Substance and Style

If you’re working for a newer nonprofit organization, you might be surprised by how much financial information is required for many funding requests. Even if you have done your due diligence in researching program costs, salary ranges, insurance rates, and other major expenses, you may not realize that funders are looking at how your finances compare to other organizations when deciding whether to take a chance on you. Likely, the majority of your planning has been focused on your mission, as well it should be. However, foundations and government grantors don’t fund nonprofit organizations out of the goodness of their hearts. While they do require a mission that aligns with their own priorities, they very heavily weight your financial health when making decisions. 

As a new organization, one way for you to check in on your financial health is to look at the 990 forms of similar organizations.  You can see three years’ worth of 990s for any nonprofit in the United States on guidestar.org by registering for a free account. Form 990 is long and a lot of the information will not be relevant to you. But the parts that are relevant can be extremely useful. Here are some tips:

1. Find organizations similar in size, mission, structure, location, and funding sources. If your organization in Alaska has a staff of four and relies primarily on private donations, don’t try to compare yourself to a 500 member dues-paying association in Houston. If your organization relies mostly on volunteers to provide transportation to chemotherapy appointments, don’t compare yourself to a huge organization like the American Cancer Society just because there’s an overlap in mission. Find organizations that share a broad category (human services, medical research, etc.), have a similar staff size and annual budget, and have a similar mix of funding sources. Check the websites and annual reports of the foundations and grantors you’re approaching for funding. Sometimes you can find a list of past recipients. Look up those organizations for clues about what the funder looks for in an organization’s finances. 
2. Check their overall financial percentages. Charitywatch.org currently recommends that at least 60% of a nonprofit’s expenses be program-related. The Better Business Bureau recommends at least 65% of expenses be program-related. See if organizations similar to yours are adhering to those percentages and by what margin. Compare that to your own expenses. Look at what percentage of their funding comes from each source: program revenue, unrelated business income, dues, grants, government agencies, fundraising events, private donors, etc. This can give you an idea as to your own areas of strength and weakness.
3. Compare salary ranges. While you won’t find individual salaries, you will find board compensation, and this typically includes the Executive Director. You will also find the total wages paid, how much of that is salary is for program staff, and the number of employees. This will give you some idea of how much people are being paid. It’s especially important that your Executive Director’s salary is not wildly different from others in the same position with the same level of responsibility. 
4. Look for insight into policies and procedures. You’ll find a variety of questions about operations and policies, which can help you see how other organizations are approaching their finances. Many, if not most, of these questions won’t apply to very small organizations. However, you can learn a lot about finances in the nonprofit world from these questions and answers.

You won’t ever be able to find an organization that is an exact equivalent of yours (if you could, there would probably not be a need for your organization). However, you will be able to find a treasure trove of information that can help you keep your organization financially healthy and present your own information in a way that will impress donors and grantors.