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How to Create Better Nonprofit Leadership Teams

September 23, 2024/in Leadership, Nonprofit/by Paul Cook

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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 open channels of communication and feedback loops so leadership stays in contact with non-leadership teams.
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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A CFO’s Favorite KPIs for Nonprofits

August 27, 2024/in Accounting, Nonprofit/by Paul Cook

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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:

Navigate unforeseen challenges
Reach nonprofit goals
Ensure the continuity of its mission-driven work

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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A Modern Nonprofit Podcast: How Nonprofits can Start Investing in Technology

August 22, 2024/in Nonprofit/by Paul Cook

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 on Youtube or our website, thecharitycfo.com!

Why Nonprofits Need to Switch from Cash-Basis to Accrual-Basis Accounting

July 12, 2024/in Accounting, Nonprofit/by Paul Cook

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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

Before we can know why to switch accounting systems, it’s important to understand how each system works. The main difference between cash-basis and accrual-basis accounting is when revenue and expenses are recorded.

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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Pause and Reflect: Midyear Nonprofit Financial Review

July 3, 2024/in Accounting, Nonprofit/by Paul Cook

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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:

Accountability and Transparency: Ensuring the organization remains accountable to stakeholders.
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.

Budget vs. Actual Comparison: This lets you compare your actual financial performance against the projected budget.

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.

Step 6: Compile results and present findings to the board and other stakeholders.

Common Challenges and How to Overcome Them

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.

Schedule a free call today to learn more about completing a financial review!

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What to Look for in Nonprofit Accounting Services

July 1, 2024/in Accounting, Nonprofit/by Paul Cook

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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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How to Succeed as a Nonprofit Executive Director

June 27, 2024/in Nonprofit/by Paul Cook

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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
Developing a strategic plan for the organization
Establishing clear goals and objectives, such as defining nonprofit KPIs

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.
Identifying opportunities to use technology to streamline processes and reduce costs.
Ensuring transparency and accountability in the financial practices of the organization.
Building, maintaining, and expanding donor relations.
Being the face of your organization at fundraising and community events to drive donations to the organization.
Balancing operational efficiency with initiatives to advance your mission and reach goals.
Providing regular financial reports to the board of directors and other stakeholders.

Lead with Communication and Transparency

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.

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Financial Reports to Share with Nonprofit Board

May 31, 2024/in Accounting, Board Management, Nonprofit, Reporting/by Paul Cook

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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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Use Technology to Simplify Nonprofit Bookkeeping

May 31, 2024/in Accounting, Nonprofit/by Paul Cook

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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.

Common Nonprofit Bookkeeping Challenges

Nonprofits face unique challenges to keep their organizations running, including nonprofit accounting challenges.

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:

Saving Time: Most nonprofit accounting software tools help you automate many aspects of the bookkeeping process. Automation helps reduce time spent on tedious, manual tasks, saving you and your staff time which could even help prevent burnout in nonprofit employees.

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.

Learn more by scheduling a call with us today!

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Do You Need a Nonprofit CFO?

May 22, 2024/in Accounting, Nonprofit/by Paul Cook

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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.

Here are five signs your nonprofit is ready for a CFO:

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.

Strengthened Reporting: Your CFO will implement the right nonprofit accounting software and technology to provide accurate financial reporting that drives actionable insights.

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.

Schedule a call today to learn more about CFO services from the Charity CFO!

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7 Questions to Ask a Nonprofit Accountant

April 26, 2024/in Accounting, Nonprofit/by Paul Cook

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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.

You might be surprised by the additional nonprofit accounting services a firm offers, such as:

Fractional CFO services
Advising on growth strategies
Accounting system design
Paying vendors
Grant management
Preparing and filing IRS forms

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.

Get in touch with us today to learn more about our services!

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Defining Your Nonprofit KPIs

April 24, 2024/in Nonprofit/by Paul Cook

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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:

Align with your mission and strategic nonprofit goals.
Are relevant to stakeholders, donors, board members, and grantors.
Have measurable data readily available.
Give you the ability to make data-driven decisions.

How to Define Your Nonprofit’s KPIs

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.

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How to Prevent Burnout in Your Nonprofit

April 22, 2024/in Nonprofit/by Paul Cook

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
Limited financial resources
Lack of staff and heavy workloads
Emotional tolls related to working on sensitive issues such as poverty, abuse, or social injustice
Ambiguity in each staff member’s role
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.

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What to Look for in a Nonprofit Accounting Partner

April 2, 2024/in Uncategorized/by Paul Cook

Managing a nonprofit can be complex, especially when it comes to nonprofit accounting. Nonprofits face unique financial challenges and responsibilities that require specialized expertise and support. Finding the right accounting partner for your nonprofit is essential to the financial success of your nonprofit organization.

Take a closer look at the importance of a strong nonprofit accounting partner and what you should look for when choosing a nonprofit accountant for your organization.

The Importance of a Strong Nonprofit Accounting Partner

A nonprofit organization’s finances can be complicated, thanks to reporting and filing regulations and laws. In addition, you need to make sure your financial data is accurate and readily available for donors, board members, and other stakeholders.

Keeping up with your nonprofit’s accounting needs might simply take too much time away from your ability to run other aspects of your organization. That’s why you need a strong accounting partner who specializes in nonprofits.

A nonprofit accounting team provides important benefits to your organization, including:

Expertise in nonprofit financial regulations and reporting requirements
Understanding of nonprofit funding and grant management
Strategetic financial planning and advice tailored to nonprofits
Increased financial transparency and accountability throughout your organization
Resource optimization and improved cost efficiency through effective nonprofit accounting setup
Access to nonprofit sector insights and best practices from your knowledgeable nonprofit accountant

Elements for a Good Nonprofit Accounting Partner

Not all accounting firms are created equal, even those that specialize in nonprofit accounting. It’s important to do your due diligence when looking for an accounting partner. As you look for an accounting team, consider the elements that make a nonprofit accountant a good fit for your organization, such as:

Nonprofit accounting specialization
Commitment to accuracy and on-time reporting
Education and experience in providing financial planning and advice
Open communication channels and a team that’s regularly available for support
Knowledge and recommendations of technology and tools for your organization

Specialization in Nonprofit Accounting

One of the most important things to look for in your accounting partner is a firm that specializes in nonprofit accounting. Nonprofit accounting has several major differences from for-profit accounting. An accounting firm that specializes in nonprofit accounting knows the legal and tax limitations of a nonprofit organization.

In addition to knowing the legal requirements of nonprofit accounting, a good nonprofit accountant also understands the things that make the nonprofit sector unique. They’ll know how to approach common financial issues for nonprofits, such as limited budgets or restricted funds.

Accurate and Timely Reporting

Most nonprofit leaders have been there: you can’t make a crucial decision until a certain financial report comes in, but you’re never sure when the data will be available. Even worse, sometimes the report looks different than previous months–or it never shows up at all. This leaves you scrambling as you try to appease your board of directors and donors all while attempting to make data-driven decisions for your organization with inconsistent and inaccurate data.

Luckily, a good nonprofit accountant removes the responsibility of reporting from your shoulders. Your nonprofit accounting partner will help ensure your monthly financial statements and reports are delivered on time. They’ll also work to eliminate inaccuracies within your data, so you can make data-driven decisions you trust and avoid accounting mistakes that might come up in an audit.

Proactive Guidance and Expertise

An unexpected and sometimes overlooked element of a good nonprofit accounting team is the ability to offer financial guidance and expertise. Good nonprofit accountants do more than just provide reports, they also become your trusted source of nonprofit financial advice. You should aim to work with an accountant who has the experience to provide expertise and financial planning for your organization.

If you’re facing a financial question and your first thought is to reach out to your accounting partner for guidance, you’ve likely found a strong nonprofit accounting team. If you don’t trust their advice, it might be time to look for a new accounting team.

Strong Communication and Accessibility

Your nonprofit accountant can only provide expert advice and accurate reporting if you can easily get in touch with them. Whether you have a pressing filing question or just need general financial guidance, you want to be sure your accountant will respond to questions in a timely manner.

As you search for the right accounting firm, think about how easy they are to contact. Generally, a firm that is easy to communicate with before you’re even working together will remain so after you partner together. This can be an invaluable quality in your nonprofit accountant.

Technology and Tools

Technology can be an absolute game-changer for nonprofit organizations. However, technology and financial tools are only as good as their implementation and use.

Your nonprofit accounting partner should have knowledge of the latest accounting software and tools. They should be able to make expert recommendations for a tech stack that’s tailored to your organization’s unique needs.

Searching for an Experienced Accounting Partner?

The right accounting partner can make all the difference in managing your organization’s financial needs. From on-time reports to consistent, accurate data, a nonprofit-focused accounting team like The Charity CFO can help your organization be more effective and efficient.

While many accounting firms focus on for-profit business accounting, The Charity CFO specializes in nonprofit accounting. Our team meets every element of a strong nonprofit accounting firm by providing:

Nonprofit accounting expertise
A commitment to timely reporting with accurate data
Expert guidance and advice from nonprofit accounting specialists
Ongoing communication and a friendly, easy-to-reach team
Recommendations and education on the latest technology and tools for efficient nonprofit accounting

Want to learn how The Charity CFO can help manage your nonprofit’s financials? Contact us today!

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The Ideal Nonprofit Accounting Tech Stack

April 1, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

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.

Some of the most common accounting challenges for nonprofits include:

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.

This system of only paying approved bills is huge in helping reduce common mistakes caught in nonprofit audits.

Fathom

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.

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Comparing Your Nonprofit Budget to Actual

March 29, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

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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How to Fix Your Nonprofit Accounting

March 28, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

Your nonprofit accounting system might not be the most exciting part of your organization, but it’s one of the most important aspects. An effective accounting system helps you stay in compliance with tax and legal regulations–helping you maintain your exempt status.

However, effective accounting isn’t just about following rules. An effective nonprofit accounting system also helps your organization stay transparent, manage funds wisely, and build trust with donors and the public.

If your organization’s accounting has gotten a little off track, there are things you can do to fix it. Keep reading to learn more.

Take a Close Look at Your Current Accounting Practices

You can’t know what needs fixing in your accounting system until you dive in and examine your current practices. Before you start trying to fix things, consider doing a full review of your accounting system. Taking a close look at your current system helps you identify problem areas in your financial recording methods.

Your analysis should show you where your accounting system is working for your organization and any gaps or areas of concern. For example, you may find that your system is great at recording nonprofit revenue, but lacks an efficient process for categorizing various revenue streams.

Consider making a list of the challenges or issues you find in your accounting system. This list will help you better define how these inaccuracies or incomplete records are affecting your overall accounting strategy.

Get Your Financial Policies and Procedures in Order

Does your organization have written financial policies and procedures in place? Do all of your employees and volunteers know what to do when faced with common financial tasks?

If not, one of the first steps to fixing your nonprofit accounting is setting up these policies.

Having documented financial policies for your nonprofit organization is essential and helps with:

Compliance: Documented procedures help your organization maintain accurate records and stay on top of compliance regulations.

Accountability: A defined accounting policy makes it easy for anyone in the organization to know what’s going on with funds–which helps build donor and board member trust.
Operational Efficiency: Having set financial guidelines makes it easy to track and record financial transactions, improving the overall efficiency of your nonprofit.

To fix your accounting system, you’ll need to create a standardized set of policies and procedures for transactions and reporting. As you create your policies, make sure everything aligns with legal and regulatory requirements.

Focus on Budgeting and Financial Planning

Like standardized financial policies, budgeting is an important aspect of your nonprofit accounting system. Your budget helps you plan out expenses and revenue in advance so you have a better idea of the financial health of your organization. It’s also an important tool for transparency within your nonprofit. A budget shows stakeholders like the board of directors or donors how you’re using funds to advance your mission.

You’ll need to develop a realistic budget for your organization based on real nonprofit needs and goals. The easiest way to create an accurate budget is to use budget tracking based on historical financial data. You’ll use past revenue and expenses to estimate future funding and expense needs.

You should expect your budget to have minor variances from month to month. Try to review your budget every couple of months and make adjustments as needed to meet current financial needs.

Track and Report Donations and Grants

Properly recording and reporting nonprofit revenue should be a top priority in your new accounting system. If you don’t have them in place already, you’ll need to establish protocols for recording donations and grants. Your system should take into account any donor restrictions so you stay in compliance with donor or grant requirements.

You’ll also need to create a reporting system for donations and grants. Generally, organizations that receive funds are expected to report on the use and impact of the funds. Not only does reporting on fund use help you stay in compliance with donor wishes or legal requirements, it’s simply a great way to maintain transparency in your organization and with the public.

Monitor Cash Flow and Financial Health

An organization’s cash flow is often a good indicator of financial health. Regular review of your cash flow statements can help you spot financial problems before they grow into major issues. As you fix your accounting setup, you’ll want to start analyzing financial ratios for liquidity and sustainability. If you find your nonprofit is regularly over budget, it’s probably time to address expenses and revenue.

There are a few strategies to improve your cash flow management, including:

Reducing expenses, from cutting back on staff to delaying new programs or services
Looking for additional revenue streams, such as new donors or applying for grants
Adjusting timelines for accounts receivable invoices
Offering new payment options for donations or service fees, such as automatic payments or online payments

Seeking Professional Assistance

Cleaning up a messy accounting system is often a tedious and overwhelming task. Not to mention, most nonprofit leaders have plenty of other things on their plates. Working with a professional accounting firm specializing in nonprofit accounting is a great way to fix your accounting system and save time.

Nonprofit accounting firms have specialized knowledge related to financial management for nonprofits. They know how to navigate the complicated legal landscape surrounding nonprofit accounting, so you can be sure your financial records comply with governing regulations. In addition, a nonprofit accounting team provides financial guidance tailored to your organization to help you use your funds more effectively and efficiently.

The Charity CFO is a nonprofit accounting firm that can help you clean up your current accounting issues and establish a strong accounting system going forward. Our team of nonprofit accounting specialists understands the needs and challenges of nonprofits.

Need help fixing your accounting issues? Contact us today to get started.

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Can Nonprofits Use QuickBooks?

March 27, 2024/in CharityCFO, Nonprofit/by Paul Cook

QuickBooks is a popular accounting software used by businesses and individuals nationwide. As a nonprofit leader, you’ve probably heard of QuickBooks or may have even used it before. And you might be wondering if you can use QuickBooks for your nonprofit accounting.

The answer is yes, QuickBooks Online can be configured for nonprofit use. Let’s dive into the benefits of using QuickBooks Online for your nonprofit and explore how to get the most out of the program.

Specific Accounting Needs of Nonprofit Organizations

Before you can choose an accounting software–QuickBooks or otherwise–it’s important to understand the unique needs of nonprofit organizations. For-profit businesses often don’t have to follow the strict accounting rules of an exempt organization.

In addition, nonprofit groups are generally under more scrutiny from government agencies, donors, board members, and the general public when it comes to financial matters.

You’ll need to keep these things in mind when choosing accounting software and an accounting setup. Specifically, nonprofit leaders should consider these factors when looking for software:

Requirements for fund accounting
Staying in compliance with reporting and filing

Fund Accounting Requirements

Fund accounting is an accounting system used by nonprofits that focuses on transparency and accountability rather than profits. Nonprofits use fund accounting to properly record and allocate funds based on where they come from and what they’re meant for.

Generally, this includes having specific funds or categories where nonprofit revenue is allocated. For example, a food bank has a category for donations restricted to purchasing food for the bank. The money in this category, therefore, is only used to purchase more food for patrons.

Fund accounting differs from traditional accounting methods in that it’s designed for accountability and compliance. When you look at a nonprofit’s books, fund accounting helps ensure you can see exactly where donations, grants, and other funds are going.

Compliance and Reporting

In addition to fund accounting for accountability, nonprofits are expected to follow strict tax and reporting rules to stay in compliance. This includes documenting the source of funds like donations, grants, or other revenue streams. Nonprofits also need to record expense receipts.

A nonprofit’s accounting software must help it accurately record these transactions. Missing records, sloppy categories, or inaccuracies in reporting could endanger an organization’s nonprofit or exempt status. Maintaining accurate records helps you stay in compliance with federal and state tax department regulations and follow donation rules. Additionally, accurate records can help improve public and donor trust in your organization.

Advantages of Using QuickBooks Online for Nonprofit Accounting

Nonprofits can use QuickBooks for their accounting needs and can configure the software to fit their unique accounting situation. There are 5 main advantages of using QuickBooks for nonprofit accounting:

QuickBooks can be configured and customized to meet nonprofit needs.
It’s well-established with few bugs, so you get great speed and reliability.
QuickBooks is cloud-based and can be used by anyone, anywhere.
Most accountants have worked with QuickBooks before and know the program.
You can integrate QuickBooks with a ton of different software and tools for a truly customized experience.

Adapting QuickBooks for Nonprofit Use

One of the biggest benefits of using QuickBooks for nonprofits is customization. QuickBooks allows you to tailor its features to fit your organization’s needs.

Features like class tracking and fund accounting can help you accurately record revenue and expenses. Additionally, you can configure your setup to focus not on sales tracking, but on donations or grant funds tracking. Then, you can use QuickBooks’ reporting system to create streamlined and visually appealing reports that can be presented to board members, donors, and other organization stakeholders.

Speed and Reliability

As one of the most popular accounting tools worldwide, QuickBooks has a reputation for providing speed and reliability of service. Unlike newer nonprofit accounting tools, which may be plagued by bugs or errors, QuickBooks is a tried and true solution.

Having reliable accounting software is essential to maintaining accurate financial records, and QuickBooks makes it easy to stay on top of transactions, invoices, and more.

Cloud-Based Accounting Solution

Having a cloud-based accounting system is almost required in today’s modern nonprofit landscape, but many accounting programs don’t offer virtual access. Luckily, QuickBooks Online lets your team connect and work with financial data from anywhere with secure internet access.

Whether you have a remote team or one that travels regularly, using a cloud-based solution like QuickBooks Online helps your accounting team stay connected and in the loop.

Well-Known Software for Accountants

Almost anyone who works in the accounting or bookkeeping industry has used QuickBooks. Using a widely-known program like QuickBooks can make managing your accounting easier, especially if you regularly work with other organizations.

For example, you need to hire an additional team member for your accounting team. More than likely, they’ll already know how to use QuickBooks, saving you time and money on training. Likewise, if you partner with another organization or business, you may have to work with their accounting team to settle accounts or share financial data. By using QuickBooks, you’re increasing the chance of efficient and effective communication between accounting teams.

Software Integrations

QuickBooks offers almost endless integrations that make it easy for your accounting software to “talk” to your management system. This seamless flow of data reduces the work you have to do and makes your organization more efficient.

Common integrations you can use with QuickBooks Online for your nonprofit include:

Dext: A tracking tool for receipts and deposits
Bill: Accounts receivable and accounts payable management
Fathom: Extensive reporting system for customized financial reports

Dext

Dext is an easy-to-use mobile app and software that lets your employees or volunteers scan and store receipts, bills, invoices, and other important financial documents. Users simply snap a picture of the receipt in the Dext app (and properly code it) and the app automatically records the transaction.

Dext works with QuickBooks to sync any uploads from the app into QuickBooks Online, making it easy for your accounting team to access any receipts or documents through the QuickBooks platform.

Bill

Formerly Bill.com, Bill is a financial software that helps you manage your accounts receivable and accounts payable. The platform syncs perfectly with QuickBooks and eliminates the need to manually enter bills or payables into the QuickBooks system.

One of the best features of Bill is the ability to limit who can approve payments. For example, you can create a rule that certain categories of invoices must be approved by a specific person before they can be paid out.

Fathom

The main downside many nonprofits have with QuickBooks Online is the slightly limited reporting features. While the standard reports from QuickBooks may not meet the needs of all nonprofits, Fathom bridges the gap.

Fathom integrates with QuickBooks to pull financial data and create customized financial reports and dashboards. Using Fathom with QuickBooks gives you the ability to create nearly any type of customized report you might need–whether you’re presenting to the Board of Directors, a public meeting, or your employees.

What to Know Before Using QuickBooks for Your Nonprofit

The features and customization of QuickBooks make it a great accounting software for many businesses and organizations. However, there are a number of things to consider before you start using QuickBooks, including:

Standard reporting limitations: You may need to adjust the standard reporting features within QuickBooks to meet your organization’s needs.

- Accuracy in class tracking: You’ll need an accurate chart of accounts and class tracking to maintain accuracy in recording.

Managing multiple funds: QuickBooks requires you to manage multiple funds and restricted grants within the system.

Using integrations for extra features: QuickBooks lacks some specialized features designed for nonprofit accounting, but luckily there are many integrations you can use to customize the program to your needs.

Searching for a Nonprofit Accounting System?

Using technology to help you record and manage your organization’s financials can help you save time and run a more efficient nonprofit. QuickBooks offers a range of customized settings and features that could make it a great solution for your organization.

The Charity CFO team can help you compare your accounting software options and customize QuickBooks Online to fit the needs of your organization. Our team has extensive experience working with nonprofits and accounting software. We’re able to analyze your organization and make expert recommendations based on your organization’s financial setup

Reach out to us for support in setting up your QuickBooks accounting setup today!

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Nonprofit Leadership: Using Data for Better Decision-Making

March 22, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

How does your nonprofit make strategic decisions? Are you relying on intuition or guesswork? A better way to make decisions is using data. Leveraging data for strategic decision-making has many benefits–from improving your efficiency to increasing the success rate of campaigns or strategies.

Additionally, leaders can use data to tell the story of their organizations, giving you a better overall picture of the state of your nonprofit.

Learn more about using data for decision-making in your nonprofit in this complete guide.

What Does Nonprofit Data Look Like?

Like for-profit businesses, nonprofits can use a variety of data sources to make informed decisions for their organization.

Let’s look at what types of data nonprofits can use for decision-making and the challenges that go with data usage.

Types of Data for Nonprofits

The types of data a nonprofit might use for decision-making can vary between organizations. Most nonprofits will use at least one of three types of data:

Financial data: Financial data includes any data relating to the finances of the organization, such as revenue or expense data.

Program-based data: Program-based data helps organizations create insights into the effectiveness of their programming or services.

Donor and stakeholder data: Donor and stakeholder data can refer to informational data, such as names and addresses of donors, as well as more in-depth data, such as donation amounts or communication preferences

Challenges of Nonprofit Data Collection

One of the biggest reasons nonprofits avoid using data to make decisions is the challenges of collecting and storing data. Common challenges a nonprofit might face when collecting data include:

Limited resources: Purchasing software or digging through data insights can strain resources, and many nonprofit organizations worry they don’t have the money or time to use data.

Data quality issues: Data-driven decisions are only as good as the data they come from, so nonprofits must ensure their data is clean and high quality.

Compliance and privacy concerns: As more states introduce legislation regarding digital privacy, nonprofits must be able to keep up with regulatory compliance and keep data safe.

Leveraging Data in Nonprofit Leadership

How can you use data effectively as a nonprofit leader? There are many ways to put data to use effectively in your organization. Check out these tips for leveraging data as a nonprofit leader.

Cultivating a Data-Driven Culture in the Organization

First things first when implementing a data strategy at your organization: you need to set the tone from the top. Creating a data-driven culture throughout your organization will help bring staff and volunteers on board with using data.

You can set this data-positive tone by fostering a mindset of learning when using data. As you implement your data strategy, show the benefits of using data and how it will help staff and volunteers. For example, collecting a certain type of data might make it easier for staff to do their jobs.

Investing in Data Technology

Data technology, such as data management software, makes implementing and benefiting from a data strategy easier than ever. You’ll need to carefully consider your options–and the costs–before implementing your strategy. Consider working with knowledgeable data and financial teams, such as The Charity CFO, to help create your data plan.

Once you have a data technology and a data governance plan in place, make sure to invest in staff and volunteer training on the programs and policies. Well-trained staff will be much more likely to embrace a data strategy than those without the knowledge or skills to use the data tools available to them.

Aligning Data with Organizational Goals and Mission

Your data strategy should go hand-in-hand with your mission and nonprofit goals. As you explore data strategies, be sure to pinpoint specific key performance indicators (KPIs) that relate to your goals and data metrics. In addition to identifying KPIs, you’ll need to establish benchmarks for success.

After choosing KPIs and their benchmarks, you can start incorporating data insights into strategic planning.

Using Data for Program Evaluations

Data can be a great tool to evaluate the effectiveness of your nonprofit programs or services. You can use data to help track the outcomes of your programs, such as participant numbers or revenue.

In turn, tracking these outcomes helps you make data-informed adjustments to your programs and services.

Improving Fundraiser Efforts Through Donor Analytics

Data can help you track, predict, and better understand donor behavior. For example, you run two ads for your fundraising event on social media. Using data insights from the ads, you can determine which was more effective for increasing ticket sales or donations.

Donor insights and analytics give you a better idea of how to effectively reach out to donors. You can use donor data to create communication and cultivation strategies that are more likely to hit the mark with donors.

Improving Financial Management

Improving your organization’s financial management is one of the biggest benefits of starting a data strategy. You can use data in almost all aspects of financial management. For example, historical financial data can help you with budgeting or creating financial forecasts for your organization.

Additionally, analyzing financial data helps you identify cost-saving opportunities as well as chances for increasing your revenue streams.

Improve Decision-Making

Leveraging data for decision-making can change your organization for the better. Data-driven strategic decisions help your organization operate more efficiently, effectively manage risks, and create a bigger presence in your community.

Learning how to collect, store, and use data properly, however, can be a daunting task, especially when you’ve got other things to do to keep your organization running. That’s where The Charity CFO comes in. Our experienced team of financial and accounting professionals specializes in nonprofits. We use our specialized knowledge to help you find the right data management strategy and technology solutions to create a culture of data within your organization.

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When You Should Consider Merging a Nonprofit

January 30, 2024/in CharityCFO, Nonprofit/by Paul Cook

You might think of big businesses and billion-dollar takeovers when you hear the term “merger,” but for-profit corporations aren’t the only organizations that can benefit from mergers. Many nonprofits use mergers to strengthen their organizations. Ultimately, nonprofit mergers can help an organization better fulfill its mission.

Are you considering merging with another nonprofit? Let’s take a look at why an organization might want to merge with another to help you understand if it’s a good idea for your nonprofit.

Reasons a Nonprofit Merger Would Be Beneficial

Ongoing Financial Struggles or Instability

Organizations that have regular financial struggles or face ongoing financial instability can’t meet the goals of their mission. A struggling nonprofit might have to close its doors if it can’t find the money to operate.

A merger, then, could be a good solution to ongoing financial struggles. There are two ways a merger might help alleviate your financial issues:

Being absorbed by a larger organization.
Merging with a similarly-sized organization with a similar mission.

Joining the ranks of a larger nonprofit could generally give you access to more funds and resources you might not have in a smaller organization. Being part of a larger nonprofit could be the stability your organization needs to meet goals and help your community.

But you may not want to be absorbed by a larger nonprofit. In this case, you might want to consider merging your organization with another of the same size that shares your mission or goals. In some cases, your two smaller organizations may be able to overcome financial struggles simply by being a larger–and more recognizable–force in the community.

There’s a Lack of Sustainable Funding and Resources

Does your organization struggle to attract repeat donors or find other sustainable sources of funding?

If you’re a small organization, it could be your size. Some donors shy away from a smaller operation because they’re unsure of the impact the organization could make. By joining forces with another organization through a merger, you produce a larger overall nonprofit. A larger organization might have more appeal for donors, which could give you access to more fundraising opportunities.

In addition, your larger organization will likely have more resources available, including:

More staff
More volunteers
Access to a wider donor network
Shared organizational resources
Additional funding sources

Your larger organization might be able to reach new donors, create a diverse fundraising network, and secure long-term funding better than a small organization. It could also help make long-term nonprofit financial forecasting easier for your accounting team.

Operational Costs are Breaking the Bank

Nonprofit organizations have a wide range of costs they need to operate. For example, most nonprofits have expenses such as:

Leasing commercial office space
Electricity, internet, and other utilities
Training staff and volunteers
Advertising and marketing
Fundraising events or campaigns

These operational costs can quickly add up and could cause financial issues for your organization.

An easy solution could be to merge with a sister organization or one with similar goals and missions. As individual organizations, both have to pay for office space and utilities. By merging, the organizations could share many operational costs.

Overlapping Programs, Services, and Missions

Two nonprofit organizations that operate in the same space might be competing for resources. This leads both nonprofits to suffer. Even more, this could harm the impact on your community or those who benefit from your mission.

A merger between two nonprofits with the same goals, missions, and services removes competition. Donors won’t have to decide between donating to one organization or the other, which can help the merged organization have a bigger financial impact than the two nonprofits had alone. Likewise, nonprofits serving the same mission might reduce operation costs and improve efficiency by removing redundancies in the community.

Greater Capacity for Impact

A strategic merger between nonprofits could help advance your mission. As a larger organization with more efficient financial and administrative operations, you’ll have a greater capacity to impact your community.

Where two separate organizations may be able to make small impacts, combining forces could give you the financial backing you need to be a greater force for good.

Weigh Your Options Before Merging a Nonprofit

There are obvious benefits to merging nonprofits, but is it right for your organization? There are many things to consider before merging with another organization. You’ll need to go through a careful due diligence process to ensure you’re making the right choice for your nonprofit. This includes carefully analyzing:

Financial audits
Legal reviews
Comprehensive analysis of benefits versus risks

Additionally, it’s important that you–as a nonprofit leader–involve the organization’s stakeholders in the decision-making process. Your board of directors, nonprofit staff, and donors (especially major or repeat donors) should all have a say in the merger decision if you want to have a successful potential merger.

One of the biggest things to think about when considering a merger is your organization’s financial and tax status. It’s important to partner with a trusted accountant so you’re sure you understand the financial implications of a merger, such as The Charity CFO. We leverage our experience as nonprofit accountants and financial experts to help nonprofits consider their financial options–including potential mergers.

If you’re considering a merger for your nonprofit, schedule a call with The Charity CFO for financial help and advice today.

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What is Financial Forecasting and Why Does it Matter to Nonprofits?

January 12, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

Financial forecasting is a term you’ll hear thrown around in the business world quite often—but in the world of nonprofits, it can be difficult (and even downright impossible) to plan your organization’s finances with any degree of certainty. After all, you can’t possibly predict:

Who’s going to donate to your organization
How much they’re going to donate
Even when donations are going to happen

Still, even as a nonprofit, having some sense of what your finances may look like in the future is crucial to your long-term success. The best way to do this is through financial forecasting.

With a better understanding of what financial forecasting for nonprofits entails and how to use financial forecasts to your organization’s advantage, you can work more confidently toward long-term success and sustainability.

What Is a Financial Forecast for Nonprofits?

Specifically, a financial forecast, sometimes called a projection, is an estimation of an organization’s projected financial conditions based on past and current finances. Financial forecasts can then be used by nonprofit organizations for:

Budgeting
Strategic planning
Fundraising
Grant applications
Even cash flow management

While not always 100% accurate (especially in the unpredictable realm of nonprofits), a financial forecast can be extremely useful when it comes to informing decision-making and mitigating risks.

What is the Difference Between a Forecast and a Budget?

Let’s break down the difference between a fiscal budget and a financial forecast in a nonprofit setting. Think of a fiscal budget like your organization’s financial game plan for the year. It’s set before the year kicks off and includes all the money you expect to come in (like donations) and go out (like program expenses). It’s your guide for how you plan to spend and receive funds, kind of like a financial blueprint for the year’s activities.

Now, a financial forecast is more like checking the financial temperature throughout the year. It’s not set in stone like your budget. Instead, it changes based on what’s actually happening in your organization. Say you get a surprise donation, or an event costs more than planned – your forecast helps you adjust your expectations and plans on the go. It’s a real-time snapshot that helps you stay flexible and make smart money moves as the year unfolds.

Key Components of Financial Forecasts

So, what are some of the key components of a financial forecast for a nonprofit organization? While no two nonprofits will be exactly alike, most should include the following in a comprehensive financial forecast:

Revenue projections
Expense projections
Cash flow analysis

In addition to these key components, there are some basic documents and records that you’ll need to create a financial forecast for your nonprofit. This will include all of your organization’s financial statements, such as:

Income statements
Balance sheets
Cash flow statements
Annual budget
Any projected fundraising goals (we like our clients to have a gift table that includes specific gifts and when they hope to receive them based on historical knowledge).

Using Financial Forecasts for Nonprofits

There are many ways in which a financial forecast can be used by nonprofits and their leaders to make smarter and better-informed decisions for the long-term success of the organization.

Let’s take a closer look at some of these areas:

Budgeting

For many nonprofits, financial forecasts serve as a reliable foundation for creating budgets that can help organizations make better use of their funds and other resources. By projecting revenues and expenses, nonprofits can develop realistic budgets that align more closely with their goals and priorities.

Strategic Planning

Nonprofits can also use financial forecasts to gain insights into the future financial health and sustainability of the organization. These projections can then be used to identify potential risks and opportunities, allowing leaders to make strategic decisions regarding things like:

Program expansion
Fundraising initiatives
Resource allocation

Fundraising and Grant Applications

It’s no secret that nonprofit organizations rely heavily on grants and other forms of fundraising in order to keep working toward their respective missions. When applying for a grant or seeking other fundraising options, it is not uncommon for nonprofits to be required to submit a financial forecast in order to even be considered.

Understandably, donors and granting agencies want to see a clear roadmap of an organization’s financial stability and responsible resource management before making a donation. In this sense, accurate financial forecasts can actually help to boost an organization’s credibility while increasing the chances of securing funding.

Cash Flow Management

Being able to accurately forecast cash flow is crucial for many nonprofits, yet doing so can be a real challenge when you can’t always predict when donations and funds are going to come in.

Fortunately, financial forecasting can be extremely useful in more accurately predicting cash flow in a nonprofit. By projecting when and how much cash will be coming in and going out, organizations can more readily anticipate potential shortfalls, manage liquidity, and make informed decisions about everything from investments and expenses to cash reserves.

Need Help with Financial Forecasting for Nonprofits?

When it comes to making more informed and confident decisions for the future of your nonprofit, being able to rely on a financial forecast can be extremely useful. At the same time, financial forecasting isn’t always easy—especially for nonprofit leaders who have other important obligations to focus on.

This is where it can be especially useful to work with an experienced team of accountants and other financial professionals who offer nonprofit accounting and bookkeeping services, including financial forecasting.

At The Charity CFO, we’ve been trusted by hundreds of nonprofits to assist with everything from basic bookkeeping to financial forecasting and everything in between. Our philosophy is that when you don’t have to worry about the books, you can focus more readily on what matters most: pursuing your nonprofit’s mission.

Interested in learning more about our nonprofit accounting services? Get in touch with our team today. We’d love to learn more about your organization and help you determine which services may be best for your needs.

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Why You Shouldn’t Start a Nonprofit

January 12, 2024/in CharityCFO, Nonprofit/by Paul Cook

If you dream of devoting more time to a cause you believe in and taking it to the next level, you might ponder starting a nonprofit. The prospect of serving your community is certainly a calling worth pursuing, and nonprofits serve an essential role in their clients’ lives. This is particularly true in domains where it doesn’t make sense for the government or private sector to provide aid.

However, starting a nonprofit has completely different considerations in comparison to starting your own business. There are completely different laws, norms, and obligations that frequently take well-meaning founders by surprise. Nonprofit founders can easily find themselves facing emotional and financial burnout.

For the following five reasons, you should reconsider starting a nonprofit.

5 Reasons Why You Shouldn’t Start a Nonprofit

1. There is a TON of Competition for Funding

While you may receive moral support from your loved ones, professional colleagues, and community, it’s going to be far more difficult to get financial support.

Nonprofits fiercely compete for funding, similar to businesses seeking traditional sources of capital. Even if your cause is worthy and your budding nonprofit strives to fill a gap that other nonprofits cannot, you’re essentially competing for the same donor pool as massive, well-established organizations.

This donor pool consists of individuals, corporate giving programs, private foundations, and government grants. While it isn’t impossible to secure funding through one or more of these routes, it’s certainly difficult. When you don’t have a track record or proof of what your nonprofit has accomplished, the competition for grants and donor funds is a lot stiffer.

2. You’re Underestimating the Time and Resources Needed to Start a Nonprofit

According to the Bureau of Labor Statistics, the vast majority of nonprofit employment is in just four industries:

Healthcare
Social assistance
Hospitals
Educational services

Only 7% of nonprofit employment belongs to other sectors like religious organizations, the arts, historical societies, and other such institutions. What does this spell for the nonprofit you wish to start?

While most people may think of large organizations like United Way and the American Cancer Society, the lion’s share of nonprofits is actually quite small. Statista claims that nearly one million nonprofits have less than $50,000 per year in annual revenue. $50,000 is barely enough for your annual pay without considering operating expenses, let alone having the ability to hire employees.

Volunteers can help occasionally, but starting a nonprofit requires bootstrapping for longer than you might expect. It takes significant time and effort. To compare it to starting a small business, that also carries significant bureaucracy but it’s also easier to become operational virtually overnight. Nonprofits need to incorporate, create by-laws, obtain tax-exempt status, find the right people for the board, and fundraise, which is a challenging endeavor on its own.

3. Nonprofits Require Extensive Legal and Accounting Compliance

Nonprofits are subject to several layers of federal and state laws and financial reporting standards. Properly recording revenue, maintaining proof that your organization is eligible for tax-exempt status, and meeting operational transparency guidelines that are both mandated and simply expected by the public all create major financial and legal challenges. You also need to find legal and accounting professionals who specialize in nonprofits, as the financial and tax considerations are completely different than what you encounter in the private sector.

4. Nonprofits Face Unique Staffing Challenges

Small nonprofits have great difficulty attracting and retaining staff, as the Bureau of Labor Statistics has demonstrated. There are several reasons for this, but a major one is that tenuous funding makes it difficult to pay people.

If you have a government grant through the end of the year, the program could get defunded next year or the funds go to another nonprofit.
Individual donors are facing record inflation that leaves them with less disposable income to donate to causes they care about.
Private trusts and foundations are less likely to provide significant funding to a new and unproven nonprofit.

Because of these problems, nonprofits have incredibly limited staffing and relatively high turnover. Employees suffer burnout because they have to take on the roles of multiple people and eventually leave for higher pay at larger nonprofits, if not the government or private industry.

5. Many Nonprofits Fail

Because it’s so hard to get consistent funding and thus provide quality services to the public, most new nonprofits will fail. The lack of financial resources, limited organizational capacity, and management styles that don’t translate from the private sector frequently lead to the downfall of promising nonprofits. Founders, employees, and volunteers burn out and move on.

In order to succeed in the nonprofit world, it requires:

Fundraising skills
Proper communications
Management skills tailored to nonprofits
Ability to develop and maintain programs

Think it Through Before Starting a Nonprofit

Starting a nonprofit is a huge decision and one that needs to be carefully considered. Think about it from every angle and decide if it’s the right call to start your own nonprofit, or if there are other ways that you can better support causes you care about.

But if you’re ready to take the plunge and learn more about the backend and financial requirements for starting a nonprofit, reach out to our team at The Charity CFO.

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How to Properly Record Revenue for Nonprofits

December 15, 2023/in CharityCFO, Nonprofit/by Paul Cook

While the nature of a nonprofit means you’re focusing more on your mission than making money, bringing in revenue is still essential.

This can lead to unique accounting and recordkeeping challenges that for-profit businesses don’t have to face—especially related to revenue classification. Accurate revenue recognition, classification, and records are some of the most important aspects of nonprofit accounting.

Not only does it help with transparency in your organization, but properly recording revenue keeps you in compliance with nonprofit regulations.

Let’s take a look at common revenue streams and how to record revenue for a nonprofit.

Nonprofit Revenue Streams

To be able to properly record nonprofit revenue, you first have to understand what types of revenue streams a nonprofit might have. Many nonprofit organizations receive a variety of funding from many different sources—from membership fees to annual fundraisers. This revenue helps run your programs, pay staff, build operating reserves, and cover administrative costs.

The most common types of revenue for nonprofits include:

Donations and Contributions: These are monetary contributions made to your organization, often from individuals.
Grants and Sponsorships: Grants are typically monetary donations that come from other organizations and often have restrictions on their use, such as a government grant. Sponsorships are donations from an organization or business in exchange for promotion, such as displaying a banner at a fundraising event.
Program Service Fees: Many nonprofits charge fees for the services they provide, such as a ticket fee for a nonprofit theater.
In-Kind Contributions: In-kind contributions are non-monetary donations to your organization and might include food donations to a food bank.

There are further breakdowns within your revenue streams, most notably restricted versus unrestricted funds.

Restricted funds are donations that must be used in a specific way or for a certain purpose. Unrestricted funds are just the opposite—this money can be used for any purpose the nonprofit sees fit.

Accrual vs. Cash Basis Accounting for Nonprofits

There are two main types of accounting for nonprofits: the accrual method and the cash basis method.

Accrual Method: The accrual method records revenues as they are earned or pledged. Likewise, expenses are recorded when they are incurred.
Cash Basis: The cash method of accounting records revenue when it’s received and expenses when they are paid.

In essence, the accrual method focuses on recording revenues and expenses when you learn of them. The cash basis method, on the other hand, focuses on recording revenues and expenses when money changes hands.

Which method is best?

That depends on your organization’s size and complexity. Generally, most small nonprofits can use the cash basis method as it may be simpler. A larger nonprofit (or one with a lot of complicated transactions) may need to use the accrual method.

Recording Revenue for Nonprofits

Donations and Contributions

When recording donations for your nonprofit, technology is your best friend. There are plenty of software and tech options that make it easy to properly record nonprofit donations.

Why use technology to track donations? Because donations are generally an organization’s most common revenue transactions and may have restricted and unrestricted funds coming in equally.

You can also use a donor acknowledgment system to help track donations and make donors feel appreciated.

For example, you might set up a donation portal on your website. When someone donates, they receive an email thanking them for their contribution immediately.

As donations can come from many sources, it’s very important to separate restricted and unrestricted funds when recording to help you keep up with donation rules.

Grant and Sponsorship Revenue

While grants and sponsorships have similarities, you must keep each type of fund separate. Like restricted and unrestricted funds, keeping grant and sponsorship money can save you headaches at tax time (and when communicating with donors).

Sponsorships are often one-time donations in the form of advertisements or promotions for the sponsoring business. For example, a local restaurant sponsors your annual fundraising gala. In return, you display posters around the event thanking the restaurant.

Grants, on the other hand, usually involve a much lengthier application and approval process. You’ll need to make sure you record grant revenue based on the conditions outlined in the grant agreement.

In addition, grant-funded programs often have their own set of rules and requirements for recording. Proper record-keeping for grant revenue is important to stay in compliance with rules for grant funding.

For a deeper dive into revenue accounting for grants, check out this article by the FASB which clarifies how grants fit into the new standard.

Program Service Fees and Earned Income

Just because a nonprofit isn’t aiming to turn a profit doesn’t mean they can’t charge for their services. Many nonprofits charge service fees or program fees to help cover the cost of running the organization.

For instance, an animal shelter charges an adoption fee to adopt a pet. These adoption fees help pay for animal care, veterinary services, and shelter employee wages.

Any program service fees and other earned income your organization brings in should be recorded separately from donations and contributions. Differentiating between program service fees and constrictions helps maintain clean records and can lower your risk of compliance issues if your nonprofit is audited.

Recognizing In-Kind Contributions

In-kind donations can pose a range of accounting challenges for nonprofits. The most important aspect of recording in-kind donations is proper valuation.

Establishing an in-kind donation valuation and recording process will help you avoid mistakes when receiving non-monetary donations.

A strong in-kind donation recording system will help you stay in compliance with accounting standards for in-kind contributions.

Need Help Recording Revenue? Reach Out to the Charity CFO!

Understanding your nonprofit’s revenue stream and knowing how to record it is essential to staying in compliance with nonprofit rules and regulations. Properly recording your revenue is also a big factor in building trust with the public, as it shows transparency.

Feeling a little overwhelmed about your revenue streams and other accounting processes? The Charity CFO provides expert tax and accounting services for nonprofits. Our team has decades of collective experience working with nonprofits. We put our knowledge to work to help address and resolve the unique accounting challenges nonprofits face.

Let us help your nonprofit get financially organized through proper revenue recordkeeping. Contact us today for a free consultation.

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Volunteer Management: What Every Nonprofit Needs to Know

November 28, 2023/in CharityCFO, Nonprofit/by Paul Cook

Volunteering is an essential piece of any nonprofit. Some nonprofits can’t function without the help of their volunteers.

But how can nonprofit leaders ensure their volunteers are effective while creating a space that encourages volunteers to return?

The key lies in a strong, well-run volunteer management program. This guide will walk you through volunteer management best practices so your organization can optimize volunteer contributions, retain volunteers, and create a lasting impact for your cause.

Follow These Steps for Effective Volunteer Management

Set Clear Volunteer Rules

You don’t want to treat your volunteers as employees. They’re donating their time to you, after all. However, it’s also not a good idea to overlook the importance of setting clear expectations for volunteers.

This starts by creating volunteer positions that detail how and where people can help your organization. Think of creating something like a job listing, which details what is needed, how a volunteer is expected to help, and the time commitment to do so.

You don’t need to overthink it, simply make sure your volunteer expectations answer these questions:

What is the specific task?
Is this a one-time or recurring role?
How often is the volunteer needed? Daily? Weekly? Monthly?
What skills do volunteers need for the task?
Where does the volunteer need to work from? Can this task be done remotely?
How does this task impact the organization?

That last question, in particular, is important. Volunteers are giving their time freely, so they want to know how they’re helping your cause and making a difference.

Develop a Volunteer Recruitment and Screening

Some volunteers will seek out your organization and ask about volunteer opportunities, but the majority won’t. That’s why it’s important to have a volunteer recruitment strategy. Volunteer recruitment strategies work like your nonprofit marketing strategy: it walks volunteers through a pipeline from awareness to onboarding.

Volunteer recruitment strategies can include:

Detailing the skills, experience, and passion necessary for various volunteer roles.
Providing a wide range of ways to get involved: from one-time projects to ongoing help.
Recruiting in person at local events, such as a community picnic or your own fundraising events.
Encouraging existing volunteers to refer friends.
Reducing the effort it takes to sign up for volunteer opportunities.

Once you have interested volunteers, you also need to screen them. Screening volunteers might seem counterintuitive, especially if you need all the help you can get.

However, screening your volunteers helps cut down on turnover by ensuring that each volunteer is the right fit for your organization. It can also help you identify potential conflicts of interest.

If your nonprofit works with children or other at-risk individuals, the screening process is even more vital. You may want to use background checks to ensure the safety of those you serve.

Provide Proper Training

Volunteer training programs can improve the effectiveness of your volunteers while also making them feel welcomed into your organization. Establishing a training program also makes it easier to onboarding new volunteers.

A strong volunteer training program should explain your organization, including its mission and values. This sets the tone for volunteers on what is expected while helping your organization.

Volunteers should also be trained on the specifics of their role. If you run an animal shelter, for example, you want your volunteer kennel cleaners to know the step-by-step process to safely clean and sanitize kennels and cages.

The most important part of your volunteer training? Clear and effective communication. Volunteer training should give volunteers the tools and resources they need to effectively complete their tasks.

Provide Recognition and Appreciation

Your volunteers are donating their time to your organization. It’s essential to show your appreciation for their time and efforts. Volunteers who feel needed, recognized, and appreciated tend to return.

A few ways to recognize and show your appreciation to volunteers include:

Sending personalized thank-yous highlighting how the volunteer’s work impacted the organization.
With their permission, shout out individual volunteers in newsletters, on your website, and across your social media platforms.
Give out free swag like t-shirts, hats, pens, and more.
Throw a volunteer appreciation event, such as a holiday party or family picnic.

Encourage Volunteer Feedback

Getting feedback from past and present volunteers can help you see the effectiveness of your volunteer program. An easy way to do this is through volunteer response surveys.

Send your survey to volunteers and encourage them to fill it out. You may need to offer a small incentive, such as a gift card for a local coffee shop, to increase participation.

In your survey, be sure to ask volunteers what they feel is–and isn’t–working within the volunteer program. Additionally, try to make completing the survey simple by using mostly multiple-choice questions. Give volunteers a chance to speak their minds by ending the survey with an open-ended format question.

Volunteer feedback isn’t just important for improving your volunteer program. It can also provide valuable insights into your organization as a whole, especially from an outsider’s perspective.

Focus on Volunteer Retention

A volunteer who keeps coming back to your organization requires fewer resources for training, onboarding, and recruitment. You want to build a group of volunteers who keep coming back.

The key to volunteer retention is making volunteers feel appreciated, letting them see their impacts, and creating a fun volunteer experience. Some ways to help retain volunteers include:

Providing meaningful work
Offering opportunities for advancement and growth in the organization
Making sure volunteers feel valued through incentive programs

Improve Volunteer Management for a Stronger Organization

As you set your nonprofit goals, don’t forget the importance of volunteers. You can reach your volunteer recruitment, retention, and project goals by creating and following an effective volunteer management program.

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