Nonprofit organizations operate in an environment where mission impact and financial resilience must go hand in hand.
Many of the financial metrics nonprofits monitor are derived from publicly reported data outlined in IRS Form 990 financial reporting requirements, which provide essential insight into revenue sources, expenses, and liquidity.
With increasing uncertainty around government funding and growing competition for donor dollars, understanding key financial metrics is more important than ever.
Below are four essential metrics all nonprofit leaders should be monitoring.
1. Revenue Concentration Index
How Diverse Is Your Funding?
Many nonprofits rely heavily on one or two major funding sources such as a single government agency foundation. The Revenue Concentration Index measures how dependent your organization is on its top revenue source(s). A concentration score greater than 30% is high risk and indicates that the loss of one funder could significantly disrupt the organization’s ability to continue operations.
This is especially concerning in today’s environment as changes in federal priorities can quickly alter grant availability or reimbursement structures. We have seen this leave many organizations scrambling. Smaller organizations, which often lack development staff, face an uphill battle in diversifying revenue and building a stable donor base.
How to Calculate:
Revenue from Top Donor(s) ÷ Total Revenue
2. Months of Cash on Hand
Financial Safety Net
Cash flow issues can sneak up on any organization. Months of Cash on Hand is a metric which tells you how long your nonprofit can operate using only existing liquid reserves. A healthy range is typically 3–6 months, though organizations with significant fluctuations in funding should aim for more.
With delayed government reimbursements and unpredictable grant cycles, many nonprofits struggle to maintain adequate cash reserves. This metric provides an early warning sign that organizations can act on before financial stress becomes a crisis.
How to Calculate:
Cash ÷ Average Monthly Operating Expenses
3. Current Ratio
Short Term Liquidity and Stability
The Current Ratio compares current assets to current liabilities and indicates your ability to meet short-term obligations. A ratio above 1.0 indicates stability, while a ratio lower than 1.0 can indicate difficulty paying short term obligations.
Nonprofits with tight budgets or restricted funds often face challenges keeping this ratio healthy. Monitoring this metric helps leadership stay ahead of liquidity constraints.
How to Calculate:
Current Assets ÷ Current Liabilities
4. Program Efficiency Ratio
Keeping Focus on the Mission
Donors, watchdog organizations, and the public often look to the Program Efficiency Ratio—the percentage of total expenses spent directly on mission-related programs—to assess an organization’s effectiveness. These expectations are reinforced by external benchmarks such as Charity Navigator’s financial efficiency metrics, which play a significant role in how nonprofits are evaluated for transparency and impact.
While a ratio of 70% or higher generally indicates efficiency and stronger mission alignment, it must be interpreted with nuance. Underinvestment in administration or fundraising can weaken an organization’s long-term sustainability.
Small and midsize nonprofits face added pressure here as a certain level of administrative and fundraising expense is required to run any organization.
How to Calculate:
Current Assets ÷ Current Liabilities
Final Thoughts
The toughest challenge facing many nonprofits today is funding unpredictability. Federal policy changes can reshape grant programs overnight. Donor preferences can shift quickly. Many organizations can face sudden revenue shortfalls over which they have little control.
Building diversified revenue streams, maintaining adequate liquidity, and monitoring financial health indicators isn’t just good practice, it can be essential for survival. These metrics help nonprofit leaders anticipate risks, adapt their strategies, and continue serving their communities as external conditions continue to change.
You don’t have to navigate these challenges alone. If you’d like support evaluating your nonprofit’s financial health or strengthening your resiliency planning, the Wegner CPAs nonprofit advisors are here to help. Reach out to learn more.
