Financial benchmarking is the process of continuous comparison and measurement against a standard in order to evaluate and, in some cases, improve performance. Financial benchmarking allows for the evaluation of an organization's financial and operational performance in relation to a specific group of its peers (nonprofits of similar mission and scope operating within a sector).
Financial benchmarking against organizational peers can allow for a better understanding of an organization's position. It can help provide key insights around opportunities to leverage and challenges for which to prepare. It allows an organization to observe trends and changes in sector conditions. Understanding how others "do things" can be helpful in decision evaluation and analysis. Information can enable you to make more informed decisions on a day-to-day operational level while laying the foundation for your long-term success.
Financial benchmarking can provide targeted insights around an organization's areas of excellence and areas of opportunity or challenges. More specifically, it can help measure an organization's: (1) effectiveness of activities (2) use of resources, (3) progress towards goals, and (4) success with regard to its stated mission.
A comprehensive analysis of an organization's operational and financial health can assist in:
A nonprofit organization must ensure that its surplus funds are being utilized as effectively as possible in order to best meet its stated mission.
Let us know if you would like more information on financial benchmarking as it relates to your nonprofit organization.
By Rose G. Doherty, CPA, Partner, rdoherty@legacycpas.com