Is Your Nonprofit Ready for Increased Funding Scrutiny? Here’s How to Prepare
The financial landscape for nonprofits is shifting, and the pressure is mounting. With government funding and donor contributions facing heightened scrutiny, nonprofit leaders must ensure their financial systems are rock solid. Every dollar spent is under the microscope, and transparency is no longer optional—it’s essential.
Having worked in the nonprofit sector for over 15 years, I’ve seen firsthand how quickly organizations can come under fire for financial mismanagement—sometimes even when they’ve done nothing wrong. Donors and grant providers want proof that funds are being used responsibly and efficiently. The good news? You can prepare for this increased scrutiny and protect your nonprofit by implementing smart financial strategies today.
Why the Pressure on Nonprofits Is Increasing
In today’s climate, nonprofit funding comes with more strings than ever. Government regulations are tightening, and donors are demanding more accountability. From federal grant compliance to donor transparency expectations, nonprofits must meet a growing list of financial integrity standards.
The bottom line? If your organization doesn’t have airtight financial oversight, you’re at risk of losing funding. Now is the time to adopt a fail-proof financial strategy to avoid common pitfalls and set your nonprofit up for long-term success.
6 Critical Strategies for Navigating Funding Scrutiny
1. Strengthen Your Procurement Policies
A structured procurement process is essential to ensure fair and ethical vendor selection. Implement policies for competitive bidding and vendor selection to prevent conflicts of interest. Avoid awarding contracts to board members, employees, or close personal connections to maintain credibility.
2. Implement a Strict Conflict of Interest Policy
Every nonprofit should require board members and key leadership to disclose conflicts of interest annually. This not only builds trust but also prevents ethical and compliance issues that could put your funding at risk. Pro Tip: Always document potential conflicts and establish a process for handling them transparently.
3. Keep Every Receipt, No Exceptions
Whether it’s a small office supply purchase or a major equipment investment, maintain records of every expense. This ensures accountability and makes audits or donor inquiries easier to manage. Pro Tip: Use expense management software like Bill Spend and Expense to track and categorize expenses automatically. It allows for individual spending cards, built-in approvals, and easy receipt tracking.
4. Enforce Strong Internal Controls
Without internal controls, nonprofits are vulnerable to financial mismanagement and fraud. Establish clear approval processes for all financial transactions, including vendor payments and employee reimbursements. Pro Tip: Leverage expense approval tools to ensure all vendor invoices and credit card transactions are reviewed and approved at the appropriate levels.
5. Master Your Budgeting Process
Know exactly what your grants and funding cover—and what they don’t. Misallocating funds can lead to compliance violations and loss of trust from funders. Maintain strict budget oversight and ensure spending aligns with your organization’s mission and restrictions.
6. Maintain Detailed Financial Reporting
Your nonprofit’s accounting system should allow you to generate detailed reports on every dollar spent. If you don’t have real-time access to financial reports, it’s time to upgrade your processes or invest in better financial management technology.
The Power of Financial Transparency
Strong financial reporting isn’t just about compliance; it’s a strategic advantage. Nonprofits that prioritize financial transparency can:
Build stronger trust with donors and grant providers
Make informed, strategic decisions to drive impact
Strengthen their fundraising efforts with credible financial data
At The Charity CFO, we specialize in helping nonprofits navigate audits, donor scrutiny, and financial management challenges. With 85% of our clients undergoing audits, we know how critical it is to have a robust accounting foundation in place.
Take Action Now
The financial pressure on nonprofits isn’t going away, but you can take steps today to protect your organization. By implementing these financial best practices, you can stay compliant, build trust, and ensure your nonprofit thrives despite increasing funding scrutiny.
Need help getting your nonprofit’s financials in order? Let’s talk. At The Charity CFO, we help nonprofits streamline accounting, meet compliance requirements, and focus on their mission.
Book a free consultation and we can see how we might be able to help!
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Like many leaders of business, I find myself having seasonal ebbs and flows with work demands. It’s no secret that accountants have a “busy season”. I get asked all the time – how do you survive the busy season of accounting? For accountants, it’s typically January through April. Not only is this a busy volume of work to get done – it’s a double whammy being in the Midwest with the dark and gloomy cold weather days.
So, the question is, how do I survive this season? How do I stay motivated? How do I keep my energy high? While it’s taken me many years, some coaching, and a lot of habit building to get there, I think I’ve landed on a routine that works. Let me share some of my favorite tips…
Integrating Wellness into Professional Life
Staying healthy – especially in a high demanding job – is an undertaking. Keeping my physical fitness and mental wellness in top shape is an entirely separate job. A job that I take very seriously. Here are the key components of my wellness strategy:
Light Exposure: I start each day with natural or artificial light to help reset my internal clock and improve mood and focus. Most mornings, you’ll find me reading a book for 30 minutes in front of my artificial light.
Physical Activity: Regular exercise, including weight training and daily walks, is non-negotiable. It keeps my energy levels high and my mind clear. When the weather doesn’t cooperate, you’ll notice me walking on my desk treadmill.
Nutrition: I pay close attention to what I eat and drink, balancing caffeine and nutrients to fuel my long days without the crash. While the food is important, I argue that hydration is everything. If you are living on caffeine and skipping the water, you will hit a wall.
Social Interactions: Maintaining social connections is crucial, especially during winter. Whether it’s attending events, connecting with friends, or meeting peers, staying social helps avoid the slump that can come with colder, darker days. Social interactions are often the first to go when our energy is low – however, it might be the exact thing you need.
Streamline Easier Tasks: as an owner of a few businesses, I haveleveraged technology to make sure the easy tasks stay easy. At The Charity CFO, the most significant tool to keep my/our work easier is Quickbooks Online. It streamlines our operations and client management so effectively that it frees up time—time I use to focus on growth and wellness. We use Quickbooks Online for everything financial at The Charity CFO – from bookkeeping tasks to running getting that final P&L over to our tax team each year and even processing 1099s each January. Keeping things streamlined makes my year-end close so much easier. This might come as a surprise to many, but yes, even during the busiest times of the year, I’m able to step away and invest in myself and my business. Which brings me to my next point…
Step Away: Knowing that I hit a wall with the darker, colder days, I intentionally plan trips to warmer weather climates in the fall for the upcoming months. Getting these on my calendar ahead of time guarantees I actually make it there.
The Power of Community and Strategic Retreats
Prioritizing your wellbeing is a critical component but let’s shift gears to focusing on working “on the business” rather than “in the business”. I set annual and quarterly goals each year for The Charity CFO. We keep track of our progress as we move through the year. That said, it is important to take time away to reflect on those goals, identify the current and biggest issues in the business, and connect with others that are going through a similar journey.
This year, I took that time to connect with fellow accounting firm owners in sunny Fort Lauderdale. This wasn’t just a getaway; it was a strategic retreat, a deliberate step to build a supportive community and brainstorm innovative business strategies. We shared challenges, exchanged growth tactics, and discussed how to enhance our services—all while soaking up some much-needed vitamin D.
It’s imperative that not only should you carve out time to sit in the quiet and be strategic about the organization you lead – but to also connect with peers doing the same thing. The camaraderie and fellowship helps keep your sanity simply by knowing you aren’t alone. Added bonus? You can find ideas from others that might help you solve some of your own problems.
Looking Forward
As we continue through 2025, my commitment is to maintain this balanced approach, ensuring that wellness and community interaction are not sidelined but are integral parts of how we operate at The Charity CFO. This approach not only sustains our team but also drives our success, proving that you can indeed have it all—professional success, personal well-being, and active community involvement.
I encourage you to consider what kind of habits and tricks you can incorporate into your day-to-day life to make sure you take care of yourself – so that you can take care of your team.
This is a paid partnership with Intuit.
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Nonprofit budgeting may be a source of dread for many, but there are ways to make the process (and outcome!) much better. Forget about the numbers for a second. A well-crafted budget is a reflection of your mission and a roadmap to financial sustainability. It helps you communicate how you’re going to make the difference you want to see in the world. It can be a tool to galvanize your team, community, and supporters.
Keeping that in mind, let’s go over what we’ve learned at The Charity CFO While supporting hundreds of nonprofits with their budgets.
Identify and address areas where budget priorities may drift from mission objectives.
Incorporate feedback from stakeholders to ensure alignment between financial decisions and community impact.
2. Understand Core Budget Categories
Every nonprofit budget has a few building blocks. Most will include these areas:
Revenue Streams:
Diversify your income sources to reduce reliance on a single funder. Incorporate grants, donations, earned revenue from social enterprise activities, and more.
Keep a clear distinction between restricted and unrestricted funds, ensuring you comply with donor intentions while maintaining operational flexibility.
Program Expenses:
These are the costs directly tied to delivering your mission. They often include program supplies, salaries for program staff, and other necessary expenses.
Administrative Costs:
Operational essentials such as technology, office supplies, and HR fall into this category. Though sometimes seen as “overhead,” these expenses are vital for keeping your nonprofit running smoothly.
Fundraising Costs:
Budget for donor engagement, events, campaigns, and marketing to sustain and grow your funding.
3. Prioritize Cash Flow Management
Even a great budget can fall short without strong cash flow management. Cash flow ensures your organization can meet its obligations month-to-month.
Plan for Seasonal Fluctuations: Map out expected income and expenses by month to anticipate and prepare for lean periods.
Build Reserves: Strive for at least 90 days of operating cash on hand to navigate unexpected challenges or delays in funding.
Monitor Restricted Funds: Ensure compliance with donor restrictions to avoid operational bottlenecks and keep programs funded appropriately.
4. Collaborate Across Teams
Budgeting shouldn’t happen in isolation. Involving key stakeholders ensures transparency and accountability. Plus, collaboration fosters a culture of shared responsibility, ensuring everyone works toward the same goals.
Engage Department Heads: Involve program managers and department heads in the budgeting process to give them ownership over their areas’ financial planning. Encourage department heads to regularly review financial reports for greater accountability.
Encourage Others to Contribute: While leadership teams may be the main point of contact, other employees and stakeholders should certainly contribute their ideas. Provide ways for them to share ideas and feedback in the event their ideas don’t align with the rest of their team. Diversity of opinions can strengthen your budget.
Provide Financial Literacy Training: To department heads and anyone else in the organization interested in being part of the process and empowering better decision-making.
Leverage Your Board: The reason your board exists is strategic oversight and supporting your team in these matters. Ensure board members with relevant expertise assist with budget ideas, reviews, and of course partnerships and fundraising.
5. Plan for Growth and Uncertainty
It’s no secret that nonprofits often operate in unpredictable environments, so your budget should be flexible enough to adapt to growth opportunities and unexpected shortages.
Use Historical Data: Analyze past financial data to identify trends and anticipate future needs.
Build Flexibility: When possible, leave room in your budget for unexpected opportunities or challenges. A contingency fund can help absorb surprises without derailing your mission.
Regular Reviews: Regularly compare actual performance against the budget and make adjustments as needed to stay on track.
Regular Reporting: Develop a system that regularly reports income, expense, and cash flow reports to get real-time insights into your financial health.
Simplify Visuals: Clear, simple financial reports make it easier for stakeholders to understand and engage with your budget.
7. Communicate the Budget’s Impact
Your budget should be used as a communication tool for donors and stakeholders. Don’t keep it hidden in a folder on your computer, bringing it out only for emergencies or quarterly reports. Make it a regular tool that you refer to in your activities.
Highlight Outcomes: Show how budget decisions directly drive mission outcomes.
Use Clear Narratives: Combine visuals and storytelling to connect financial stewardship with the community impact your nonprofit creates.
Build Donor Trust: Transparency about your budget fosters trust and strengthens donor relationships, encouraging long-term support.
The Charity CFO Can Help Make Budgeting a Breeze
A thoughtful budget is the foundation of your nonprofit’s financial health and mission success. By aligning your budget with your mission, prioritizing cash flow, and leveraging technology, you’ll build a strong, sustainable organization that’s ready to tackle challenges and seize opportunities.
At The Charity CFO, we’re here to help you master nonprofit budgeting. Whether you need help creating a budget, managing cash flow, or aligning your financial plans with your goals, our team is ready to support you.
Ready to take control of your nonprofit’s financial future? Schedule a free consultation with The Charity CFO today and let’s build a budget that empowers your mission.
Many nonprofit leaders think accounting belongs solely to their CFO or accountant. If you’re a particularly small organization, it may even be the CEO who wrangles an accounting spreadsheet every once in a while.
But what if the key to financial clarity and stability lies in sharing the load?
The truth is, many successful nonprofits empower leaders to manage their own department budgets.
Does this fill you with doubt and worry?
It can be hard to imagine this working in some settings, but it can be done with excellent results in many organizations!
In this article, we’ll explore why financial management is a shared responsibility and how nonprofits can use this strategy to drive their missions forward.
Why Shared Financial Responsibility Matters
A single CEO, CFO or accountant should not hold all financial knowledge. Teams need collective accountability to stay agile and informed. By decentralizing financial responsibility, nonprofits unlock powerful advantages including:
Increased Transparency: Leaders who understand their budgets reduce the risk of financial mismanagement and foster trust within the organization.
Improved Decision-Making: Department heads equipped with financial data can align spending with strategic goals, ensuring every dollar is used effectively to further the mission.
Empowered Teams: When leaders own their budgets, they’re more engaged and motivated to achieve results, growing in confidence and making decisions grounded in financial insights.
Improved Succession Planning: The world doesn’t collapse if a key team member needs to take a short or longer leave of absence.
Enhanced Donor Trust: Transparency in this approach reassures donors and stakeholders that their contributions are being managed wisely, because each team has a strong understanding of their finances, strengthening relationships and encouraging continued support.
Mission-Driven Focus: With financial clarity, leaders can focus their energy on creating an impact in their communities with less uncertainty or confusion.
Common Challenges & Solutions
Challenge #1: Fear of Overloading Leadership Teams
This may be one of the main reasons a nonprofit would be hesitant to increase shared responsibility for accounting at their organization.
The last thing we want to do is increase stress, burnout, or take away from core responsibilities.
Solutions:
Explain the benefits to the individual and their department.
Nonprofit leaders with hands-on financial literacy and experience are often sought after as leaders, consultants, and board members.
Team leaders don’t need to feel like the finances are a mystical silo when they are playing a direct role in tracking and understanding what’s happening. This allows them to better plan, advocate, and support their team in real-time.
Explain the benefits to the organization.
Share our list above to help them understand the rationale behind accounting as a shared responsibility.
Leaders can better understand what’s going on in other departments and perhaps come up with innovative strategies to better serve the whole team when they have more ownership of the accounting.
Make it clean, simple, and easy. Provide clear, consistent financial reports and templates tailored to each department’s needs. Intuitive cloud-based software makes accessing and understanding these reports easier than ever.
Challenge #2: Knowledge Gaps in Financial Literacy
Some leaders may feel unprepared to take on financial responsibilities. Without proper training or support, it could indeed be a daunting and stressful task.
Solutions:
Offer training focused on nonprofit-specific financial concepts like grant tracking, donor restrictions, and cash flow management.
Create opportunities for ongoing mentorship and workshops to build confidence over time.
Create clear lines of communication so they know who to reach out to for financial support – whether it’s the accountant, software provider, or another team lead.
Challenge #3: Resistance to Change
Leaders accustomed to traditional structures may hesitate to adopt a shared approach. Resistance to change is normal and to be expected in almost any situation. Approach team members feeling this way with empathy and kindness.
Solutions:
Frame shared financial management as a way to advance the mission.
Highlight how this approach aligns with organizational values and strengthens their impact.
Ask for their ideas to make the transition smoother.
Steps to Implement Shared Financial Responsibility
Start with Leadership Buy-In: Communicate the benefits of a collaborative approach to financial management. Share success stories from other nonprofits that have adopted this strategy.
Standardize Financial Reports: Develop easy-to-read templates for monthly department reports. Include actionable metrics like actuals versus budget, upcoming obligations, and cash flow trends.
Provide the Right Tools: Equip your team with modern nonprofit accounting software. Automate repetitive tasks to save time and minimize errors.
Offer Training & Support: Host onboarding sessions for new leaders and provide regular check-ins with CFOs or financial consultants to answer questions and address concerns.
Build a Feedback Loop: Encourage department heads to share insights, challenges, and suggestions for improvement. Use their feedback to refine processes and ensure the system works for everyone.
Your Team Can Do This – An We Can Help
Accounting isn’t just the CFO’s job—it’s a team effort. By empowering your leadership team to share financial management responsibilities, you’ll build a stronger, more agile organization ready to tackle challenges and achieve your mission.
Take the first step toward shared financial responsibility by scheduling a consultation with The Charity CFO. Our team will help you modernize your systems, train your leaders, and guide your nonprofit toward a more sustainable future.
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As a nonprofit leader, you’re constantly looking for ways to streamline operations and maximize resources. When it comes to managing your organization’s workforce, you have two primary options: traditional payroll services or a Professional Employer Organization (PEO).
No matter which direction you end up going, it’s crucial to understand the importance of payroll compliance. As a nonprofit organization, there are many pitfalls around payroll and you need to be aware of the rules.
Traditional payroll services focus primarily on processing your organization’s payroll. This includes calculating wages, withholding taxes, and ensuring timely payments to employees. Many nonprofits handle payroll in-house or outsource to a payroll provider. Here’s what you can expect from traditional payroll services:
Payroll Processing: Calculation of wages, overtime, and deductions.
Tax Withholding and Reporting: Managing federal, state, and local tax withholdings and filings.
Direct Deposits or Check Printing: Ensuring employees receive their pay on time.
Basic Reporting: Providing payroll reports for your accounting and record-keeping needs.
While traditional payroll services can be cost-effective for smaller nonprofits, they often lack the comprehensive HR support that growing organizations need.
Professional Employer Organizations (PEOs): A Comprehensive Approach
A PEO takes a more holistic approach to workforce management. By entering into a co-employment relationship with your nonprofit, a PEO becomes the employer of record for your staff. This arrangement allows the PEO to offer a wide range of services beyond basic payroll processing. Here’s what a PEO typically provides:
Full-Service Payroll: All the features of traditional payroll services, plus more advanced reporting and analytics.
Human Resources Management: Assistance with hiring, onboarding, performance management, and compliance.
Benefits Administration: Access to better, more affordable benefits packages typically reserved for larger organizations.
Risk Management and Compliance: Help with workers’ compensation, safety programs, and staying compliant with labor laws.
Training and Development: Resources for employee training and professional development.
Key Differences for Nonprofits
When deciding between a traditional payroll and a PEO, nonprofits should consider several factors:
1. Cost Structure
Traditional Payroll: Usually charges a per-employee or per-check fee, which can be more predictable for budgeting purposes.
PEO: Often charges a percentage of total payroll, which can be more expensive but includes a broader range of services.
2. Employee Benefits
Traditional Payroll: Your nonprofit is responsible for sourcing and managing benefits packages.
PEO: Offers access to better benefits at potentially lower costs due to economies of scale.
3. Compliance and Risk Management
Traditional Payroll: Provides basic tax compliance, but your organization remains responsible for most HR compliance issues.
PEO: Takes on much of the compliance burden, helping to mitigate risks associated with employment laws and regulations. This includes things like registering in new states when you hire employees.
4. HR Support
Traditional Payroll: Minimal to no HR support; your nonprofit needs to handle HR functions internally or hire separate consultants.
PEO: Comprehensive HR support, including policy development, employee handbooks, and conflict resolution.
5. Scalability
Traditional Payroll: Can work well for small to medium-sized nonprofits with stable workforce needs.
PEO: Often better suited for growing nonprofits or those with complex HR needs and remote teams across the country with complex compliance.
Considerations for Nonprofit Organizations
When evaluating your options, consider these nonprofit-specific factors:
Mission Focus: A PEO can free up more time for your team to focus on your nonprofit’s mission by handling HR and administrative tasks.
Grant Compliance: Ensure that either option can provide the detailed reporting often required for grant compliance.
Volunteer Management: While not typically part of payroll services, some PEOs offer solutions for managing volunteers alongside paid staff.
Seasonal Fluctuations: If your nonprofit experiences seasonal changes in staffing, a PEO might offer more flexibility in scaling services up or down.
Board Oversight: Consider how each option facilitates financial transparency and reporting to your board of directors.
Making the Right Choice for Your Nonprofit
Ultimately, the decision between traditional payroll and a PEO depends on your nonprofit’s unique needs, size, and growth trajectory. Here are some guidelines:
Choose Traditional Payroll If:
Your nonprofit is small with simple HR needs
You have a stable, long-term workforce
You prefer to keep HR functions in-house
Cost is your primary concern
Choose a PEO If:
Your nonprofit is growing rapidly
You want to offer better benefits to attract and retain talent
You need comprehensive HR support and compliance assistance
You’re looking to reduce administrative burden on your leadership team
You are bogged down with the compliance of employees across multiple states
Remember, the goal is to find a solution that allows your nonprofit to operate efficiently while remaining compliant with all relevant laws and regulations. Whether you choose traditional payroll or a PEO, ensure that the provider understands the unique needs of nonprofit organizations.
At The Charity CFO, we understand the complexities of nonprofit finances and operations. While we specialize in nonprofit accounting and bookkeeping, we recognize the importance of efficient payroll and HR management in the overall financial health of your organization. If you’re struggling with payroll issues or considering a switch to a PEO, our team can help you analyze your options and make the best decision for your nonprofit’s future.
Don’t let payroll and HR challenges distract you from your mission. Focus on making a difference in your community, and let the experts handle the rest. Schedule a consultation with The Charity CFO today to discuss your nonprofit’s financial management needs and explore how we can support your organization’s growth and success.
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Successful nonprofits and for-profit businesses alike use a variety of key performance indicators (KPIs) to help track their organization’s performance.
This guide will explore some of the most common nonprofit KPIs–including how to calculate them–to help you pick the right KPIs for your nonprofit.
Understanding the Importance of Nonprofit KPIs
KPIs are vital tools that help measure processes, evaluate effectiveness, and guide data-driven decisions. Tracking specific metrics helps nonprofits see how well they’re doing in areas such as:
Fundraising
Marketing
Program delivery
Operational efficiency
Overall impact
In turn, KPI data helps leaders make informed decisions, optimize resources, and build trust and accountability with donors and stakeholders.
Financial KPIs
Financial sustainability is one of the most common challenges facing nonprofit organizations. Nonprofits need a way to track financial data that helps them increase revenue and lower expenses.
That’s where financial KPIs come in. Nonprofit organizations can use financial KPIs to get a better picture of their organization’s financial health and create strategies to maximize financial efficiency.
Revenue Growth Rate
Revenue growth rate formula: (Current period revenue – previous period revenue) / previous period revenue X 100
The revenue growth rate of a nonprofit is the percentage increase or decrease in revenue over a specified period. This essential KPI is one of the most important financial metrics your organization can use to track growth and financial sustainability.
Your organization’s revenue growth rate can either be a positive or negative percentage. Positive growth rates indicate a growing or sustainable organization. If you have a positive growth rate, you know your organization was able to attract more funding than before.
Revenue Growth Rate Example
An organization’s revenue for the previous year was $100,000. Their current-year revenue is $120,000. Using the revenue growth rate formula, this organization’s growth rate is 20%.
Leaders can use this information to determine if the organization is ready to expand resources, such as hiring more staff or expanding program services.
Days of Cash on Hand
Days of cash on hand: (Average daily operating expenses) / (Current cash and cash equivalents)
This represents the number of days an organization can operate without additional cash flow.
We recommend that an organization maintain 90-120 days of cash but no fewer than 30 days.
Unrestricted Revenue
Unrestricted revenue for nonprofits refers to funds not limited by donors for specific purposes. Your organization is free to allocate these resources wherever they are needed.
This type of revenue provides flexibility in managing operational expenses, program development, and other essential activities.
We recommend that at least 50% of an organization’s revenue come from unrestricted sources.
This ratio demonstrates for what percentage of the year an organization can sustain itself without additional funding. We recommend that an organization maintain at least 25% of operating reserves.
Current Ratio
Current ratio: (Current assets) / (Current liabilities)
The current ratio shows how well an organization can meet its short-term obligations with its short-term assets. It’s a good indicator of liquidity and financial health.
We recommend that an organization maintain a current ratio of at least 1, indicating that it can cover its short-term obligations with its most liquid assets.
Diversification of Revenue
Diversification of revenue means reducing dependency on a single fundraising stream by generating income from a variety of sources, such as:
Grants
Donations
Fundraising events
Service fees
This strategy enhances financial stability and sustainability by mitigating the risk of income loss from any one source.
We recommend that no more than 15% of an organization’s total revenue come from the same funder or customer. Maintaining higher cash reserves can mitigate the risk associated with high revenue concentrations.
Long-Term Reserves
Long-term reserves are funds set aside to ensure the organization’s financial stability and sustainability over an extended period. These reserves are typically invested and can be used for future needs, capital projects, or to address unforeseen financial challenges, providing a safety net for the organization’s continued operations and mission fulfillment.
When an organization achieves more than 120 days of cash on hand, it should consider investing excess cash reserves to yield additional income. The board may choose to designate these funds for specific purposes and/or develop an investment policy that aligns with long-term goals.
Fundraising Efficiency Ratio
Fundraising efficiency ratio formula: (Fundraising expenses / Total funds raised) X 100
The fundraising efficiency ratio helps determine the sustainability and value of specific fundraising efforts.
Your fundraising efficiency ratio can help make decisions regarding resource allocation to maximize revenue and optimize expenses. The higher the ratio percentage, the less efficient a fundraising effort.
Fundraising Efficiency Ratio Example
A nonprofit hosts two major fundraising events per year. The first event costs $10,000 and raises $100,000 in donations. The second event costs the organization $50,000 and raises $250,000. The first event’s fundraising efficiency ratio is 10% while the second event’s is 20%.
Although the first event raises less money, it’s a more efficient use of resources.
Program Expense Ratio
Program expense ratio formula: (Program expenses / total expenses) X 100
The program expense ratio compares the cost of running nonprofit programs to the total cost of running the organization. Your organization can use the program expense ratio to compare program costs with other organizational costs, such as administrative or fundraising expenses. Tracking program expense ratios show how much of your resources go directly to your mission via programs and services.
In addition, the program expense ratio can help you determine the efficiency of your nonprofit program and services. This helps you see how efficiently your organization uses resources when delivering on your mission.
Program Expense Ratio Example
A nonprofit’s total annual expenses are $100,000 and its program expenses are $80,000. This means the organization has a program expense ratio of 80%. A higher program expense ratio shows an organization that dedicates a large portion of its resources to advancing its mission.
Operational and Fundraising KPIs
Efficient operational processes can help a nonprofit organization cut expenses and maximize revenue. Operational KPIs track metrics related to your operational expenses and resource allocation. You can use operational KPIs to improve the efficiency of how your organization runs.
Donor Retention Rate
Donor retention rate formula: [(Number of donors at the end of the period – number of new donors) / number of donors at the beginning of the period] X 100
The donor retention rate is the percentage of donors who continue to support your organization after a specified period. Donor retention rates help keep track of repeat donors, which can be a good indicator of donor satisfaction.
Tracking donor retention rates can help you determine if your donor outreach and communications are working to create repeat donors. The higher your retention rate, the more likely you are to have a sustainable donation pipeline from repeat donors.
Donor Retention Rate Example
Your organization starts the year with 500 donors and gains 100 new donors over the year. At the end of the year, you have 450 active donors. Your donor retention rate would be 70%, which could be a sign of effective donor engagement strategies.
Fundraising Efficiency Ratio
Fundraising Efficiency: [(Cost of fundraising) / (Net revenue from fundraising)] ×100
This measures the financial efficiency of your fundraising efforts by comparing the net revenue to the costs. You can use it to assess how effective your fundraising activities are and help you make future investment decisions that will maximize impact.
Remember: a higher efficiency means the campaign is raising significantly more money than it costs – this is great!
Administrative Overhead Ratio
Administrative overhead ratio formula: (Administrative expenses / total expenses) X 100
Your organization’s administrative overhead ratio gives insights into how efficiently your organization allocates resources. An organization that spends a significant portion of its resources on administrative costs may not put enough resources into program delivery and other mission-related activities.
Keeping administrative overhead ratios low shows financial transparency and responsibility to stakeholders and donors.
Administrative Overhead Ratio Example
A nonprofit’s administrative expenses are $60,000 and total expenses are $100,000. This means the organization uses 60% of its resources on administrative costs, which could indicate operational inefficiencies.
Volunteer Engagement
Volunteer engagement rate formula: Number of volunteer hours contributed OR the number of volunteers actively engaged
The volunteer engagement rate is a great indicator of volunteer participation in your organization. It lets you track volunteer engagement over time to see if your outreach is working to retain volunteers in a scarce environment.
High levels of volunteer engagement may show that the community supports your organization’s mission. They can also indicate an effective volunteer management program.
Volunteer Engagement Rate Example
Your nonprofit has 50 volunteers who collectively contribute 500 hours of service to your organization a month. Over time, you notice the rate drops to 40 volunteers who contribute 300 hours of service. This could be a sign that your volunteer management practices aren’t as effective as before.
Programmatic KPIs
Programmatic KPIs measure the performance of your nonprofit’s programs for your community. These metrics help you get a better idea of the effectiveness and efficiency of your programs and services.
Number of Beneficiaries Served
Beneficiaries served formula: Count the unique beneficiaries in a timeframe
The number of beneficiaries served metrics helps your organization determine the direct impact in your community. As you increase the number of people your programs serve, you show stakeholders, donors, and community members the benefits of your organization.
This metric also helps you see the reach and scale of your programs and services within your community.
Number of Beneficiaries Served Example
A nonprofit provides educational programs to 500 students in a year. The next year, the program served 550 students, increasing the program by 50 beneficiaries.
Cost Per Beneficiary Served
Cost per beneficiary served: (Total program costs) / (Number of beneficiaries served)
This measures the average expense incurred to provide services or support to each individual beneficiary. It’s a great metric for organizations to determine the efficiency and impact of their spending.
Program Success Rate
Program success rate formula: (Number of program objectives reached / total program objectives) X 100
The program success rate measures how many program objectives or goals your organization completes during a project. This is a great internal metric you can use to determine your organization’s ability to set and meet intended outcomes.
Nonprofit leaders can also use the program success rate to assess the efficiency and effectiveness of program implementation. You can use this data to help guide improvements to future projects.
Program Success Rate Example
A nonprofit sets ten objectives for its latest community development project and successfully achieves eight. The program’s success rate is 80%, meaning the program met most of its intended goals.
Selecting and Implementing KPIs for Your Nonprofit
These KPIs can help your nonprofit start tracking the performance of your organization–from financial health to program efficiency.
Need help getting started? The team at the Charity CFO is here to help you design a financial KPI strategy for your organization.
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Modern nonprofit leaders are always looking for ways to use technology to make everyday tasks easier. One of the most sought-after tools is a platform or software to integrate your fundraising and accounting data seamlessly. So why does it seem so hard to find this unicorn platform?
The short answer: these two datasets serve different purposes. This makes it challenging to create technology that tracks data for fundraising purposes while still following accounting principles.
Let’s explore why these two systems will likely never fully integrate by considering their separate purposes and data requirements.
The Core Functions of Fundraising Software
Fundraising software is a great way for your nonprofit to invest in technology and has four main purposes:
Relationship Management: Helping you nurture donor relations
Donor Engagement: Measuring the engagement of specific donors or donor demographics
Campaign Tracking: Tracking the success of fundraising campaigns
Fundraising Analytics: Giving you insights into your fundraising efforts
Each function helps fundraisers and nonprofit leaders gather and analyze data to make informed decisions that boost fundraising for the organization. To achieve this, fundraising software is flexible and customizable to meet the unique needs of different campaigns and donor interactions.
For example, fundraising software generally includes features such as:
Donor segmentation
Pledge tracking
Event management
These features help you track and measure the success of various fundraising efforts, campaigns, and events.
The Core Functions of Accounting Software
Like fundraising software, accounting software uses technology to simplify your bookkeeping and accounting processes. The core functions of accounting software differ from fundraising software, as accounting tools are used for:
Financial Reporting: Tracking revenue, expenses, assets, and liabilities in a structured manner
Budget Management: Planning, monitoring, and adjusting budgets to properly allocate resources
Compliance with GAAP (Generally Accepted Accounting Principles): Ensuring transparency and accuracy in financial data by adhering to GAAP
Accounting software doesn’t usually include a lot of customization features. Instead, accounting software prioritizes accuracy, standardization, and regulatory compliance. For example, some key features of accounting software include:
Maintaining the general ledger
Creating financial statements
Accounts payable/receivable management
The Incompatibility of Fundraising and Accounting Data
The core functions of fundraising and accounting software play the main role in why you can’t integrate them. Specifically, there’s an inherent difference in data structure that makes it nearly impossible to combine them in a clean, usable way:
Fundraising software tracks donor-centric data like donor preferences, relationships (i.e. individual and corporation connections), history, donor intent, or soft credits
Accounting software tracks financial transactions with strict adherence to GAAP
Integrating two systems with fundamentally different data priorities can risk data inconsistencies, inaccuracies, and loss of information. This makes it difficult to maintain the integrity of both donor and financial records when attempting to sync the two systems.
The Impact of GAAP on Integration Efforts
We’ve mentioned GAAP several times, but why do these principles affect integration so much?
Generally Accepted Accounting Principles, or GAAP, is a set of standardized accounting rules and guidelines that govern how you report financial information. For nonprofits, GAAP ensures transparency, accuracy, and consistency in financial statements. Accurate and transparent financial data makes it easier for stakeholders and regulators to understand an organization’s financial health.
GAAP requires strict financial reporting, which may not align with the flexible, donor-centric data in fundraising software. This misalignment can make it challenging to add fundraising data into accounting systems without risking compliance or accuracy issues.
Let’s consider an example. You have a donor that has verbally pledged a $100,000 gift during a lunch – you have no written record. Accounting rules suggest (and your auditors would require) that this gift be made in writing. The fundraiser on your team would record this verbal pledge in their fundraising database – rightfully so. The verbal pledge does not meet accounting standards, so it should not be included in your accounting database. An integration, in this case would allow the fundraiser to inadvertently make changes to your accounting system that would result in a misstatement.
If you did try to integrate fundraising data into accounting systems, you run the risk of:
Data inconsistencies
Non-compliance with regulations
Misallocation of funds
Loss of public trust
Human Judgment Reigns Supreme
Technology is a great tool, but there are some things that just work better with a human touch. Interpreting and reconciling data between fundraising and accounting is one of those things.
Humans can interpret the nuanced behavior behind donor contributions to help ensure that restricted funds and donor preferences are accurately reflected in financial reports. Additionally, automated systems may not fully capture the complexities of donor intent or specific reporting requirements. Humans can provide necessary manual oversight to correct discrepancies and maintain accurate data.
For example, a human can track and manage a pledged donation to make sure it’s recorded properly whether it’s already received or has yet to be fulfilled. Soft credits also need manual reconciliation to ensure that they are accurately reflected in donor records without affecting accounting entries.
Alternative Approaches to Integration
You can still make sure your fundraising and accounting data align, even while managing them separately, following these best practices:
Use data exports and reports to bridge the gap between the two systems.
Implement workflow processes to ensure accurate and consistent data entry into both systems.
Create a monthly reconciliation process between both databases.
Additionally, you can use third-party tools or middleware to facilitate limited integration without compromising data integrity. These systems automate data synchronization and transform data formats to align with the needs of both fundraising and accounting systems. For example, a system might validate and error-check data to identify and correct discrepancies.
Keeping Fundraising and Accounting Software Separate
The fundamental differences in fundraising and accounting data purpose and structure mean it’s unlikely your systems will ever fully integrate. And while that might sound like a drawback to the software, there’s many benefits to maintaining separate, specialized systems for fundraising and accounting. Using two separate tools makes it easier to keep your datasets clean and prevent data corruption–which is especially important for compliance purposes.
Although you can’t integrate fully, your organization can still use data from each software to help reach goals and advance your mission. Encourage open and regular communication between your fundraising and accounting teams for effective management of these critical functions.
Need some help interpreting your financial data? The Charity CFO provides expert financial advice and resources for nonprofits. Contact us today to learn more!
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Your nonprofit organization relies on the knowledge and guidance of its leadership team to advance its mission. A strong leadership team makes it easy for your organization to reach its goals by effectively using resources and managing strategy.
However, nonprofit leaders face unique challenges that their for-profit counterparts don’t, such as limited resources or reliance on volunteers. Navigating these challenges is even more difficult when the nonprofit leadership team doesn’t work together efficiently.
If your leadership team isn’t working to their optimal potential, there are steps you can take to help create a better team environment. Try these strategies to help you get your leadership team on the same page so your organization can thrive.
Building a Balanced Leadership Team
Recruiting new hires for a nonprofit can be difficult, and finding the right fit for your leadership team can be incredibly challenging. To recruit–and retain–top leadership talent, consider these hiring strategies:
Prioritize mission alignment during the hiring process by looking for candidates who believe strongly in the organization.
Attract a diverse group of candidates by using targeted recruitment strategies.
The board of directors should also be involved in hiring and retaining leadership team members. The role of the board is to help shape and support the leadership team both during and after recruitment. The board of directors can help your leadership team stay focused on the mission by providing strategic guidance, advice, and oversight on key decisions.
Use a mix of internal promotions and external hires as you look for new leaders for your organization. This approach helps foster both fresh perspectives and continuity in the organization.
Developing Leadership from Within
Bringing in external candidates can help bring a fresh perspective to your organization’s leadership team. That doesn’t mean you should only hire from outside the organization.
Creating a leadership succession plan is essential for long-term leadership stability. Your succession plan creates a pipeline of internal leaders who have worked and studied under your existing leadership team. These new leaders understand the organization and are ready to step into larger roles when a vacancy comes up, helping your organization reduce periods of uncertainty between leaders.
You can use a variety of leadership development programs to get existing employees ready for leadership roles. Consider tailoring your leadership development programs to the needs of your nonprofit by focusing on:
Mentorship and coaching
Continuous learning opportunities such as workshops, seminars, or professional courses
Internal development programs designed to train for specific leadership roles
In addition to leadership development training, your organization needs to foster a culture of growth and development from the top down. Give employees a chance to grow in their current roles and explore potential new roles within the organization. Not only does this help with leadership succession planning, but it also shows employees that the nonprofit values them and wants to invest in their future.
Encouraging Collaboration and Communication
One of the biggest issues facing leadership teams in both nonprofit and for-profit organizations is a lack of communication and collaboration. This lack of communication creates silos within departments, making it difficult for the organization to work as one cohesive unit as each department takes on its own tasks.
Use these strategies to enhance teamwork and increase collaboration among leadership:
Host regular leadership meetings with clear agendas and goals.
Create cross-departmental projects that encourage collaboration to break down silos.
Ultimately, you want a leadership team that trusts one another–both with the organization’s future and with one another’s departments. You can reach this level of trust through transparency and open communication among the leadership team.
Aligning Leadership with Organizational Goals
An organization’s leadership team guides the nonprofit in every aspect, so you need to be sure your leadership is aligned with the organization’s goals and mission. You can make sure leadership teams are aligned with the nonprofit’s mission and strategic goals by setting clear expectations and regularly reviewing and adjusting leadership strategies.
Creating clear expectations for leadership helps your leadership team understand their specific responsibilities for their department and the organizaiton as a whole. Be sure to use measurable objectives to help track leadership performance and keep the team on track.
Additionally, regularly reviewing the leadership team’s strategies–and adjusting them as necessary–keeps the team aligned with the nonprofit’s goals. As the organization’s goals or metrics evolve, so should the goals and strategies of the leadership team.
Nonprofit Leadership Teams Drive the Organization
Your organization’s leadership team is the captain of your organizational ship. They need to be able to work together as a unit to help your nonprofit meet goals and maximize success. Without a strong leadership team to guide it, your nonprofit won’t run efficiently and could face financial troubles or staff and volunteer shortages.
Get started today to create a leadership team that drives your mission forward. Evaluate your current leadership structure and consider implementing these strategies to enhance your team’s effectiveness.
Many nonprofits find their leadership teams lack an experienced financial professional who knows nonprofit accounting and financial strategy. If this sounds like your organization, reach out to The Charity CFO today to learn more about CFO and nonprofit accounting services.
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Nonprofit organizations rely on their leadership team to help shape and implement the mission, making succession planning a key part of long-term success. While CEO succession typically grabs the spotlight, you also need to consider other teams that contribute to the everyday operation of your nonprofit.
Accounting, for example, is an essential part of your organization. If your accountant leaves, you need a plan to keep your financial records accurate. And with the current shortage of accounting professionals, nonprofits are especially at risk when losing financial personnel.
The good news is you can reduce your risk of a financial crisis if your accounting team leaves with succession planning. Let’s dive into why there’s an accounting professional shortage, what to do after a sudden staff departure, and how to create a long-term nonprofit succession plan.
Opportunities in finance, data analytics, and technology industries
Nonprofit accountants may move to the private sector
Accounting roles left unfilled–or filled improperly–can lead to serious issues for your nonprofit, including:
Financial mismanagement
Inaccurate financial reporting
Compliance issues
Decrease in donor confidence and funding
Operational disruptions from lack of cash flow
Short-Term Planning for Accounting Role Departures
With the current accounting shortage, you could face a staffing crisis after a sudden departure. Your organization still needs to maintain accurate financial records and cash flow to continue operations.
Luckily, you can handle unexpected departures using these strategies:
Cross-train other staff members in key accounting functions, such as accurate transaction recording.
Maintain a relationship with external accounting firms who can step in to bridge the gap while you look for a new accountant.
Develop a temporary staffing plan to fill vacancies quickly.
Keep procedure manuals and documentation updated to ensure consistency and accuracy in accounting.
Long-Term Succession Planning
The best way to plan for unexpected departures in your organization is to create long-term succession planning. There are three key ways you help prevent accountant turnover and fill roles when needed:
Identify potential internal candidates for future accounting leadership roles.
Invest in professional development and training for your accounting team.
Create a mentorship or apprenticeship program to prepare the next generation of accounting leaders.
You should also plan to regularly review and update your succession plan as needed. Reviewing your plan at least once a year helps you proactively adapt to changes in your organization or the talent market.
Integrating Succession Planning Into Your Organizational Culture
Creating a succession plan can help you avoid a crisis after an unexpected departure, but simply having a plan may not be enough. An even better idea is to integrate the idea of succession planning throughout your organizational culture.
Succession planning culture doesn’t just refer to having a specific plan if a key employee leaves. Instead, a strong succession planning culture encourages growth and professional development among all employees. Employees who feel valued and invested in are more likely to stay with your nonprofit for the long term.
In addition to offering opportunities for professional development or cross-training, create an open discussion on career paths and growth opportunities within the accounting department. This helps keep succession planning as an organization-wide priority, rather than an executive-level need.
The Role of External Support in Succession Planning
One of the best ways to prepare yourself for an unexpected accounting departure is to maintain a relationship with an external team of experts. This could include CFO consultants or specializing firms that provide nonprofit accounting services.
Building a relationship with external experts puts your nonprofit in a stronger position if an accounting team member leaves. With external teams on your side, you can easily get expert advice and accounting services in the interim while you search for your next staff member.
External partners can also provide long-term succession strategies as well. Many nonprofits find they don’t need a full accounting team and instead outsource their accounting needs to a firm that specializes in nonprofits. For example, you might work with a fractional nonprofit CFO to help with financial planning and strategy and hire a bookkeeper or accountant in-house.
Don’t Wait to Create a Nonprofit Succession Plan
Comprehensive succession planning includes more than just your CEO. Proactively preparing for transitions in key roles like accounting improves the longevity and adaptability of your organization by protecting its financial stability.
Don’t wait to start your succession plan. Assess your current succession plan and begin integrating accounting roles today. Need extra support? Reach out to The Charity CFO to get the accounting succession planning help you need.
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An organization’s Key Performance Indicators (KPIs) provide a clear measure of how well the nonprofit is maintaining financial health while working toward its mission. Many nonprofits must balance their goals with limited resources or strict compliance regulations. To achieve this balance, you need to track metrics that give you a clear view of your current financial health to make informed financial decisions.
Unsure of which KPIs you should be tracking for your nonprofit?
This article highlights five essential financial KPIs every nonprofit should monitor to ensure they’re effectively managing resources, staying accountable to stakeholders, and driving their mission forward.
The Best Nonprofit KPIs
When defining your nonprofit KPIs, you’ll need to consider what information is most important to your organization. The right KPIs can aid in data-based decision-making and lead to a more thorough picture of the health and stability of your nonprofit.
There are five nonprofit KPIs every nonprofit organization should be tracking, including:
Days of Cash on Hand
How Much of Your Revenue is Unrestricted
Operating Reserve
Diversification of Revenue
Current Ratio
Days of Cash on Hand
Formula: unrestricted cash on hand / budgeted annual expenses) x 365
Days of cash on hand is a key financial metric that you can use to gauge your organization’s ability to continue operations with existing cash balances.
This KPI tells you the number of days your organization can continue to pay its operating expenses with the current amount of cash available.
Days of cash on hand is an important metric for measuring your organization’s liquidity and financial stability. A higher number of days suggests a stronger financial position. With a strong financial position, your organization has the flexibility to:
Pro Tip: We advise our clients to have at least 30 days of cash on hand. Closer to 90 is ideal.
How Much of Your Revenue is Unrestricted
Formula: 1 – (restricted revenue + reimbursement grant revenue) / total revenue
Having access to unrestricted revenue is especially important when you need to cover unexpected expenses or immediate needs of the organization. Tracking your nonprofit’s unrestricted revenue can give you a clearer image of the ratio of your restricted to unrestricted funds.
To calculate this KPI, you’ll divide unrestricted revenue by your total revenue. For example, your unrestricted revenue is $60,000 and your total revenue is $100,000. This means 60% of your revenue is unrestricted.
Why should you use this KPI? With more unrestricted funds, your nonprofit can more easily:
Cover operational costs
Invest in new projects
Adapt to unexpected circumstances
By tracking your percentage of unrestricted funds, you get a better idea of your organization’s financial flexibility.
Pro Tip: We recommend that at least 50% of an organization’s total revenue come from unrestricted sources.
Operating Reserve
Formula: (total net assets – restricted net assets – designated net assets – fixed assets + debt on fixed assets) / budgeted annual expenses
The operating reserve KPI lets you track your organization’s funds set aside to cover unexpected expenses or revenue shortfalls. Knowing your operating reserve makes it easier to ensure your organization can continue functioning even in challenging times of low revenue or reduced donations.
Operating reserves help nonprofits maintain financial stability, especially in times of uncertainty. Tracking your reserves gives you insights into whether or not your organization is saving enough in reserve for unexpected expenses or low revenue.
By having a cushion to fall back on, your organization can manage cash flow disruptions, respond to emergencies, and sustain operations without compromising its mission.
Pro Tip: We recommend that an organization maintain at least 25% of its annual budget in operating reserves.
Diversification of Revenue
Formula: Revenue from Each Source / Total Revenue
Revenue diversification refers to the variety of income sources that your nonprofit relies on. Drawing from multiple revenue streams–including donations, grants, service fees, and investments–helps your organization build a more balanced and sustainable financial foundation.
Tracking your revenue diversification can help you see whether or not your nonprofit is relying too heavily on one revenue stream. For example, an organization that relies mostly on donations may want to make changes to reduce its dependency on that single revenue stream to mitigate financial risk.
Pro Tip: We recommend that no more than 20% of an organization’s revenue come from the same funder or customer.
Current Ratio
Formula: Current Assets / Current Liabilities
Your organization’s current ratio is a financial metric that measures its ability to meet short-term obligations using short-term assets. This ratio compares assets that can be quickly converted to cash, such as cash itself, receivables, and short-term investments, against liabilities that are due within a year. A higher ratio indicates your organization has more than enough assets to cover immediate financial responsibilities.
You can use this measure to assess your nonprofit’s short-term financial health and liquidity. If you find you consistently have a lower current ratio, you may need to assess your current expenses and tweak your budget to better cover short-term liabilities.
Pro Tip: We recommend that an organization maintain a current ratio of at least 1, indicating that it can cover its short-term obligations with its most liquid assets.
Track the Right Nonprofit KPIs for the Best Results!
These five KPIs are some of the most important for tracking your organization’s financial health. Using these key indicators can help your leadership team make more informed decisions regarding budgeting, spending, and fundraising for a more financially well-rounded organization.
To get the most out of KPI tracking, however, you need to put systems in place to help you track and analyze your results. Using technology, for example, can make it easy to track metrics and spot trends in your financial data.
You can also work with a trusted nonprofit accounting team like the Charity CFO for in-depth financial analysis. We provide financial support and guidance to nonprofit leaders like you to help you make more informed, data-driven decisions.
Get in touch today to learn how we can help you improve your organization’s financial health!
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On today’s episode, Tosha is joined by the Executive Fundraising Coach at Auxilia, Paul Morris. Auxilia is a technology platform created to help community driven nonprofit organizations with donor outreach, engagement, and retention.
Paul and Tosha collaborate on a discussion about nonprofits investing in technology. There is almost an unwritten fear or stigma associated with nonprofits and using dollars to invest in technology. Sometimes, this can seem counterintuitive to achieving its mission, when in today’s world it is necessary.
Tune in as Paul and Tosha breakdown some whys behind technology investment in nonprofits.
Why Don’t 501c3’s Invest in Technology?
Paul believes there are 2 core reasons why more nonprofits aren’t investing in advancing technology within their business model.
An investment into intangible assets
Under resourced
From Paul’s experience it begins with the fear of funders and/or board members critiquing the businesses’ decision to invest here. Many nonprofits may hear that spending dollars on technology isn’t as effective as throwing those same dollars towards a specific program. The misconception is that the labor it takes to do something that can ultimately be automated will actually create future efficiencies within the organization. Technology is a tool that can free people up to spend more time on those programs that need a little extra love, instead of spending time on mundane tasks that deserve to be automated and hands free.
Sure, an investment like this might take a little more effort up front, but it opens so many more opportunities on the back end. This is what Paul refers to as a wise or smart investment. These can actually help propel the mission forward. Unfortunately not all donors or board members may understand this, which makes it important for the nonprofit leader to thoroughly explain the value of a move like this!
Secondly, many nonprofits are under-resourced. This is the more commonly understood reason. Similar to the first, many programs and issues within the nonprofit typically are a higher priority on the to-do list. So, technology tends to be the first item to go. Ultimately, Paul’s experience tells us that within the nonprofit sector, technology currently does not rank high for dollar spends. There aren’t many opportunities for technology grants and funders like to give towards the cause, so making a case for spending dollars on technology advancements can be a hard, uphill battle.
Deciding the Right Tech Stack for Your Business
Although not mentioned, but completely understood; technology can be intimidating! When it comes to choosing the right technology to help your business become more efficient, where does one even begin?
Tosha shares how she decides how to sift through the never ending technology options. First and foremost, she likes to identify what the business needs, specifically. Where is the gap and what do they not currently have?
Once she defines what this could be, she then works through the current providers already offering solutions to her business. Maybe her payroll provider offers a benefit administration solution. Now she doesn’t have to look out for the administrative solution on top of what she already pays the payroll provider.
Before long, having all the solutions under different providers can start to look like streaming services on a personal bank account. Look at it this way, sometimes one streaming service is all you need to watch your favorite TV shows and movies. The same can be true for tech solutions within a business. Consolidation can be a great way to reduce expenses and keep things efficient. Paul even adds that using a current provider for a new solution can be leveraged for savings. As a loyal customer, a discount might be available for 2 services opposed to one.
Auxilia is also a valuable resource for this type of conversation. Paul and his team will coach businesses so that they can provide your business with personalized guidance and suggestions that help for more successful fundraising. They are the experts and can help your business find the right road to travel. Read more about Auxilia here.
Starting the Conversation
Tosha wraps up the conversation by asking Paul how to get the board engaged in making technology advancements or at the least starting the conversation.
Primarily, it’s always best to start early. There are plenty of ways to justify making this sort of move, but it’s crucial to be prepared and proactive about even proposing this. If it hasn’t been made a part of the annual planning or strategic vision, this could be a great place to start. The idea of making things more efficient or better delivering program initiatives tends to do well with the board. It’s making sure to express the value of the change and the impact it can make.
Paul mentions a group called NTEN which is focused on advancing technology as a toll within the nonprofit space.
Another idea introduced by Paul is to establish a task force. Here, it’s important to be very clear in what the purpose of the task force is. In his opinion, people aren’t empowered by serving on a committee, but they are empowered by serving on a task force.
When the vision is clear, the leader can begin involving outside stakeholders or board members who have experience in technology to help eliminate guesses. A leader who has the courage to say, ‘this is what we’re doing because it’s good for the organization,’ is a leader people want to follow.
On the other hand, it’s also essential for boards to trust the body they are governing. People feel empowered when they are trusted to do what’s best for the organization. They feel like a part of the solution that can propel the organization forward.
Paul encourages the listeners to trust that the team is making good decisions for the benefit of the organization, and to let go of the need to control.
Connect with Paul on LinkedIn or through Auxilia. He is one of 5 coaches with a combined century of experience. Whether it’s development needs within the business, or even validation Auxilia has the expertise you may be looking for.
Please be sure to engage with the interviews as well. Whether you enjoy listening to it, reading about it, or watching us on YouTube, make sure you review, share, and engage with A Modern Nonprofit Podcast. You can find Tosha and the Charity CFO team onYoutube or our website,thecharitycfo.com!
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The type of accounting your organization uses could be holding you back from getting the most out of your accounting system. While many nonprofits start with cash-basis accounting due to its simplicity, this method often falls short of providing a comprehensive view of a nonprofit’s financial health.
Transitioning to accrual-basis accounting can offer a more accurate representation of finances and enhance long-term planning. Let’s look at the differences between cash-basis and accrual accounting and why you might want to switch.
Understanding Cash-Basis vs. Accrual-Basis Accounting
In cash-basis accounting, revenue gets reported only when the cash is physically (or digitally) received. Likewise, expenses are recorded when money leaves the organization’s account. Cash-basis accounting is most common for smaller nonprofits, where financials tend to be less complicated.
Accrual-basis accounting, on the other hand, records revenue and expenses when they are incurred. The accrual-basis method records transactions with the assumption that the money will physically change hands in the future.
For example, a nonprofit provides a paid service to a community member and issues an invoice. The revenue from the service is recorded now, even though the invoice hasn’t yet been paid.
Limitations of Cash-Basis Accounting for Nonprofits
Cash-basis accounting is a simple method that’s great for new or small nonprofits. However, there are two major limitations to using the cash-basis method:
It inaccurately represents financial health.
It can cause challenges in long-term financial planning.
The timing of an organization’s income and expenses in cash-basis accounting can misrepresent the actual financial state of the nonprofit. Additionally, the cash-basis method can make accurate forecasting and budgeting difficult.
Say a nonprofit hosts a large fundraising event in the second quarter. The costs for the event are all paid in the first quarter, but donation funds and other revenue won’t come through until the second quarter.
By using the cash-basis method, this organization would look like it’s struggling financially in the first quarter but has a major surplus in the second. The reality is somewhere in the middle, but the organization may be tempted to under budget for the first quarter and over budget for the second.
Benefits of Accrual-Basis Accounting for Nonprofits
Switching to accrual-based accounting can have a lot of benefits for nonprofit organizations. Most importantly, making the switch can help your organization:
Enhance the accuracy of financial data
Increase transparency
Improve financial decision-making
Enhanced Financial Accuracy
By recording revenue and expenses when they happen, instead of when cash is exchanged, helps provide a more accurate picture of the organization’s financial health at any given time. You’ll get a better view of long-term financial transactions, rather than just seeing what cash is currently in an account.
Accrual accounting also helps keep related revenues and expenses together. Matching revenues with the expenses incurred to generate them reflects the true cost of running programs and services.
Improved Financial Transparency
Accrual accounting provides stakeholders with a detailed view of your organization’s financial activities, improving trust and confidence. Transparent financial reporting can also improve donor relations. With increased transparency through accrual accounting, donors can see how their contributions are being used and the impact they’re making.
Better transparency also helps you stay compliant with regulations or grant requirements. Many regulatory bodies and grantors require accrual-basis financial statements. Adopting the accrual method ensures compliance with Generally Accepted Accounting Principles (GAAP) and other relevant standards. By making the switch, you could open your organization up to more grants and funding opportunities.
Facilitates Better Decision-Making
A more accurate understanding of your organization’s financial health means nonprofit leaders can make better strategic, data-driven decisions. Accrual accounting provides the data needed to forecast cash flow, budget more effectively, and allocate resources where needed most.
An accrual-based accounting system also gives you insights into the efficiency and effectiveness of programs and services. Detailed financial reports generated using the accrual method can highlight inefficiencies and areas for improvement within your organization. By analyzing the financial performance of programs, you can determine which initiatives are delivering the most value–and which may need adjustments or more support.
Get Support for Your Cash-Basis to Accrual-Basis Transition
The cash-basis accounting method is simple, but simplicity could be holding your organization back. Moving from cash-basis to accrual-basis accounting can help your nonprofit better manage its financial health and improve transparency.
While switching to accrual-basis accounting can be daunting, the easiest way to make the switch is to work with a trusted nonprofit accounting firm, such as The Charity CFO.
Our dedicated team of accounting professionals specializes in nonprofit accounting–ensuring your organization gets advice from accountants who understand the unique needs of nonprofits. Get in touch today to see how we can help you transition accounting systems!
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The middle of the year is the perfect time to pause and reflect on your nonprofit organization’s financial health. A midyear financial review helps you identify problems early and align your nonprofit’s financial performance with planned goals.
Conducting a review is important, but where do you start? Use this guide to help you better understand how–and why–to conduct a midyear financial review for your organization.
Importance of a Midyear Nonprofit Financial Review
Most organizations know the importance of end-of-year reviews, but did you know a midyear review can have similar benefits? Doing a midyear nonprofit financial review provides three main benefits to your organization:
Proactive Adjustment: Identifying and addressing financial issues before they become critical.
Strategic Alignment: Midyear reviews let you align your financial performance with the organization’s goals and mission.
Each of these benefits helps ensure your organization stays on track to reach its financial goals by the end of the year.
Key Components of a Midyear Financial Review
Your midyear review will likely look very similar to a year-end financial review. This means your review should include all aspects of your organization’s finances–from budgets to grant status.
There are generally four categories you should include in your review:
Financial Statement Analysis: This helps you analyze revenue, expenses, and cash flow. It should include your balance sheet, income statement, and cash flow statement. Evaluate how your organization is trending compared to prior years.
Grant Management: Review the status of grants and compliance with grant requirements or conditions. Ensure restricted and unrestricted funds are being managed properly. Check to make sure you are not over or under-spending.
KPIs: Evaluate how your organization is performing with it’s various KPIs or goals. For example, if you had intended to grow your reserves, how are you doing? If you want to monitor your expense ratios for each department and function, what is that looking like?
Steps to Conduct a Thorough Midyear Review
Before jumping into the actual review process, you’ll want to prepare yourself for the review. This means gathering all of your organization’s relevant financial documents and reports. For example, you may need to collect the year’s cash-flow projections, budget to actual comparison, and ongoing grant information.
Additionally, you should involve key stakeholders in the review process, such as the board of directors, your financial or accounting teams, and program managers. Bringing stakeholders on board not only increases accountability and transparency but can also open new insights into financial processes during the review.
Once your review is done, it’s important to carefully record your findings and present them to the board of directors. Based on your insights and findings, you can also make recommendations to the board.
How to Complete a Midyear Financial Review
The process of conducting a review may vary slightly between organizations, but the general steps include:
Step 1: Review financial statements.
Step 2: Analyze budget variances.
Step 3: Check compliance with financial policies and regulations.
Step 4: Evaluate cash flow and liquidity.
Step 5: Assess financial projections for the remaining year.
You might encounter challenges when conducting your review, so it’s important to know how to overcome them. Luckily, many nonprofits have similar challenges when analyzing their finances, including:
Data accuracy
Resource constraints
Compliance issues
Most nonprofit financial recording challenges, such as data accuracy and meeting legal and grant compliance requirements, can be solved using technology. Introducing technology, such as accounting software, can help your organization stay organized and maintain accurate financial records.
Other challenges, such as resource constraints, may require reallocating or changing resources to fit your needs. For example, if you don’t have time to conduct a review, you could hire an external accounting firm to perform an audit or reduced scope of work.
Using Your Review for Effective Planning
The findings of your review give you a better picture of the financial health of your organization. However, they offer so much more than that alone.
You can use your findings to analyze your current systems and processes to create more effective fundraising, accounting, and resource management. Your review can help you readjust budgets before the end of the year, which could help reduce financial strain or cash flow issues.
Likewise, your review findings can help with strategic planning for the remaining year and the year ahead. You can use your findings to make data-driven recommendations to the board and other stakeholders that can directly improve the financial health of your organization.
Get Started: Plan Your Midyear Financial Review
Reviewing the financial health of your organization helps you stay on track to meet financial goals. It can also be a good way to identify any financial struggles your organization might face. When caught in a midyear review you can address these financial concerns early.
If you’re overwhelmed by the idea of conducting a review, you’re not alone! An easy solution is to work with a nonprofit accounting and financial firm, such as the Charity CFO, to help you organize and complete your review.
The team at the Charity CFO can help you create and implement a plan of attack for your review. We specialize in nonprofit accounting, so you can be sure we understand the complexities of nonprofit financial documents.
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Choosing the right accounting services is crucial for the financial health of your nonprofit. The right nonprofit accountant helps your organization properly manage its finances, which improves trust and transparency with stakeholders and donors.
Let’s explore the key factors to consider when researching nonprofit accounting services–from the firm’s expertise to its technology recommendations–so you can be sure you’re getting the nonprofit accounting your organization needs.
1. Nonprofit Accounting Expertise and Experience
Nonprofit accounting isn’t the same as for-profit business accounting. Your organization needs a nonprofit accountant who understands the differences and has experience in nonprofit accounting. Look for accounting firms that specialize in nonprofit accounting when researching accounting services.
Specialized nonprofit accountants know the ins and outs of nonprofit accounting, so they can easily jump into managing your organization’s finances. Unlike a generalized accountant, nonprofit accountants already understand the unique challenges and regulations nonprofit organizations face. This can be especially important when it comes to reporting and filing requirements.
2. Services Offered
When selecting nonprofit accounting services, looking for a firm that offers a comprehensive suite of services tailored to your needs is important. There’s a wide range of accounting services your organization might need, including:
Bookkeeping
Financial reporting
Tax preparation
Audit support
These key services are vital to maintaining the financial health of your organization. Proper tax preparation, for example, can help your nonprofit stay compliant with financial regulations and maintain tax-exempt status. Likewise, an accountant who offers financial reporting services can help you choose and prepare the right financial reports for your board of directors, donors, or the general public.
Additionally, most nonprofit accounting services include specialized services for nonprofits, such as:
Grant management
Providing recommendations for best practices as your organization scales
Financial goal setting
Specialized accounting services like grant management help your organization efficiently manage funds to help meet donor expectations and plan for growth and sustainability.
3. Technology and Tools
The modern world is built on technology, and nonprofits are no different. Technology is one of the most important tools in modern nonprofit accounting. When researching nonprofit accounting services, aim to work with a firm that embraces and encourages technology like accounting software or donor management systems.
A good nonprofit accounting firm will work with you to find the right technology tools to help you simplify your bookkeeping. For example, they might recommend tools that make it easier for employees to track expenses using a mobile app. This eliminates the need to collect paper receipts from employees and streamlines your accounting systems.
You should also choose nonprofit accounting services that prioritize nonprofit data privacy. Data breaches can plummet public trust in your organization, so it’s important to use secure technology and software.
4. Customization and Scalability
You may not need the full range of your accountant’s nonprofit accounting services right now. But what happens as your organization grows? You’ll likely need expanded accounting services.
Your nonprofit accounting services should be customized to fit your current needs. However, you also want to work with an accountant who can scale your services to fit your future needs. Consider the future of your organization as you look for nonprofit accounting services.
5. Transparency and Communication
Accountants often work with sensitive financial data. It’s no surprise that should look for nonprofit accounting services from a trustworthy firm.
However, you also want to take the firm’s transparency and communication skills into consideration. Does the firm respond quickly to messages? Are they open and honest about the state of your organization’s financials? These factors can help you narrow down the right accounting services for your nonprofit.
6. Cost and Affordability
The final thing to look for in nonprofit accounting services is the price. Unfortunately, financial sustainability is one of the biggest challenges facing many nonprofits. You need to be sure you can afford the nonprofit accounting services your organization needs.
On the other hand, it usually doesn’t make sense to choose nonprofit accounting services based solely on cost. The key is to find accounting services that balance the cost with the quality of services provided.
Luckily, many nonprofit accounting services can be tailored to fit your needs–including your budget. As you look for accounting services, be sure to let potential accountants know your budget so they can build an accounting plan that meets your financial constraints.
Find the Right Nonprofit Accounting Services
Your nonprofit accountant is an important decision for your organization. Focus on these six factors when researching accounting services to ensure you find the right fit for your organization. The right accounting services will help your organization streamline financial processes, build trust with donors and stakeholders, and ultimately contribute to expanding your mission.
At The Charity CFO, we understand the unique financial and accounting needs of nonprofits. Our team specializes in nonprofit accounting and we take pride in being able to accurately and efficiently help nonprofits streamline their accounting processes. We’re here to help you better understand the financial health of your organization–and discover ways to improve.
Get in touch today for a free consultation on our nonprofit accounting services!
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Leading a nonprofit organization isn’t just about passion–it’s about effective leadership. Nonprofit executive directors play an irreplaceable role in steering their organizations toward success.
This guide will explore key strategies and insights to help you excel as a nonprofit executive director. Whether you’re a seasoned pro or new to the position, this roadmap will help empower you to make a meaningful impact in your community.
Build Strong Leadership Foundations
You can’t effectively lead an organization–or a team–if you don’t have clear goals, missions, or plans for it. The first step to becoming a great executive director is to build strong leadership foundations that help define your organization.
This process should include:
Clarifying the vision, mission, and values of the organization
Defining and clarifying the goals and mission of your organization sets you up as a successful leader. In turn, you’ll earn the respect of employees, community members, donors, and organizational stakeholders.
In many cases, the Board of Directors sets the vision, mission, and values of the organization. Additionally, the Board, in conjunction with leadership, develops a strategic plan. As a new leader, it’s important to understand where the Board is with this and how you help move their agenda forward.
Learn How to Navigate the Nonprofit Landscape
The nonprofit industry has a lot of unique challenges, but it also offers truly powerful rewards. Great executive directors know they need to learn the ins and outs of the nonprofit sector. This includes both the industry as a whole as well as your organization’s local or community landscape.
A great way to learn your organization’s landscape is to identify stakeholders in your immediate network and across the industry. Then, you can work to build relationships with these leaders to help you advocate for your organization’s mission and causes.
Additionally, you should stay up-to-date on industry trends and best practices. Subscribing to nonprofit industry journals, podcasts, and news outlets helps you stay on top of the latest nonprofit sector news and insights.
Effectively Build and Manage Your Team
Effective team building and management make it easier for you to help your organization reach its goals and advance its mission. Building a strong team starts with hiring individuals who align with the organization’s mission and values.
You’ll likely have to prioritize the most important roles to hire for immediate success. For example, do you need to hire a CFO or more frontline workers to help perform programs and services?
But building your team is only the first half of a great organization. You also need to work on creating and encouraging a positive workplace culture. Too often, nonprofit workers feel overworked and underappreciated. As an executive director, you have much power to help foster a healthy workplace from the top to prevent burnout and keep employees happy.
Financial Management and Fundraising Strategies
As an executive director, one of your most important roles in your organization is providing financial management. Even if you have an extensive fundraising team, you’ll likely still be working hands-on in managing funds, creating fundraising strategies, and allocating resources effectively.
Essentially, you can consider yourself the financial steward of your nonprofit. Your work will likely include:
Planning a clear budget that aligns with strategic goals.
Exploring various revenue streams or fundraising ideas such as grants, donations, events, and partnerships.
Communication and transparency are essential for the success of your organization. Keeping communication channels open fosters trust and accountability within the organization and among stakeholders from the board or directors to community leaders.
Likewise, sharing stories about the organization’s impact helps engage donors, excite volunteers, and inspire the community. Active, excited community members lead to continued support for your nonprofit and its mission.
Additionally, leading with transparency helps you manage public relations to create a positive image of the organization. Handling any crises quickly and transparently helps you maintain trust and credibility with the community.
Giving Yourself the Tools to Succeed as a Nonprofit Executive Director
Succeeding as a nonprofit executive director requires strong leadership, strategic thinking, effective communications, and a deep commitment to your organization’s mission.
While the journey may be challenging at times, the impact you make on your organization and community is immeasurable. If you embrace the opportunity to lead with purpose and let your passion drive you forward, you’ll be sure to succeed as an executive director.
Need a little help with the financial aspects of running your nonprofit? The team at The Charity CFO is here to help! We provide comprehensive bookkeeping and accounting services for nonprofits.
Contact us today to learn more about our nonprofit accounting services.
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Transparency and accountability are two of the most important factors in nonprofit accounting. Donors, the board of directors, and the public all want to know what your organization does with the funds it brings in. Being transparent in your nonprofit accounting helps build trust in your organization.
But what financial reports are most important to build that trust through transparency with your board of directors? There are five main financial reports you may want to consider when presenting financial data to your board of directors, including:
Statement of Financial Position
Statement of Activities
Statement of Cash Flow
Budget vs. Actual Report
Fundraising and Development Report
1. Statement of Financial Position
Your statement of financial position is a financial report that provides an overview of the organization’s financials at a specific point in time. For-profit businesses also call the statement of financial position a balance sheet, and many nonprofits do the same.
Your balance sheet is a lot like a health chart for a medical patient–it shows the current overall financial health of your organization. Balance sheets show details on how much money and assets your organization has as well as what it owes to others. Your nonprofit balance sheet will typically have three main components:
Assets: What your organization owns
Liabilities: The amount your nonprofit owes
Net Assets: The value of your organization, or your assets minus your liabilities
Providing your board of directors with a statement of financial position can help them better understand the financial health, stability, and liquidity of your organization.
2. Statement of Activities
More commonly known as an income statement, the statement of activities report summarizes your organization’s revenues and expenses over a specific period. Generally, this report is provided monthly, quarterly, or annually. Organizations that have a high amount of revenue and expenses may want to provide multiple timeframes for their board of directors.
The statement of activities shows your board of directors how much revenue the organization has earned and the amount of expenses incurred over the specified time. The report also details whether your organization has generated a surplus or deficit during the period. Key components of the report include:
Revenue: Contributions, grants, program and service fees, and any other income
Expenses: Program expenses, payroll and staffing costs, fundraising events
Changes in Net Assets: Whether your organization has a surplus or deficit
An income statement report makes it easier for your board of directors to track revenue and expenses over time, which can help make long-term financial decisions.
3. Statement of Cash Flow
An organization’s statement of cash flow report tracks the inflow and outflow of cash over a set timeframe. The report is generally broken into three parts:
Operating Activities: Your day-to-day cash transactions including paying employee salaries
Investing Activities: Purchases and sales of an organization’s assets, such as buying new equipment
Financing Activities: Loans, grants, and donations to the organization
Proving your board with a statement of cash flow helps them better understand the ongoing cash flow management of the organization. You can the board can also use the report to look for opportunities to maximize cash flow and optimize cash flow management to make the organization more resilient to unexpected changes in the nonprofit’s finances.
4. Budget vs. Actual Report
A budget-to-actual report compares an organization’s actual financial performance with its budgeted figures. This report highlights the differences between budgeted and actual revenues and expenses.
Your board of directors can use this report to better assess the organization’s financial discipline and operational efficiency. Organizations with major variances between their budget and actual may need to adjust their cash flow and expense management practices. Reviewing a budget vs an actual report also helps your organization identify discrepancies such as errors in accounting.
5. Fundraising and Development Report
A fundraising and development report focuses on the organization’s fundraising efforts and donor contributions. This report shows information on funds raised through various campaigns and events. It also generally includes data on donor acquisition and retention rates.
Your board of directors can use a fundraising and development report to evaluate the effectiveness of fundraising strategies. The report can also help show the organization’s financial sustainability through donor retention rates.
Fundraising and development reports are great tools for planning future fundraising ideas for the organization. You can use the report as a starting point to see what fundraising efforts your donors respond to best.
Preparing Financial Reports for a Nonprofit Board
These five financial reports can provide your board of directors with an accurate picture of your organization’s financial health. Depending on your organization, some of your reports may be more or less in-depth, and some organizations may not need each report for every board meeting.
Working with an experienced nonprofit accounting firm, like the Charity CFO, is an easy way to ensure you’re providing the right reports for your board. The Charity CFO team specializes in nonprofit accounting and can help you navigate the complexities of financial reporting for your organization. We’ll help you create a nonprofit accounting system that uses technology to automate some aspects of reporting, saving time over manual processes.
Need help setting up a financial reporting process? Contact us today to find out how we can help!
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Efficient bookkeeping is essential to the success and sustainability of any nonprofit. As a nonprofit leader, it can be difficult to give your bookkeeping the time it needs to stay accurate.
Luckily, modern accounting software and other bookkeeping technologies can help you keep up with day-to-day bookkeeping, reporting, and accounting tasks more efficiently.
Let’s take a closer look at the importance of efficient bookkeeping for nonprofits, common challenges, and how you can use technology to improve the accuracy and efficiency of your accounting system.
The Importance of Efficient and Accurate Bookkeeping
Just like for-profit businesses, nonprofit organizations need to have an efficient and accurate accounting system. Messy, broken accounting systems can lead to inaccurate financial reporting which can then cascade into further issues like noncompliance with regulations or loss of donor trust.
On the other hand, efficient and accurate nonprofit bookkeeping can help your organization:
Maintain Compliance with Regulatory Requirements
Accurate bookkeeping helps you adhere to strict reporting and tax requirements, making it easier to stay compliant and avoid legal issues.
Build Trust with Donors and Stakeholders
An efficient bookkeeping system improves the financial transparency and accountability of your organization with donors. In turn, this helps build trust with important stakeholders throughout your organization and community.
Support Decision-Making
Running an efficient bookkeeping system gives your board of directors and other decision-makers the tools they need to make the best financial decisions for your organization.
Efficiently Use Resources
Good bookkeeping helps track expenses and allocate resources effectively to maximize the impact of the organization’s programs and initiatives.
Prepare for Audits
Inaccurate financial data is one of the top mistakes found in nonprofit audits, but a well-organized bookkeeping system can help you be ready for an audit.
Efficient bookkeeping isn’t just about keeping records–it’s about building a solid foundation for your organization’s financial integrity and operational success.
Although nonprofit accounting challenges may seem overwhelming, having the right bookkeeping and accounting processes in place can help your organization overcome challenges including:
Managing restricted vs unrestricted funds
Tracking multiple revenue or funding services
Complex reporting and auditing requirements
Effectively allocating funds and resources
Cash flow management
Benefits of Technology in Bookkeeping
Technology is one of the most effective ways to improve the accuracy and efficiency of your nonprofit bookkeeping system. The rise in modern nonprofit accounting software and tech tools is making it easier than ever for nonprofit leaders to manage their finances.
Adding technology tools to your bookkeeping processes can have a range of benefits for your organization, including:
Improving Accuracy and Reducing Errors: A small typo in your bookkeeping could lead to disastrous results. Bookkeeping technology and software help reduce human errors and ensure consistent data entry and calculations. This leads to more accurate financial records and reduces the risk of costly mistakes.
Providing Real-Time Tracking and Reporting: Cloud-based accounting tools provide real-time access to financial data from anywhere with a secure connection. Real-time access to data makes it easier for stakeholders to make timely and informed decisions based on the latest financial information.
Enhancing Data Security and Backup: Modern nonprofit bookkeeping solutions offer enhanced security measures to protect your organization’s sensitive financial data, such as donor and staff information. Additionally, many software tools use automatic backups to ensure your data is secure and recoverable if necessary.
Key Technologies for Nonprofit Bookkeeping
Technology can help you simplify your nonprofit bookkeeping and help you maintain more accurate records. However, it’s important to consider your nonprofit accounting tech stack to help maximize the benefits of technology for your organization.
To get the most from your technology implementation, consider these factors in your nonprofit accounting system:
Integrations: Try to choose technologies that play well with one another through integrations so that each software can seamlessly share data with the other.
Cloud-Based: Cloud-based solutions make it easier for remote teams to work together while also reducing the need for physical hardware products.
Recognizable: Using software that is well-known, such as QuickBooks Online, makes it easier to bring in new data from partners and increases the chance that your accountant will be familiar with the program.
Ease-of-use: Your bookkeeping technologies should be user-friendly and easy to use to increase adoption among staff and volunteers.
Reporting: You want to choose technology that has ample reporting capabilities, whether you’re preparing a monthly financial report for the board or gathering data for an audit.
Learn More About Nonprofit Accounting Technology
Diving into the world of nonprofit accounting software can feel like information overload. There are almost endless tools and configurations you could use to run your accounting system, so how do you choose?
Simple: work with a trusted nonprofit accounting partner to create your customized nonprofit bookkeeping system.
The Charity CFO is an accounting firm specializing in nonprofit accounting. That means we know the unique challenges and needs of nonprofits like yours. Our team can help you sort through technology options to find software and services that work best for your organization.
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What do many successful nonprofits have in common? Good financial management.
In nonprofits, managing your finances effectively is essential to running a sustainable organization. Not only does good financial management help keep your organization running, but it also helps bolster trust in your nonprofit.
A Chief Financial Officer (CFO) is a C-suite financial manager for your organization. But is your organization ready to bring on a CFO? Do you need one?
In this article, we’ll look at how to determine if you need a CFO and the benefits of hiring one.
What is the Role of a Nonprofit CFO?
The role of a CFO is all about financial management. Depending on the organization, a CFO may have many different responsibilities, including:
Financial planning and budgeting
Cash flow management
Regulatory compliance
Financial reporting to stakeholders
Financial analysis and strategic direction
Bookkeeping
Overall, a CFO provides strategic financial planning and management. This management is vital for efficient resource allocation and the long-term sustainability of a nonprofit. In addition, a CFO aligns financial decisions with the organization’s mission to help maximize the nonprofit’s impact.
Signs Your Nonprofit Needs a CFO
When does a nonprofit need a CFO? Although every nonprofit is unique, there are some tell-tale signs your nonprofit might be ready for a CFO. In most cases, you can be sure you need a CFO if you’re finding it difficult to keep up with accurate bookkeeping or your nonprofit accounting is a mess.
You’re experiencing rapid growth and financial complexity.
Your current system has inadequate financial reporting and analysis.
Your organization faces challenges in budgeting and forecasting.
You have regulatory compliance concerns.
There’s a disconnect between financial strategy and organizational goals.
Benefits of a Nonprofit CFO
A nonprofit CFO can offer a wide range of benefits to your organizaiton–from streamlining financial reporting to increasing donor trust. Most nonprofits will benefit from a CFO, especially if they’re experiencing financial challenges or sudden growth.
Five of the top benefits of hiring a nonprofit CFO include:
Financial Oversight and Control: A CFO reduces the amount of people involved in financial processes and provides clear, thorough financial oversight.
Improved Financial Decision-making: Nonprofit CFOs are financial experts with the experience to analyze your organization’s finances and make data-driven decisions.
Strategic Financial Planning: CFOs provide financial planning and advice that helps your organization maximize revenue while reducing expenses.
Risk Management and Compliance: A CFO can help your nonprofit identify risks and stay in compliance with complicated tax and financial regulations.
Increased Credibility: Accurate reporting, strategic financial planning, and expanded financial oversight all help your organization improve trust and credibility with stakeholders, donors, and the public.
Should You Outsource Your Nonprofit CFO?
Hiring a full-time, in-house CFO isn’t an option for every nonprofit organization. Adding another C-level employee can be expensive, especially if you need to offer a high salary and comprehensive employee benefits to attract top talent.
Luckily, there’s an easy way to get the CFO services you need without bringing on another full-time employee: fractional CFO services.
Outsourcing your CFO needs has plenty of benefits, such as:
Cost-effectiveness: Outsourcing your CFO allows you to access high-level financial expertise without the expense of hiring a full-time employee.
Access to specialized skills: Fractional nonprofit CFOs often possess specialized skills and experience in the nonprofit accounting sector, letting you tap into a pool of seasoned professionals who understand your unique challenges.
Flexibility and scalability: Outsourced CFO services offer flexibility and the chance to scale your services to fit your needs, such as increasing service time if you experience rapid growth.
Objective perspective: A third-party CFO brings a fresh perspective to your organization and lets you make financial decisions without internal biases or conflicts of interest.
Ready to Hire a CFO?
Whether you hire in-house or outsource CFO services, bringing on a CFO can provide essential financial management and advice. Hiring a CFO can also improve financial transparency, improving the trust between your organization and donors, stakeholders, and the public. Additionally, a CFO helps your nonprofit stay compliant with the strict legal and tax regulations facing nonprofits.
One of the easiest ways to access a CFO is by outsourcing your financial management needs. Working with a fractional CFO gives you the benefits of a CFO without the added cost of hiring another full-time employee, including paying a salary and providing employee benefits.
Companies like The Charity CFO make it easy to get the financial expertise you need without the cost of hiring in-house.
The Charity CFO provides fractional CFO and other financial management services to help your nonprofit run smoothly without the added expense of a full-time employee. We work exclusively with nonprofits so you can be sure our team of experts understands the unique financial needs of nonprofit organizations.
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The right accountant can be the difference between an efficient accounting process and a total mess. That’s why it’s so important to know what to look for in a nonprofit accountant.
So what happens after you’ve found a few firms that offer the services you need? The next step is to ask your potential nonprofit accountant a few questions to see if they’d be a good fit for your organization.
Here are seven questions to ask a nonprofit accountant before working with them.
1. What is Your Experience Working With Nonprofit Organizations?
As a nonprofit leader, you know nonprofit accounting isn’t the same as for-profit business accounting. Yet, it’s all too common for nonprofits to hire an accounting team with little to no experience in nonprofit accounting.
One of the first things to ask a nonprofit accountant is their experience with nonprofits. Working with someone who understands the unique financial challenges of nonprofits will make your partnership more seamless.
An accountant without nonprofit experience may need weeks or months to learn the ins and outs of nonprofit accounting before they can start helping your organization. Accountants with nonprofit experience, on the other hand, can hit the ground running to analyze your books and make insightful recommendations for your organization.
2. Are You Familiar With Nonprofit Accounting Regulations and Standards?
Tax filing or reporting mistakes could cost your organization its tax-exempt status. Your nonprofit accountant should have a good understanding of the current nonprofit tax laws and regulations related to your organization.
In addition, your accountant should be able to help you navigate unique nonprofit tax situations. For example, your nonprofit owns a for-profit business, which could lead to complicated tax requirements or even loss of exempt status. You want to know your accountant can help you figure out what needs to be done to stay in compliance as a nonprofit.
3. How Do You Approach Financial Reporting for Nonprofits?
Accurate financial reporting is essential to a nonprofit’s success. Having accurate reports helps promote transparency, showing your commitment to ethical conduct and integrity. This transparency also helps build trust with a variety of stakeholders, including:
Employees
Volunteers
Board of Directors
Donors
Beneficiaries
However, not all financial reports are the same, especially if you need to present different data to various stakeholders. You can ask your accounting team how they handle financial reports to learn if their system will work for your organization. For example, your accountant might suggest using an accounting system like Quickbooks to streamline financial organization and easily generate reports.
4. What are Some Success Stories of Your Past Nonprofit Clients?
This is a great question to ask a nonprofit accountant. You might think of asking for client success stories or case studies as asking for an accountant’s portfolio. This is a chance for them to show you how they’ve helped other nonprofits like yours.
You can dive in further and ask the accountant a few follow-up questions as well, such as:
What are some cost-saving strategies you’ve used with other clients?
How did using accounting software improve efficiency for other nonprofits?
How did your financial strategies help the financial health of an organization?
What’s your process for evaluating an organization’s financial needs?
5. How Do You Ensure Transparency and Clear Communications With Clients?
Clear and open communication channels help everyone stay on the same page when it comes to an organization’s financials. You need your accountant to be accessible to answer questions and provide advice in a timely manner.
Asking a nonprofit accountant how they handle client communications–and if they’re willing to use your systems–can give you a better idea if you’ll work well together. For example, you might prefer phone calls over emails. You’ll likely want to work with an accountant who will accommodate your preferences.
6. Do You Offer Additional Services Besides Basic Accounting?
Bookkeeping and standard accounting services are major parts of nonprofit accounting, but what if you want an accountant who can be your go-to for financial advice? Asking about additional services lets you see what an accounting firm has to offer.
7. What is Your Approach to Helping Nonprofits Reach Their Financial Goals?
Your mission is the main reason for your nonprofit. That’s why it’s important to work with an accountant who understands how to create a financial plan that aligns with your mission and objective. This ensures each step of your financial plan helps you reach your goals and expand your impact.
Finding the Right Nonprofit Accountant to Reach Your Goals
Searching for a qualified nonprofit accountant can feel like a journey, but finding the right one is worth the time! Asking these seven questions can help you get a better idea of what nonprofit accounting services a firm offers, as well as their experience with nonprofit organizations.
At The Charity CFO, we’re happy to answer any questions you might have about our full-service nonprofit accounting and bookkeeping services. Our team specializes in nonprofit accounting, so you can be sure we understand the unique challenges and regulations that come with nonprofit finances.
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A key performance indicator (KPI) is a data metric you can use to gauge the overall success of your nonprofit organization. You can use KPI data to track your organization’s performance in various areas, such as finance or operations. As you collect KPI data, you’ll get a better picture of how your organization is performing now so you can make strategic decisions to improve it.
Without KPIs, your organization may be blind to trends or issues holding you back from making a bigger impact. Let’s explore how you can define your nonprofit KPIs and some examples of common metrics.
Factors to Consider When Choosing Nonprofit KPIs
The goal of KPIs is to track your organization’s performance, so it’s important to choose ones that make sense for your nonprofit. This, of course, is what makes defining nonprofit KPIs complicated.
How do you ensure you’re choosing the right KPIs for your organization?
Luckily, there are some factors to consider that can make it easier, such as choosing KPIs that:
There are four steps to follow when defining nonprofit KPIs:
Identify the core objectives of your organization
Perform a KPI audit
Consider data sources for potential KPIs
Create baselines and targets for your KPIs
Identify Core Objectives
Before you can define KPIs, you need to define what you hope to achieve with your nonprofit. This goes further than a mission statement or long-term impacts. Rather, think about your specific nonprofit goals.
Make a list of the most important objectives of your organization. This list will be the starting point for your KPIs, since you’ll want to choose metrics that help you reach these goals.
Complete a KPI Audit
A needs assessment and KPI audit can help you determine the most important KPIs for your organization. To perform an audit, you’ll need to consider your current data sets.
Specifically, how are you measuring nonprofit goals?
That’s the question you need to answer to find KPIs for your organization. There’s a good chance you’re already tracking some metrics, even if they’re not defined KPIs yet.
Ask yourself what information or data you need to track to see if you’re reaching your goals. This data becomes your potential KPIs.
For example, you might have a goal to increase revenue from program fees year over year. You’ll need to track revenue growth to know if you’re successful, making it a perfect KPI.
Evaluate Potential KPIs Based on Available Data
Your KPIs are only as good as the data you have access to. Without quality data to track, your KPI metrics will be unreliable.
As you consider your list of potential KPIs, look at the data you have available to measure them. Additionally, you can look at what data you don’t have and would need to measure a KPI properly.
If you have ample, usable data available to track a KPI, there’s a good chance you can use it for your organization.
Establish Baselines and Targets
Establishing your KPI baselines involves analyzing historical data to determine the starting point for your metrics.
For instance, if you’re measuring your program expense ratio, you first need to figure out what it is currently. Your current or historic ratio would then become the baseline for your new KPI.
Once you know your baseline, you can set targets for your KPI. A KPI target is simply the goal you wish to reach with the metric. You might set a target of lowering your expense ratio by a certain percentage, for example. Be sure to also set a specific timeframe for your KPI targets, which helps keep you on track.
Common Nonprofit KPIs
Your organization will likely want to track a variety of KPIs to measure–and improve–performance. Some of the most common KPI categories for nonprofits include financial, program-related, and operational metrics.
Financial KPIs
Financial KPIs are often some of the most important indicators of the health of an organization. Consider financial KPIs such as:
Total Revenue Growth Rate: This metric tracks the percentage increase or decrease of your total revenues over a specified timeframe.
Program Expense Ratio: This KPI tracks the efficiency of your programs and services by measuring the proportion of total expenses spent on programs.
Donor Retention Rate: A donor retention rate measures the percentage of donors who continue to support your organization over time and can be used to track donor relations and satisfaction.
Program KPIs
How can you tell if your programs and services are making an impact in your community using data? By implementing program KPIs like:
Number of Beneficiaries Served: This straightforward KPI quantifies your organization’s reach by measuring the total number of individuals benefiting from programs.
Client Satisfaction Rate: This metric measures the level of satisfaction among program participants or clients using the services your organization provides.
Operational KPIs
Operational KPIs help you determine the efficiency and effectiveness of your day-to-day operations. These KPIs are especially good tools for tracking employee and volunteer satisfaction.
Volunteer Retention Rate: The KPI tracks the percentage of volunteers who continue to engage with your organization over time, helping you see if your volunteer management programs retain volunteers.
Employee Turnover Rate: Your employee turnover rate measures the rate at which employees leave your organization. A high turnover rate could indicate unhappy employees.
Choose Your Nonprofit KPIs
Defining your nonprofit KPIs is an essential step to making strategic, data-driven decisions. You’ll want to choose KPIs that reflect your mission, are relevant to stakeholders, and have measurable data you can use to track them.
Financial KPIs, in particular, are some of the most important tracking metrics for any organization. The team at The Charity CFO can help you analyze your financial data and find usable metrics for KPIs. As financial professionals specializing in nonprofit accounting, we know nonprofits’ unique financial challenges.
The term burnout is more than a buzzword. In many nonprofits, burnout is the emotional, physical, and mental exhaustion of employees due to prolonged stress. The impact of this goes beyond individual well-being and can affect your organization’s effectiveness and ability to advance your mission.
Keep reading to learn how burnout can happen and get tips for implementing a burnout prevention strategy for your organization.
Understanding Burnout in Nonprofit Organizations
Burnout at work can happen to anyone. Jobs that require long hours or have high-stress environments can lead to this.
Unfortunately, many nonprofit roles have unique stressors that can cause burnout, such as:
Passion for the mission that adds personal investment to work
Unrealistic expectations from the public, donors, or the board of directors
A nonprofit with high levels of employee burnout can’t operate at optimal efficiency. Burnout can cause decreased productivity and high turnover rates in staff. Additionally, burnout can cause the quality of your services or programs to diminish as employees pay less attention to detail or offer lower-quality customer service. This can also have cultural impacts within your organization such as low morale and high cynicism among employees.
But burnout doesn’t only affect employee relationships. High levels of burnout could pose legal, compliance, and financial risks as employees lose focus or drive in their jobs.
Signs and Symptoms
The signs and symptoms of burnout can manifest both physically and mentally. Many employees facing burnout experience a combination of symptoms, including:
Chronic fatigue
Insomnia
Forgetfulness or impaired concentration
Chest pain and heart palpitations
Gastrointestinal pain or issues
Increased chance of illness
Loss of appetite or significant weight loss
Anxiety
Depression
Strategies for Preventing Burnout in Your Nonprofit
Although nonprofit organizations unfortunately regularly see high levels of burnout, there are steps you can take to prevent burnout in your nonprofit. Consider these four strategies to improve your workplace culture and reduce burnout in your nonprofit employees.
Foster a Supportive Organizational Culture
The best way to help prevent burnout is to create a supportive culture in your organization. You can do this by promoting open communication and transparency throughout your nonprofit. Your staff should feel confident that they can rely on other team members to help one another succeed.
In addition to communication, you can help reduce burnout by prioritizing employee wellness and mental health. Offering wellness programs, family-friendly policies, or other mental health benefits for employees gives them the resources they need to proactively manage stress and stop burnout.
Another way to create a supportive organizational culture is to provide employees with opportunities for professional development and growth. On-the-job training, mentorship programs, and career planning sessions can help employees get more out of their jobs.
Clarify Roles and Expectations
Many nonprofit employees face burnout due to unclear expectations or duties of their roles. With many nonprofits facing limited staff and financial resources, it’s common for employees to pick up additional duties and wear many hats in their roles. While this can help foster a sense of pride and teamwork, it can also quickly cause burnout as staff are unsure of what’s required of them.
You can combat this problem by clearly defining employee roles and expectations. Well-defined job descriptions help employees understand what’s expected of them from the start. You’ll also need to set realistic goals and priorities in your organization to prevent the need to overextend employees.
Allocate Resources Wisely
It’s no secret that many nonprofits face limited resources, especially financial resources. As a leader in your organization, you must advocate for adequate funding and resources for your employees. You may need to increase fundraising efforts, grant applications, or program fees to help bridge the gap between limited and adequate funding.
You can also improve your resource management based on historical spending and revenue. Comparing your nonprofit budget to actual, for example, can help you better understand where resources are going. You can use that data to make more informed decisions about spending and look for areas where you can reduce expenses.
Outsourcing can be a great way to reduce costs and improve your team’s efficiency. Consider financial management as an example. You might rely on your administrative team to handle all of your accounting and bookkeeping work as well.
This leaves them with less time to process other aspects of your organization. You could remedy this by outsourcing bookkeeping to remove a significant stress factor from your team.
Increase Recognition and Appreciation
A simple way to help reduce burnout in your organization is to create a recognition program for employees. Sometimes just knowing they’re appreciated can help an employee feel less stressed.
If possible, try to offer rewards or perks through your program. However, if that’s not in the budget you can provide appreciation by thanking employees. Be sure to consider each employee’s personality when recognizing them. Some employees may prefer a public acknowledgment while others are more comfortable being thanked in private.
Outsourcing Tasks to Prevent Burnout
Burnout in your nonprofit organization can come from a variety of sources, including limited resources or undefined job descriptions. Once your employees start facing this, you may see higher levels of turnover or disgruntled team members.
Luckily, you can implement strategies to help reduce and prevent burnout in your organization, including:
Creating a supportive workplace culture
Setting clear employee expectations
Allocating resources wisely
Developing a recognition and appreciation program
Outsourcing your nonprofit’s financial management to a nonprofit accounting firm like The Charity CFO could be one way to help prevent burnout. Our team knows the stress nonprofit employees have to face. We’re happy to provide nonprofit accounting services to help take some of that stress off of your team.
Contact us today to learn more about outsourcing your financial management.
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It’s no secret that running a nonprofit isn’t always easy, especially if you don’t know what challenges await you in the coming months. Luckily, we’ve put together a list of the five most common challenges for nonprofits in 2024. These challenges include financial issues, data security compliance, and talent retention problems.
Let’s look closer at the challenges nonprofits will face in 2024–and how to solve them!
1. Financial Sustainability
For nonprofits, financial sustainability means the financial security to cover expenses and advance your mission. Unfortunately, many nonprofits struggle to find–and maintain–financial sustainability.
One of the most common reasons for nonprofit financial insecurity in 2024 is the increase in expenses in the past several years. Higher costs affect nonprofits on two sides:
Higher overall expenses for the nonprofit itself
Lower revenues from decreased donations
Say you run an animal shelter. The cost of cat and dog food is going up, so your expenses are higher to feed the animals in your care. At the same time, your regular donors are cutting back on charitable giving because their personal expenses are increasing as well. This leaves your organization with higher expenses and lower revenues.
How Nonprofits Can Maintain Financial Sustainability in 2024
While rising costs may make it more difficult for nonprofits to find financial sustainability in 2024, it’s not impossible. Try these strategies to help your organization maintain financial stability in 2024 and beyond:
Diversify your revenue streams with new programs, donation initiatives, and fundraising events–so long as you can implement them efficiently.
Try fundraising hacks like doubling efforts for successful fundraising initiatives.
Review your nonprofit budget and cash flow data to find areas for improvement.
Nonprofits are no strangers to regulatory and compliance issues. 2024 will be no different. Your organization will need to keep up with current regulations and prepare for upcoming changes, especially related to:
The use of AI in your organization
Fundraising solicitation and donor privacy
Funding from foreign sources
Political activism and election-year initiatives
Employee categorization versus independent contractors
Keeping up With Changing Nonprofit Regulations
The key for your organization to stay in compliance with regulatory changes is to stay up to date on them. Of course, this is easier said than done when you have a nonprofit to run!
Consider assigning an employee or forming a task force committee dedicated to monitoring regulatory changes that could affect your organization. Having a dedicated team working on regulatory issues reduces the chances of you missing something as you focus on other parts of your organization.
You may also want to reach out to professionals who can help guide your organization. For instance, working with a nonprofit accountant, like The Charity CFO, can help you reduce your risk of financial non-compliance.
3. Nonprofit Technology Integration and Data Security
One of the best things you can do for your nonprofit is to start leveraging data. Data-driven decisions improve the efficiency and effectiveness of your organization from daily processes to fundraising efforts.
However, it can be difficult to choose the right nonprofit tech stack to fit your organization’s needs. And once you do implement technology into your organization, you have to be careful to keep patron, employee, volunteer, and donor data safe from digital threats.
Data from the Identity Theft Resources Center suggests that 69 nonprofit organizations faced direct data compromises in the first three quarters of 2023. On top of that, over 1,300 nonprofits faced indirect data compromises due to breaches from suppliers or vendors. As you integrate data into your organization, you must take steps to keep it safe.
Strategies to Leverage Data and Keep it Safe
There are several ways to use technology while also ensuring data security. Consider these three tips to help you start leveraging data without compromising user data:
Use cloud-based accounting and customer data software like QuickBooks Online.
Implement staff and volunteer training on security best practices.
Audit and adjust technology and data practices based on current cybersecurity best practices.
4. Donor Retention and Engagement
Building positive donor relationships is an integral part of nonprofit management. Many nonprofits rely on donations as a significant portion of their revenue. If you don’t keep donors happy and engaged, you could see a drop in your finances.
As we mentioned before, rising costs could already be affecting a donor’s willingness or ability to make contributions to your organization. That makes it even more important that you build and nurture relationships with existing and new donors.
Ideas to Help Strengthen Donor Relationships
As everyone feels the strain of increased costs in 2024, it’s more important than ever to make sure donors are recognized. You can make donors feel special by adding personalized messaging to donor communications.
Another way to improve donor relations is to focus on sharing stories and highlighting their impact. For example, use impactful storytelling in your newsletters or on social media to let donors know where their money went and how it helped your mission.
5. Talent Acquisition and Retention
Nonprofits thrive when their employees are talented and invested in the mission. However, nonprofit employee recruitment can be an ongoing challenge. Many nonprofit organizations struggle to attract and retain top talent, whether from limited budgets or stigmas from job seekers.
In 2024, nonprofits have to further compete with for-profit businesses that may be better equipped to offer highly competitive compensation packages, such as well-funded startups.
How to Attract and Retain Qualified Talent
The good news is there are great employees out there just waiting to connect with your organization. In addition, the shift to remote work is making it easier for nonprofits to offer competitive compensation by reducing in-person office costs.
A few ways you can help attract qualified employees for your organization include:
Improving the visibility and brand perception of your organization.
Creating a comprehensive benefits package for employees–even if you can’t offer the highest salary compared to for-profit businesses.
Offering professional and personal development and training for employees.
Cultivating a positive workplace environment and culture.
Need Help Facing Nonprofit Accounting Challenges?
There are many challenges nonprofits will likely face in 2024–from expanding fundraising efforts to ensuring donor data privacy. While it may feel overwhelming, these strategies can help you proactively address challenges and keep your organization running smoothly.
But what if you need extra help setting up your nonprofit accounting tech stack or recording donations correctly? That’s where The Charity CFO can help! As a nonprofit-specific accounting firm, we know your organization’s unique challenges. Our team of qualified nonprofit accounting experts can help you better understand your financial situation and create a plan to overcome challenges head-on.
Contact us today to learn more about nonprofit accounting services.
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Implementing technology into your nonprofit accounting process can help solve a variety of issues—from tracking receipts to properly recording donations. In most cases, technology helps improve the efficiency and accuracy of nonprofit accounting.
You’ll need to use the right technology systems to get these benefits. Known as a tech stack, building a comprehensive system from multiple tools is essential to successful technology use. Keep reading to learn more about building a tech stack for your organization and some of the programs we recommend for it.
Accounting Can Be a Challenge for Nonprofit Organizations
One of the biggest challenges for nonprofits to overcome is accounting. Nonprofits are subject to a lot of legal and financial scrutiny. Your nonprofit accounting setup needs to be able to meet tax and legal regulation and reporting requirements so you stay in compliance and retain the public’s trust.
Accurate everyday bookkeeping, from recording donations to paying invoices
Preparing accurate and consistent financial reports
Filing tax returns
Managing payroll
Organizing accounting and financial information into usable data
Nonprofits can leverage technology to help solve these problems. A good technology solution addresses each of your nonprofit accounting concerns. With the right tech in place, your organization can more accurately record and report your financial information and save your team a lot of time over paper accounting systems.
Integrate Accounting Tech to Build the Perfect Stack
As we mentioned before, a tech stack is a multi-solution technology system that works as a whole to solve your technology needs. Generally, tech stacks use several software programs or tech tools to meet technology needs that one platform can’t.
The key to a good stack is that your individual solutions work together seamlessly. In a well-organization stack, your programs work together to record and organize data across platforms.
Does it seem daunting to set that up?
The good news is most modern tech programs are designed to work with other common solutions through integrations. For example, your revenue recording software might integrate with your donation collection software so that when someone makes a donation it’s automatically recorded in your system.
Elements of a Strong Nonprofit Accounting Tech Stack
How do you build a strong nonprofit accounting tech stack? The key is knowing what programs offer your organization the most benefit and work well together.
At The Charity CFO, we’ve found four tech tools that have worked for several of our clients to improve their accounting systems. An example of a strong nonprofit accounting tech stack includes:
QuickBooks Online
Dext
Bill
Fathom
It’s important to remember that this exact setup—while great for many nonprofits—may not be the best fit for your organization. Be sure to work with a trusted nonprofit accounting and technology team to help you find the right tech stack solution for your organization’s needs.
QuickBooks Online
In our experience, most small- to mid-sized nonprofits benefit from using QuickBooks Online. QuickBooks provides an easy-to-use bookkeeping solution that puts all of your financial data in one place. Even better, the program is scalable to meet the needs of a growing or evolving organization.
We often recommend QuickBooks Online over nonprofit-specific accounting software for three reasons, it’s:
Cloud-based
Well-known
Features almost endless integrations
As a cloud-based solution, QuickBooks Online doesn’t require you to hire an expansive IT team or physically house expensive hardware. All of your financial data lives securely in the cloud, which also means you can access it from anywhere with a secure connection.
QuickBooks is also one of the most well-known accounting platforms and might even be the most widely used. You’d be hard-pressed to find an accountant or bookkeeper who doesn’t have experience with the platform. Working with a well-known system makes it easier for your accounting team to do their job without learning a complicated new system.
Most important to a tech stack, however, is QuickBooks Online’s ability to integrate with nearly any software or tech system you might need. By building your stack around this platform, you almost guarantee that any other system you use will seamlessly feed data to your bookkeeping database.
Dext
One of the most difficult aspects of nonprofit accounting is accurately recording transactions. Dext is a software that helps solve this problem. The program essentially creates an online storage bin to organize your receipts, bills, and deposits where your accountant can easily access them.
A great feature of Dext is the ability to use a mobile app to capture receipt and document data. Employees simply open the Dext app and snap a picture of a physical receipt or document. The app then prompts you to code the receipt so it can accurately record it in the system.
Dext integrates fully with QuickBooks Online, so when a receipt is uploaded to the Dext system, it’s also recorded in your bookkeeping software.
Bill
Bill (formerly Bill.com) is a tech solution for the accounts payable and accounts receivable cycle. The Bill platform works by uploading digital copies of vendor or contractor bills and sending them to the appropriate parties for approval.
You can even set up specific rules in the system that enforce your organization’s approval policies. For example, your nonprofit requires all bills over $500 to go to a specific individual for approval. If a bill comes through the system over that amount, the individual in charge of approval is notified and the bill won’t be approved until they give the all-clear.
Our final recommendation for many nonprofit tech stacks is Fathom, a reporting system that enhances the limited reports of QuickBooks Online. Although QuickBooks Online does a lot of things really well, its reporting options aren’t the best solution for many organizations that need more customization in their reports. Fathom eliminates these limitations.
Fathom pulls data from QuickBooks and generates monthly financial reports and dashboards. Organizations can use Fathom to customize their reports for various stakeholders in the organization.
The Charity CFO is Your Partner in Building a Strong Tech Stack
Adding technology to the accounting system can help free up your time and improve your accuracy, but you must do it correctly. Your tech tools need to work with one another through integrations or you run the risk of a disorganized tech stack. Using platforms that work well together, such as QuickBooks Online and Bill, reduces the risk of inaccuracies across platforms.
The Charity CFO team specializes in helping nonprofit organizations improve their accounting systems. As nonprofit accountants, we know the struggles nonprofits often face in their accounting setup. We can help you streamline your accounting systems for accuracy and efficiency.
Contact us today to see how we can build a tech stack that gives you more time to focus on your mission.
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Do you know the financial health of your nonprofit organization? Knowing where your finances stand is essential to effective nonprofit management. One of the best ways to get a quick read on your organization’s financial health is to compare your nonprofit budget to actual performance.
A budget to actual analysis helps you look at your estimated revenue and expense versus what your organization actually saw. Let’s take a closer look at the importance of budget to actual analysis and go over some tips for performing a budget to actual review.
The Importance of Nonprofit Budget to Actual Reporting
Nonprofit budget to actual reporting is the process of comparing your organization’s budget to the actual revenue and expenses over a given time. It’s an essential part of nonprofit financial management for a few reasons.
First, reviewing your nonprofit budget compared to actual performance helps you maintain financial transparency and accountability. By knowing where budgeted funds actually end up, you reduce the chance of fraud or inaccuracies in your financial statements. This helps improve donor confidence in your organization. Accurate data also helps you stay in compliance with legal regulations and tax laws, such as annual IRS filings.
In addition, budget to actual reporting can help improve strategic decision-making and financial performance evaluation. Budget to actual reporting lets you spot trends and identify issues in your finances so you can make data-driven decisions.
What to Look for in a Nonprofit Budget to Actual Analysis
There are a few different metrics to keep on your radar as you complete a budget to actual analysis, including:
Variances:Budget variances are the difference between your organization’s budget and its actual finances, generally by category. For example, you budget $2,000 per month for payroll, but your actual costs are $2,500. You have a negative variance of $500 in the payroll category.
Revenue sources:Recording revenue is an essential part of running a nonprofit. Your budget to actual analysis helps you identify regular sources of revenue–as well as any areas where you could improve revenue streams.
Expenses: Your nonprofit expenses are one of the most straightforward areas of a budget to actual analysis. However, looking at budgeted versus actual expenses can provide helpful insights into where your organization’s money is going.
Cash flow: Monitoring your budgeted and actual cash flow can help you spot and fix cash flow issues proactively.
Budget assumptions: Budget to actual reporting helps you accurately create budget assumptions using real data from your current–and past–finances. Regularly reviewing budget to actual reports can make it easier to form accurate and effective budget assumptions for the future.
Financial ratios: Financial ratios are financial calculations that help you monitor your organization’s financial state. They can help you identify which areas of your organization are most financially successful, or where you may need to trim the budget.
Budgeting process: Comparing your budget to actual data is an important step in improving your budgeting process. The closer your budget to actual reports gets, the more effective your budget becomes.
Tips for Making Adjustments if Your Nonprofit Budget to Actual Is Off
Even the most financially savvy nonprofit leaders can have variances in their budget to actual reports. If you find your budget to actual is off, you may need to reevaluate your budgeting process to create more accurate budgets going forward.
A budget to actual report makes it easy to identify where you may need to work on your budgeting. Being proactive and strategic with budget adjustments will help your organization improve the usefulness of a budget.
Follow these five tips to help get your budget to actual back on track:
Identify the root cause: This involves looking through your estimated and actual expenses and revenue to find where the variations occurred–and why they happened in the first place.
Prioritize areas for correction: Make a list of the areas or categories of your budget to actual report that is the most impactful for your organization and plan to focus on fixing those areas first.
Adjust spending priorities: It’s not always possible to completely cut expenses, but you may be able to reallocate funds between expense categories to better align your budget and actual data.
Explore ways to generate more revenue: If your actual expenses are higher than your budget allows, it may be time to consider new revenue streams, such as additional fundraising or applying for grant money.
Continue monitoring process: Regularly reviewing your budget and comparing it with your actual expense and revenue data is the key to improving your budget and reducing variances. Additionally, regular reviews can help promote accountability and transparency, building trust with your donors and your board of directors.
Leverage Your Nonprofit Budget to Actual for Success
Effective budgeting and monitoring of actual financial performance are essential for the long-term sustainability of your nonprofit. Reviewing your budget to actual data gives you a chance to spot trends and identify problems in your organization’s financial health. This information then helps you proactively address issues and make strategic adjustments to improve your financial standing.
If you’re unsure of where to start comparing budget to actual performance, consider working with a trusted nonprofit accounting firm like The Charity CFO. Our dedicated team of nonprofit accountants can help you review your budget to actual reporting. We’ll help you identify trends and create solutions so your nonprofit can run smoother and more effectively.
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