A better way to compare the stability and success of nonprofit organizations.
I spent some time last week reviewing Common Size Financial Statements. Investopedia defines these statements as “A company financial statement that displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company”. Therefore, by using common size financials, one great benefit is that a person can review a company’s financial status in comparison with another company even if those companies are not comparable in other ways.
This is helpful if the companies you are comparing are of different sizes, are at different levels of maturity (in regards to years established) or if you want to look at a particular company’s financials during a time of economic stability vs. say, 2 days after 9/11/2001. The ability to review companies’ financials and compare them is more easily accessible for publicly traded companies. There are many online and print options to review such information. It becomes harder when we are trying to compare privately held companies and nonprofit organizations. The information is not as easily accessible.
In the nonprofit world, our most accessible and standardized method to review finances is the IRS Form 990. But not all nonprofits are required to complete it and it is not as thorough as the principal financial statements (Balance Sheet, Income Statement and Cash Flow Statement). So what do we do if we want to compare the financial stability of different nonprofits? Or if we want to know the impact of a large homeless shelter that has been in the community for 30 years vs. that of a small organization that provides after-school programs to at-risk kids that is in its 5th year of existence (but seems to have great potential)?
What if we became more detailed and structured about standardizing our ‘bottom lines’? If we standardize the impact/outcome measures of nonprofits, we could better assess their success and the impact that they are making in the communities that they serve. For example, what if we could:
- Monitor the financial viability, organizational efficiency, staff/volunteer/Board satisfaction, client satisfaction as well as donor/funder satisfaction (with measures of each) of all nonprofit organizations?
- Create consistent outcome measures for each sector/population of nonprofits so that we are looking at the same categories (based on #1 so that we are measuring the things that have the most impact)?
- Base these outcome measures (#2) on evidence based practices as well as research to show how programming affects the populations that are served?
Then, each ‘type’ of nonprofit could have approximately 10 main outcome measures (based on the above) that must be documented and published for funders, donors and the general public.
NPs THAT SERVE THE HOMELESS =
NPs THAT PROVIDE AFTER-SCHOOL PROGRAMS TO AT-RISK CHILDREN=