Many charities rely on one basic (yet fundamental) question, not just at the end of the financial year but at the end of every campaign and fundraising activity…
“Did we spend more than we raised?”
However, this question is only the beginning.
Strong and sound financial leadership means going deeper and beyond basic.
Charities now need to analyse their key performance indicators as a necessity rather than as optional, as it is these areas that, with a clearer focus and strategic management, can help enhance your overall impact, remain resilient in funding adversity, and allow you to focus on the right areas in finance in order to measure overall effectiveness.
At Beyond Profit, we believe there are three main KPIs for charities to focus on:
1. Income Diversity
When we delve into income diversity, we ask, what percentage of your charity’s income comes from grants, contracts, donations, and other sources?
Is this income multi-year or one-time?
How dependent are you on various funding sources?
Is this form of income sustainable if one funder pulls out?
2. Free Reserves
Free reserves are your unrestricted funds minus your fixed assets, with the outcome providing you with more of an accurate measure of what funds are truly available.
This is a key financial performance indicator to understand and maintain; as if the worst were to happen, do you have enough reserves to cover closure costs?
Are you within your reserves policy?
3. Staff Costs to Income
What percentage of your income goes toward staffing? And how does this compare with previous years?
Are you investing sustainably in your people? How important is this to you?
Are employees motivated? Do you have enough staff to support your operations?
Benefits of tracking key financial KPIs
Monitoring if you spent more than you raised is essential for every charity and an element of finance management that plays on every charity manager’s mind monthly, weekly, and, if we’re completely honest, daily!
However, moving beyond this and going deeper into the key financial KPIs mentioned above can allow charities to move away from the simply keeping your head above water feeling, and instead move charity managers to a feeling of confidence as you begin to better understand the complete financial health of your charity.
These KPIs help you to align your financial management with your charity’s purpose, supporting the reason why you do the things you do. Allowing you to make better and more informed decisions, alongside providing full transparency to your stakeholders.
This, in turn, helps you build trust through transparency, demonstrate impact on your community, and measure performance effectively, all of which lead to an increase in opportunities to attract further funding.
As we know, trustees play a big role (significant) in the financial management of the charity and its reporting. By focusing on the main three KPIs for charities, you can provide levels of confidence as the focus becomes more strategic.
Looking at long-term sustainability, potential problems can be identified early, with measures put in place to counteract them.
Now, considering the benefits, where does your greatest financial value lie, and how can you optimise this to achieve your charity’s goals, mission, and purpose, increasing the positive impact you have on your community?
Charity finance focus
We understand that resources, as well as funding, are limited, and we know that charities must navigate these challenges to sustain their operations.
That’s why the three main KPIs we’ve talked about in this post, we believe, are the key to helping charities move from survival mode to strategic thinking.
Providing clarity, transparency, and financial confidence.
So our question to you is:
“Which KPI would you find most useful to start tracking?”
Let us help.
Offering UK charities a fully outsourced finance function, we help to bring focus to the numbers and accounting reports.
Book a discovery call with us and find out more.
