For many nonprofit organizations, December 31^st marked not just the last day of the calendar year, but the midpoint of your fiscal year.  Focusing a little attention now to assess your organization’s fiscal health will go a long way in helping you finish the year on sound, healthy footing.

There are five questions managers and board members should ask to assess key areas of fiscal health.

1. Is revenue tracking close to expectations?

By this point in your fiscal year, your revenue is probably fairly stable and predictable.  For example, higher education institutions can reasonably predict tuition and fee revenue for the year once second semester registration is complete.  The variables then become how investment performance and fundraising will affect operating results.  Annual events may generate revenue on a different cycle than the fiscal year, so you should ensure that these timing differences have been incorporated into the plan and progress for the event revenue is being tracked to the budget.   Carefully reviewing grant revenue to contract balance is also another good step to take.

2. Are expenses in line with budget?

Many organizations find that payroll and benefits expense represent the overwhelming majority of your outlays, and ratios of 60% to 75% are not unheard of for less capital intensive organizations.  Staff vacancies, turnover and other events may cause unexpected variances from your budget.  Now is a perfect time to assess staffing levels and redeploy resources to meet current or emerging needs. Additionally, if your organization’s revenue is not meeting expectations, you can take time to realign and refocus.

3. Will cash flows be sufficient to sustain the operations?

Too often organizations focus on results of operations and not cash flow.  The working capital needs of your organization should be reviewed and updated on a regular basis, which is particularly important if you are receiving restricted contributions or pledges.  The timing of the receipt of cash may require you to maintain a line of credit, while utilizing a monthly cash flow forecast will help you monitor and adjust spending.

4. Have regulatory changes impacted your organization?

The political and regulatory environment can cause uncertainty for nonprofit organizations.  Proposed changes to funding levels for human services programs, cuts to Pell Grant funding and other hotly debated funding sources have left a level of ambiguity that can be unsettling.  Organizations should evaluate the impact that these changes could have on their operations and consider preparing what-if scenarios and contingency planning. Taking the time now to prepare and plan will help your organization be ready for any future regulatory changes.

5. What is the competitive landscape for your industry?

Now is a time to survey the environment in which you operate and make sure the program you deliver and the manner in which you deliver it remain relevant.  Organizations need to remain true to their mission, and for those that decide to branch out, programs or initiatives that stray from an organization’s mission need to be undertaken thoughtfully and deliberately.  Use this time to reassess the next six months and reforecast. 

Consider answering these questions part of your New Year’s resolutions.  These are not questions to be asked only once a year but should serve as key components of your overall governance program.  A little planning now can help your organization finish strong and maintain a healthy financial momentum in the next fiscal year.