The Nonprofit Financial Stress Test

by | May 1, 2020

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Nonprofit Financial Stress Test

Is your organization equipped to get through difficult financial times? We have put together the nonprofit financial stress test to help board members and funders determine real risk factors for nonprofits.

We have outlined some of the financial metrics your nonprofit should be monitoring.

Financial Management

It’s important to ensure we have a solid system in place to account for and track various sources of revenues and related expenses. Some key considerations for sound financial management include:

  • Does the organization have an accounting system?
  • Does the organization have an annual audit?
  • Does the organization have the ability to track restricted funds within their accounting system?
  • Does the organization track their programs separately within the accounting system?

Sustainability

A healthy organization wants to ensure that our revenues are reliable and consistent. Ideally, we would be ensuring we have a plan to break even or create surpluses consistently. Here are a few considerations to ensure your organization is financial sustainable:

  • Does the organization have at least 25% operating reserves?
  • How highly concentrated is the organization’s revenue?
  • Does the organization has legal issues including liens or garnishments?
  • Does the organization have delinquent tax issues?

Liquidity

How quickly could an organization come up with cash to get through difficult economic times. Some things to consider:

  • Does the organization have at least 30 days of unrestricted days in cash?
  • Does the organization have a line of credit?
  • What is the debt to credit limit on existing debt?
  • How much of accounts payable is over 90 days?
  • How much of accounts receivable is over 90 days?

In addition to the considerations listed in the Nonprofit Financial Stress Test above, there are many other key metrics for determining whether your nonprofit can get through tough economic times. If you haven’t already, consider working with your finance committee to determine which of these make sense for your organization.

If you need help addressing some of your risk factors, let’s talk!

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