[Jason]

The following are selections from the chat from the webinar “Exploring the New World of Nonprofit Financial Ratios: A Guide to Using Ratios as Financial Leverage,” hosted by the Nonprofit Financial Commons on March 26, 2024. Below, you’ll find our forum members working out solutions to problems they had and recommending tools to others. But this conversation’s not done! If you can answer some of the unanswered questions, or have recommendations or queries of your own, join in and keep the thread going.

LUNA vs. Cash On Hand
Michele: Is Luna metric similar to the cash days on hand ratio?
Dana: @Michele, it’s similar to the cash on hand metric, but it takes out cash or receivables that are donor restricted.

Restricted Grants
Jenny: The problem I always have with calculating months of expenses that we could cover with only unrestricted assets is I think it may be overly conservative. Because we have a lot of restricted grants that are, in fact, covering our monthly expenses. So it feels a little devoid from reality.
Kadida: @Jenny, I think it depends on how you manage your restricted grant money. If there’s good communication and cooperation between Finance & Development to make sure that grants are not too restrictive, that can work. A lot of nonprofits don’t find themselves in that space, unfortunately.

Messaging to Donors
Debbie: This is such a problem. We are trying to invest, but there is big angst amongst the development team because donors still look closely at the overhead.
Heather: Debbie, am sure you’re very aware about the importance of messaging and even educating supporters about the organization’s three-dimensional financial needs in order to do the work they support you for. However, requires commitment from the leadership of the organization to both support and voice this messaging.
Mary: @heather the messaging is critical. What I am saying is include your Finance team. We don’t sit in a corner with numbers. Let us forward face with those stakeholders. There is a bad connotation associated with CFOs in terms of communication. The truth is each is different, but we illustrate our concepts well and are partners to CEOs and Development teams.
Heather: @Mary, absolutely! everyone in the organization needs to understand the holistic approach to the organization’s financial needs and health.

Finance Professionals
Mary: They could also hire proper personnel who can explain this all to them. I have been there, and those smaller orgs do not think they need a Finance professional.
Peter: @Mary it’s a fine balance, isn’t it, knowing that Board Members have a legal duty to understand financials without being blinded by vision / mission; while at the same time, the Finance and Audit Committee should really have a CA, external audit as resource, etc .. but the Chair of F&A needs to be able to make the numbers real and relevant for the entire Board, yes.
Mary: @Peter very much a fine balance. Sometimes by a hair. A good CFO or whatever your top level is can communicate without patronizing with any group. We all have auditors and advisors. But often, it is a challenging item to have large groups look forward to hearing about. A balance of stating the truth with a velvet glove, not an iron fist.

OKRs
Peter: Has anyone tried implementing OKR (objective key results methodologies) that include social impact (mission) forward metrics while also managing a financial floor (remaining viable). OKRs are used a lot within the tech-world. Wondering about NFP and/or coop worlds?
Kadida: We’re implementing OKRs.
Brian: My past organization I implemented OKR’s on both programmatic and financial side.

Unanswered Questions

Peter: Right up front. What is the threshold? E.G., we just received a big grant and need to develop stronger alternative revenue streams.
Peter: Burning question that I’d posed in advance was: is there a recommended ratio that reflects when an organization should be concerned with independence? Similar to the Walmart effect, when is financial dependence on one granting body too much?

Recommendations
Maria: I am part of Catalyst2030 and there is group that has been working on “Shifting the funding paradigm” .. sharing here in case you are interested https://catalyst2030.net/shifting-the-funding-paradigm/

Closing Thoughts
Heather: Amen, Ruth. There is no such thing as overhead. All of our expenses are directly involved in delivering on the mission.

catalyst2030.net

Shifting the Funding Paradigm – Catalyst 2030

We envision a funding paradigm grounded in trust, partnership and collaboration, and driving global systems change to achieve the UN SDGs.

[Nancy]

When discussing overhead, I ask folks if they would want to fly in an airplane if ticket costs only covered the pilots’ and flight attendents’ salaries plus the fuel. I think most people would say “No”. Airlines need overhead for inspections, maintenance, and upgrades to make sure that the craft is safe. All too often, funders (often local government) only want to include direct salaries and supplies in grants and no overhead. Just like this could create safety issues for an airline, it creates financial insecurity for a nonprofit.

[Erica]

Should we include in-kind donations (expense side) in the average monthly expenses for calculating LUNA as expressed in terms of months?

[Wade_Rogers_Forum_Moderator]

Hi Erica…as I work through understanding LUNA and its related calculations I, like you, also encounter these wrinkles and exceptions! My reaction would be to exclude in-kind expense since it is not a cash need and therefore not reliant on LUNA to fund. Any other reactions out there?