Recently I had a great conversation with a board of directors about the story their financial statements are telling. In my mind, the fact that we were having the discussion and that the board was so engaged is indicative of the good work the board is doing for their organization.
Our review of the metrics that are often calculated for nonprofit organizations landed on the percentage of expenditures that are functionally allocated to program, management and general, and fundraising. While this organization’s allocation seemed reasonable and appropriate, there were a number of questions and comments as to whether the allocation to program should be higher. The thought is that this shows the organization in a better light.
Is that true? I suppose that someone uninformed about an organization and its programs and operations could conclude that a nonprofit with a higher percentage of expenditures allocated to program is “doing a better job” with their resources. But to truly understand how a nonprofit is operating, you need to look behind those numbers. Are they in the middle of a fundraising campaign in order to bring new programs on board, and therefore allocating more resources to fundraising? Are they gearing up for significant growth and wisely putting resources into the infrastructure necessary to create and sustain that growth?
Ultimately, board members need to know what the key metrics are for their organization, what story those metrics are telling, and what the reality is behind the numbers.