The New Standard for Assessing Nonprofit Financial Health

April 2012

Quick—what's wrong with this statement?

"XYZ Charity is good to give to because it spends 90 cents of every dollar on programs. ABC Charity is bad to give to, because only 75 percent of its expenses are for programs; 25 percent goes to overhead."

If you're familiar with GuideStar's position on using financial ratios to evaluate nonprofits, you know that the answer is "A lot." For starters:

• The statement doesn’t account for the tremendous variety in the nonprofit sector.
• It doesn't speak to the effectiveness of the two charities' programs.
• It relies on only one type of financial indicator, program ratio (total program spending divided by total expenses).
• It doesn't address either nonprofit's financial health.
• It doesn't account for change over time—organizations require different amounts of overhead during different stages of their lifecycles.

Enter Financial SCAN

Helping us to respond to these issues, our colleagues at Nonprofit Finance Fund (NFF) joined forces with GuideStar to create Financial SCAN^SM (Situation and Comparables ANalysis of Nonprofit Financial Health).

Financial SCAN is an online service that showcases a nonprofit's financial condition over time. It draws data directly from an organization's IRS Forms 990 and presents the information in a standardized, easy-to-read, easy-to-share report.

Financial SCAN features:

• Financial Health Dashboard
  Highlights key financial trends and ratios for a selected nonprofit organization over a period of up to five years.
• Peer Comparison Dashboard
  Compares the organization's financials with up to five peer nonprofits that you select.
• Graphical Analysis
  Provides 13 multi-year graphs and an interpretive guide in a format ready to present to your board or clients.
• Printable PDF Report
  Provides a complete analysis of the organization for your records. The comprehensive report tells you what to look for and why it matters.

Who Might Be Interested in Financial SCAN

• Nonprofits
  Get the information you need to evaluate your organization’s financial health and to convey this information to your board, employees, funders, and other supporters. A special discounted Nonprofit Express Pass gives you 48-hour access to Financial SCAN, during which you can run unlimited peer comparisons and generate a report for your organization. (The Nonprofit Express Pass is available only to tax-exempt nonprofit organizations. Prequalification is required, and the Express Pass may be used only to run peer comparisons and a report on a single Employer Identification Number.)
• Grantmakers and Funders
  Evaluate the financial health of grant applicants and grant recipients. Use the analysis and accompanying interpretation to engage grantees in conversation about their financial performance and funding needs.
• Wealth Managers and Donor Advisors
  Get consistent, comprehensive financial analysis to shape your recommendations to clients about nonprofits they might support. Back up your recommendations with Financial SCAN’s clear, easy-to-use reports.
• Accountants, Attorneys, and Other Nonprofit Advisors
  Help your nonprofit clients understand their financial strengths and weaknesses. Identify and qualify prospective clients with Financial SCAN.

Taking Nonprofit Financial Analysis to the Next Level

Financial SCAN is the first online service to offer comprehensive, standardized nonprofit financial analysis. Rebecca Thomas, NFF's vice president, strategy & innovation, noted, "Financial SCAN provides nonprofit leaders and their supporters and advisors with greater clarity about how to interpret and use data in decision making and strategy." GuideStar senior vice president Lee Glenn added, "We believe our user-friendly visual tool will become the new industry standard for interpreting nonprofit financial data."

Suzanne E. Coffman, April 2012
© 2012, GuideStar USA, Inc.

Suzanne Coffman is GuideStar's editorial director and editor of the GuideStar Newsletter.