Fall 2006 issue of Horizons

Common Not-For-Profit Ratios

Some funding organizations have developed financial stan- dards. Some of the common ratios include management and fundraising expenses to total revenues (overhead ratio), fundraising expenses to related contributions received (fundraising efficiency), and net assets available for use to budgeted expenses for the next period (assets to expense ratio). Good financial management understands the impor- tance of relevant ratios and can communicate them effec- tively. Management should be able to develop analyses that accurately determine costs per unit of service or per mem- ber, fixed and variable costs, and other meaningful cost fac- tors that fit the organization and industry. Board members should be knowledgeable about how these factors are deter- mined. Functional cost allocation methods can have a signif- icant impact on ratios. Any financial analysis needs to con- sider the certainty of annual funding, restricted funding and other revenue sources. There are many ways to measure or self-review a not-for- profit. Not-for-profits are different in many ways. Some require significant facilities. Some provide a service that must be managed like a business. Some are dependent on volunteers or donated supplies or products. Some have appreciated assets like land that they have held for many years. Some provide resources to other organizations. There is no one measurement criteria that establishes a value for a not-for-profit. However, working toward improving the value components we have discussed above should result in a stronger organization that is valued highly by those it serves, as well as by those who support and work for the organization. Summary

Questions? Contact Judy Murphy, CPA Partner-in-Charge, Not-for-Profit Services Group 314.290.3496 judy.murphy@rubinbrown.com or Rick Aselage, CPA Partner, Not-for-Profit Services Group 314-290-3456 rick.aselage@rubinbrown.com

52 • summer 2006 issue

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