The following is a post by Lee Glenn, GuideStar’s senior vice president.
At GuideStar, we have long believed that armed with the best information about nonprofit organizations, givers and advisors to giving can support the organizations making the most impact for their cause. We came together with NFF to create a new standard for analyzing financial health in the nonprofit sector: Financial SCAN (Situation & Comparables Analysis). As you’ve seen on this blog earlier, Financial SCAN is an exciting new product brought to market through collaboration with Nonprofit Finance Fund (NFF). This product has been in development for over a year and was launched April 9th.
When we came together to develop Financial SCAN, there were a couple of problems we set out to address. The first is that the sector lacks a common language and understanding of what it takes to keep a nonprofit in business and in balance. The use of existing rating platforms that focus on metrics like “overhead” does not provide an accurate accounting of an organization’s efficiency or effectiveness. Many funders and donors have expertise in various mission-related areas but may lack the financial expertise to determine financial health. There is little agreement on what to measure, why it matters, and how it links to mission success. Second, financial data collection, reporting, and analysis are time- and skill-intensive activities. Our everyday demands of running our nonprofit organizations compete with funder and donor demands for a wide variety of reports and information. Data is important in making decisions but we want to avoid the trap of data-crunching superseding data-driven decision-making in grant management and due diligence.
Financial SCAN, powered by up to five years of financials from Forms 990 filed with the IRS, addresses these issues. This easy use tool provides a comprehensive analysis of a nonprofit’s financial condition utilizing dashboards and metrics, detailed charts, educational narrative with questions to consider, and sophisticated peer analysis which allows you to look at financial health across a number of organizations. This tool establishes an analytical standard for nonprofit financial analysis. It will help you think about the full costs of running a nonprofit and the relationship between mission and margin. This tool is not designed to tell you once and for all whether to fund or not to fund a nonprofit, but rather it is a means to engage in a meaningful, metrics-driven dialogue. We believe Financial SCAN will help to create more clarity and transparency fostering greater collaboration and leading to more effective allocation of limited funds. We hope, eventually, this tool is something nonprofits, funders and advisors will consult before undertaking key projects or making big decisions.
Check out more on how the tool works by viewing a demo at www.guidestar.org/financialscan.