When assessing the health of a nonprofit, financial oversight often challenges leaders seeking to balance mission impact with long-term sustainability. At Prosper-Strategies, we believe that certain nonprofit financial gauges — the “vital signs” of organizational health — are essential for CEOs and boards to monitor regularly.
Right now, many nonprofits are taking a harder look at their finances than ever before. Economic uncertainty, shifts in donor behavior, and increasing competition for grants are driving boards and executives to focus on revenue diversification. While this is critical, it is just one of the nonprofit financial gauges that leaders should be tracking. Other equally important indicators, like liquidity, operating reserves, and unrestricted net asset growth, help leaders understand whether their organizations can weather shocks and pursue new opportunities.
We recommend that nonprofit leaders pull these financial gauges monthly, review them internally with leadership, and share them as part of every board packet. A simple dashboard provides transparency, fosters accountability, and builds shared understanding of financial realities across leadership and governance.
Here are the seven most important nonprofit financial gauges every CEO and board should track.
1. Revenue Diversification
Revenue diversification measures how dependent your nonprofit is on any single funding stream. Many organizations rely too heavily on one or two grants or a handful of major donors, leaving them vulnerable if those sources disappear. According to the Nonprofit Finance Fund’s “2025 State of the Nonprofit Sector,” chronic funding delays, coupled with expected massive cuts in government funding, threaten to disrupt essential services. Among respondents with government funding, 84% expect cuts as a consequence of 2024 election results, and 65% anticipate cuts bigger than 10% of their government revenue.
As we look at this first nonprofit financial gauge, ideally, no one category, whether it’s government contracts, individual donors, or foundations, should account for more than 30–40% of your total revenue. Monitoring this nonprofit financial gauge helps ensure that funding is broad-based and resilient.
2. Restricted vs. Unrestricted Revenue
Restricted revenue is tied to specific programs or purposes, while unrestricted revenue can be used for rent, salaries, and the investments that keep your organization strong. Too little unrestricted funding can leave you strapped for cash, even if you’re hitting overall revenue goals.
Nonprofits should aim for at least 25–30% of revenue unrestricted, with some experts recommending as much as 50% as more ideal. Boards and CEOs should monitor this gauge because unrestricted funds provide the flexibility to innovate and adapt.
3. Operating Reserves
Operating reserves represent your nonprofit’s financial cushion—the unrestricted net assets you’ve built up over time. These reserves can sustain operations during a downturn, cover emergencies, or allow you to seize unexpected opportunities. Best practice is to hold at least 3–6 months of operating expenses in reserves, with riskier organizations sometimes targeting 9–12 months. For boards, this financial gauge signals long-term sustainability and prudent stewardship.
4. Liquidity (Cash on Hand)
Liquidity measures how many months of expenses you can cover with cash and cash equivalents in the bank. While reserves might be invested or earmarked, liquidity is your near-term lifeline. Nonprofits should strive for at least 2–3 months of cash on hand, with 6+ months signaling real strength. Unfortunately, over half of nonprofits say they have less than 3 months cash on hand and just under 20% have less than one month.
Tracking this nonprofit financial gauge ensures confidence that payroll and program continuity are secure, even when revenue is uneven.
5. Expense Allocation (Program vs. Admin vs. Fundraising)
Expense allocation shows how your budget is distributed among program services, administration, and fundraising. For decades, many donors and watchdogs emphasized keeping “overhead” as low as possible, often holding nonprofits to unrealistic standards. Today, many organizations are reframing overhead as “core mission support” and recognizing the “overhead myth”: the idea that low administrative or fundraising costs are inherently a sign of efficiency.
In reality, underinvesting in operations, staff, or fundraising can harm long-term mission impact. A healthy organization finds balance, ensuring that most dollars flow to program services (often 65–80%), while also investing appropriately in the infrastructure and fundraising capacity that make program delivery possible. Boards and CEOs should use this gauge not as a punitive measure, but as a way to ensure resources are being deployed strategically to support both immediate mission delivery and long-term growth.
6. Growth in Net Assets (Unrestricted Focus)
Net assets are the nonprofit equivalent of equity. Watching the trend in unrestricted net assets tells you whether your organization is building financial strength or eroding it. Even if annual revenue is stable, declines in unrestricted net assets reduce flexibility and can mask risks. This nonprofit financial gauge is particularly valuable for boards, who should look for steady multi-year growth and ask questions when unrestricted assets decline.
Nonprofit financial gauges don’t replace detailed financial statements, but they distill the essentials into a format CEOs and boards can quickly grasp. By reviewing these seven gauges monthly and including them in every board packet, nonprofit leaders can move from reactive oversight to proactive financial leadership. The result is stronger decision-making, greater resilience, and an organization that’s positioned not just to survive, but to thrive.
