Savings $303,149 Temp. Restricted $0
Prepaid expenses $1,442 Perm. Restricted $0
Accounts Receivable $1552
Land Buildings equipment $201
Other $656
TOTAL $307,000 $14,475 $292,525
Total Liabilities &
net assets
$307,000
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In the nonprofit sector a financial healthy organization is expected to have low profit
margins, low administrative and fundraising costs, high spending on programs and decent cash
reserves as a contingency for economic and business cycle downturns, loss of donors, etc. As we
assemble comparative information of seven key areas listed below we will be able to quickly
discern the quality of the financial practices Idaho Nonprofit Center and where it falls on the
continuum of best practices and expectations for solvency.
Financial Indicators
Seven key measures that indicate the state of an organization’s financial health. They
measure liquidity, which is the ability to pay expenses on time in the short run; a 12-month
period is the norm.
Days to cash on hand measures days that cash reserves would cover expenses in an
emergency.
● Current Ratio is a projected look at future cash flow.
● Working capital measures unrestricted resources are readily available in short term.
● Debt to equity measures the difference between the use of debt and liquid assets and
income to meet obligations.
● Profit margin a simple calculation income and revenues.
● Administrative cost measures the ratio of administrative cost to total revenues.
● Fundraising expenses measures the ratio of fundraising expenses to total revenues.
● Program expenses measures the ratio of program expenses to total revenues.
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Days to Cash on Hand
The “Days to Cash on Hand” is a ratio that reveals the amount of protection to answer the
question: “How many days can we cover expenses with cash in the event of loss of revenue?”
The accepted standard for this
measurement is 3 to 6 month cash
reserve to create a bridge between to
cover expenses and buy time for making
other arrangements. The rationale for
this measurement is to provide
protection to nonprofits who dwell in a
volatile environment where cash flow can be tenuous. For example, a sudden loss of a donor,
due to death or a change of interest in the cause, puts an immediate pinch on the flow of cash that
nonprofits depend on to meet obligations and stay solvent. Another example is a budget restraint
in another sector who does business with a nonprofit. Local, state and federal government
budget cuts can cause a vendor to suspend payment to the nonprofit without warning.
Working Capital
Measured in days, the working capital this ratio falls into the category of reserve funds
and reflects the availability of unrestricted assets. INP’s 281 days comfortably exceeds the
national average of 270 days according to Charity Navigator. This indicates secure access to
unrestricted funds should an emergency arise.
3
182
Days to $ on Hand Working Captial in Days
Financial Ratios 1
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1.03
0.05
0
0.2
0.4
0.6
0.8
1
1.2
CURRENT RATIO DEBT TO EQUITY
Financial Ratios 2
Current Ratio
The current ratio
measurement projects future cash
flow and answers the question:
“How much cash flow can we
expect in one year?” by comparing
an organizations assets and
liabilities. INP has low debt and
more than adequate assets to meet their obligations.
Debt to Equity
This measurement is an important gauge of solvency as it measures debt load and reveals
the relationship between how much organizations depend on debt and liquid assets and income
from donations and fundraising to meet its obligations. INP has considerable unrestricted net
assets and low debt indicating long term viability and solvency.
Functional Measurements
Administrative, programs and fundraising measurements are the favorite numbers for
nonprofit watchdogs, donors and the general public. They gauge the trustworthiness and
fiduciary responsibility on these numbers. Nonprofits also use these numbers (if they are
positive) in fundraising pleas. The (BBB)’s Wise Giving Alliance, a charity watchdog
organization has set these two baseline recommendations for acceptable functional
expenses:
Nonprofits should spend at least 65% of total expenses on program activities
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Nonprofits should use no more than 35% of its income from fundraising back into more
fundraising
Idaho Nonprofit Center does a good job of managing its functional expenses according to
Wise Giving’s recommendations. As a state association that supports over 500 nonprofits, a
higher percentage than normal in the program area would be expected as it follows their mission
statement to provide programs for Idaho
nonprofits. INP hosts only one major
annual fundraiser, The Idaho Gives
Campaign. They receive the bulk of their
income from membership fees, which
accounts for the low percentage of
income spent on fundraising.
Profit Margin
The nonprofit sector differs from the private sector in the measurement of profit margin
in terms of how they define profits and how much is acceptable. The former are expected to
keep a low profit margin as an indicator that it is really a ‘not for profit’ and derive their ‘profit’
from donations, fundraising and member fees (if applicable) whereas the private sector depends
on marking up products to make a profit and use those profits to invest and grow their business.
Nonprofit watchdog groups use the standard profit margin formula as one way to scrutinize wise
financial practices. The lower this margin is, the more responsible a nonprofit is perceived to be
with their management of funds. In 2013 INP’s expenses exceeded their income by $9,490 which
makes their profit margin run in the negative (which is not reflected in the chart).
3% 12%
1%
84%
Functional Expenses
Profit Margin Administration
Fundraising Program
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Summary
The financial picture for Idaho Nonprofit Center is overall is positive with a few trouble
spots in cash reserves and ending the year in the red by $9,490. Having only three days to cash
on hand is an area that needs immediate attention. In contrast they are above the standard for
days for working capital, which means that they may be cash poor, but they have assets that
could be liquidated to carry them over a revenue loss for at least six months.
Projections for cash flow and the debt load are both positive indicators of their financial
health. The numbers seem to indicate they have good cash flow throughout the year, but towards
the end of 2012 the checking had dwindled to zero. This could be due to a sharp growth curve in
which they had to increase payroll and compensation by $83,000 and another $20,000 increase in
other expenses.
Even with this large increase they are still doing well in keeping fundraising and
administrative costs to acceptable levels. The programs they offer to their members are typical
of other state associations and match the intent of their mission statement. I was not able to
determine if they have a strategic plan or not as it wasn’t posted on their website and they were
in the midst of their annual fundraising so office staff was otherwise occupied. On the face of it,
spend more in serving the nonprofit sector in Idaho than the average nonprofits usual spend on
program development and implementation.
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References
Retrieved from: http://www.nasaa-arts.org/Learning-Services/Past-Meetings/Reading-5-
Understanding-Financial-Statements.pdf
(Unknown) (2008). Analyzing Financial Information Using Ratios. Retrieved from:
www.nonprofitsassistancefund.org
(Unknown) (2009). Balance sheet cheat sheet. Retrieved from:
www.nonprofitsassistancefund.org
McLaughlin, T. (2012). Reserves on Hand. Retrieved from:
http://www.thenonprofittimes.com/news-articles/reserves-on-hand/
Holman, A. etal. (Undated). Analysis of key financial ratios in nonprofit management. Retrieved
from: http://www.ritzholman.com/news_files/Nonprofit%20Presentation.pdf (program expenses)
