Whether or not a not-for-profit organization engages an independent auditor, an organization can employ moves from an auditor's playbook to gain a better understanding of its overall revenue picture. Techniques, such as analyzing year-over-year trends and benchmarking to other not-for-profit organizations, can be extremely useful in planning both your short-term and long-term future.

Review Donor Trends

Most not-for-profit organizations rely on donor contributions to balance their budgets. An easy way to utilize trend analyses is to compare the dollars raised in the current fiscal year to the past 3-5 years to see if you can pinpoint any trends. For example, have individual contributions reached a plateau in recent years? Have there been any targeted fundraising campaigns launched during that period?

Go beyond the dollar totals and analyze the volume and mix of donors. For example, did the number of major donors — say, those who give $1,000 or more annually — fluctuate compared to past years?  Have you offset major donor losses with a new sponsorship or grant?  If you have been experiencing losses of major donors, do you need to adjust your fundraising approach?

In addition, an analysis of the type of contributions, restricted or unrestricted, received from donors can be a useful fundraising tool.  If you discover that your organization has a large percentage of donations tied up in restricted funds, you might want to re-evaluate your gift acceptance policy. You also might want to review your fundraising materials to ensure that the organization is pursuing contributions that give the organization the most flexibility, such as, contributions for general operations.

Size Up Grant Funding

Grant revenue includes funding from corporate, foundation and governmental sources. Grants can vary dramatically in size and purpose, from grants that cover operational costs, to funding for a new program, to payment for providing specific services to clients.

Pay attention to trends here, as well. For instance, did a particular funder supply 50% of total revenue in 2014, 75% in 2015 and 80% in 2016? A growing reliance on a single funding source is an example of a revenue "concentration," which acts as a red flag to auditors, and it should be to you, too.  When an organization is heavily concentrated with one or two funding sources, there will be always be the risk that your organization might be forced to find new founding sources, end a program or even shut down operations entirely, should that funding source experience severe losses on its end.

Consider Service Fees, Membership Dues

Fees earned from clients or other third parties can be similar to fees that for-profit organizations earn. Fees are generally viewed as exchange transactions, because the client receives something of value in exchange for its payment. Some not-for-profit organizations charge fees on a sliding scale based on income or ability to pay. In other cases, fees, such as rent paid by low-income individuals, are subject to legal limitations set by government funding agencies.

On an ongoing basis, the organization should be assessing the sustainability of its services. In other words, are the fees generated from the services enough to cover the costs of providing those services? For instance, a fee scale for medical services established several years ago may no longer be sufficient to cover costs.  A decision must then be made to either raise the fees charged or discontinue the services altogether. This same example can be applied to membership organizations that charge membership dues. Has membership grown or declined in recent years, and how do your dues compare with similar groups? Is the organization charging enough dues to support its program expenses and general operations?

Apply the Knowledge

Remember: analytics should not be thought of as simply a financial tool. Once you have honed your analytical skills on the financial side, apply those tools to other aspects of your organization, such as developing metrics for patients serviced or employee performance. Applying this knowledge across the organization can help management and the board of directors make more informed business decisions throughout the year and for the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.