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Nonprofit Organizational Assessment Tool
Financial Empowerment
by: Andrew Lewis*
University of Wisconsin Extension

This section of the Nonprofit Organizational Assessment Tool can help guide a group discussion about an organization's financial empowerment process. This group discussion ideally should include board members, staff, volunteers, and service recipients, but could be used as a self-assessment tool by anyone associated with a nonprofit organization.

Review the assessment form below. First, check the indicators that have been completed or accomplished. Next, indicate the amount of improvement that you think is needed for that indicator (None or Not Applicable, Some, or much improvement needed). It is your perception of the organization. There are no right or wrong answers. If used with a group, each individual should complete the assessment tool. After allowing adequate time, compare responses and discuss any areas where there were different perceptions. As a final step, identify the top 2-3 priorities where there was a high level of consensus on an indicator needing "much" improvement. If you are doing this as a group, have each individual select their top three priorities and then tally the "votes" for the group to identify the top three. Begin developing an action plan that would address these issues (A suggested action plan format can be found at the end of the document). After successfully implementing your action plans that address your top priorities, revisit your assessment tool and begin developing action plans for the other indicators that need attention.

This particular section of the assessment tool focuses on the financial empowerment process and concepts presented during the educational programs produced by the Learning Institute for Nonprofit Organizations. The complete Nonprofit Organizational Assessment Tool will be comprised of eight sections based on the content presented in the eight programs that make up the curriculum of the Learning Institute for Nonprofit Organizations. The Learning Institute for Nonprofit Organizations was a collaboration involving the University of Wisconsin Extension and the Society for Nonprofit Organizations. The University has ended its formal relationship with the SNPO, but videotape presentation kits reside in most of the University of Wisconsin Extension County offices.

*LI faculty contributor for this section: Peter Brinckerhoff

Financial Empowerment Assessment Tool**

Revenue Generation
Indicator Done? Needs Improvement ?
  None/
N.A.		 Some Much
1. The organization had more revenue than expenses in at least seven of the past 10 years?        
2. The organization knows and follows funders' policies relative to unexpended income (does it need to be returned?) and the need to spend unrestricted income prior to grant awards.        
3. A written strategy has been developed that encourages the organization to retain what it earns through restricted accounts or other mechanisms.        
4. The organization has a fundraising plan and has determined whether or not additional internal or external expertise in fundraising is needed.        
5. The organization has a strategic plan that calls for profitable operations, assesses new markets, and includes the establishment of an endowment, an operating reserve, a mission reserve, and more staff training.        
6. The organization gets at least 5% or its total income from earnings on its endowment.        
7. A restricted account or separate corporation has been created to hold an endowment.        
8. There is a funding mechanism for the endowment as a means of putting money aside.        
9. The organization has an established goal for the size of an endowment for the end of each of the next five years.        
10. There are written policies that address the use (including what uses are permitted) of the endowment.        
11. The organization has diversified funding with sources of revenue from non-traditional, non-governmental sources.        
12. The organization has an outside business that brings in adequate net revenues.        
13. The organization has established goals for business development that define how much income is needed from new sources over the next five to ten years.        

Operating Reserve

Indicator Done? Needs Improvement ?
  None/
N.A.		 Some Much
1. The organization has a cash operating reserve of at least 90 days.        
2. The organization has a policy, which states how many days of cash operating reserves are best for the organization.        
3. The treasurer regularly reports the number of days of cash on hand at the end of each reporting period.        
4. The organization has established levels of cash (and credit) reserves that allow you to invest in new services or expand current ones.        
5. The organization is financially flexible enough to accommodate changes in service delivery.        
6. There is a board policy on cash operating reserves that includes the appropriate uses of the reserve, and who should authorize its depletion beyond the minimum.        

Financial Information

Indicator Done? Needs Improvement ?
  None/
N.A.		 Some Much
1. The organization follows accounting practices which conform to accepted standards and fulfill Internal Revenue Service requirements.        
2. The organization shares its financial information widely, and practices bottoms-up budgeting (Versus actual and/or comparative financials).        
3. The organization has an ongoing training program for staff and board members that addresses how to read, interpret, and use the organizations financial statements.        
4. Members of the board and finance committee as well as the CPA, and banker are regularly asked what financial reports and displays would be of most use to them. These financials are then provided to those that requested them.        
5. The executive director regularly meets with staff to discuss both financial and non-financial information.        
6. The organization has documented a set of internal controls, including the handling of cash and deposits, and approval over spending and disbursements.        
7. The organization periodically forecasts year-end revenues and expenses to assist the Board in making sound management decisions.        
8. The organization develops an annual comprehensive operating budget, which include all expenses and revenue sources for all programs. This budget is reviewed and approved by the Board of Directors.        
9. The board of directors reviews assets and liabilities every 12 months to determine if the organization has enough liquidity.        

Mission Reserve

Indicator Done? Needs Improvement ?
  None/
N.A.		 Some Much
1. The organization supports its mission directly by establishing and using a rapid-response mission reserve.        
2. The organization has a mission reserve as a restricted account.        
3. There is a policy in place that addresses the funding mechanism for the mission reserve.        
4. There are established rules for the mission reserve which outline how funds are distributed, by whom, for what, and on what schedule.        
5. The organization has an established goal for the size of the mission reserve for each of the next five years, as well as goals for how much of the fund is to be distributed.        
6. The organization has decided the next projects that will be funded from the mission reserve and that information has been shared with the staff and board.        

Debt Management

Indicator Done? Needs Improvement ?
  None/
N.A.		 Some Much
1. The organization is considered to be appropriately leveraged.        
2. The board reviews the status of all debt every 18 months, and refinancing is considered.        
3. The organization has established appropriate debt-to-net-worth benchmarks.        
4. The organization is satisfied by the services that are provided by its financial institution.        
5. The organization has a pre-approved line of credit with its selected bank.        
6. There is a five-year capital expenditure plan that is updated annually.        
7. There are written guidelines on who can authorize debt.        

Sample Action Plans:

Use the following format to begin formulating an action plan that would improve your organization's performance relative to a specific indicator listed above.

Indicator: The executive director regularly meets with staff to discuss both financial and non-financial information.

Task

Time Line

Who

Will Do What

Evaluation Measure

Task #1

 7 days Samantha (Executive Director)

Will schedule a series of staff (volunteer and paid) meetings devoted to reviewing the existing budget as well as identifying program and capital expenditure items that are needed by the organization. Brainstorm on potential revenue sources to fund new initiatives and capital budget items.

Meetings are scheduled and attended. Staff evaluations are positive and are eagerly engaged.

Task #2

 28 days Samantha & Bill (Board Chair)

Review Program and capital budget items identified by the staff as resources which are needed by the organization. Present these recommendations to the board for review to begin the budgeting process for the next year.

Potential new capital expenditures and programs are presented to the board along with potential sources of revenue.

Task #3 3 months

Board of Directors

The Board begins formulating an operating budget for the next year that is based on furthering the mission of the organization and incorporates staff and board input.

 An operating budget is formulated and adopted that balances revenue, and expenses and maintains an acceptable level of reserves. This operating budget is based in part on the needs and opportunities identified by staff.
Task #4 Every 3 months

Executive Director and staff

Budget updates are scheduled during regularly scheduled meetings.

 Staff understand and have input into financial decisions which fund the mission activities of the organization.

**Part of an 9-part series of assessment tools that address critical management issues within a nonprofit organizations. This tool was developed for the Learning Institute for Nonprofit Organizations and is based in part on two existing tools:

Community Organizational Assessment Tool, Bright, Robert D., University of Wisconsin Extension, 1995 (Adapted from Citizens Involvement Training Program., University of Massachusetts, Amherst).

Checklist of Nonprofit Indicators, United Way of Minneapolis Area, 1998.