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Not for profit organizations (NFP) provide vital and fundamental resources that meet the needs of our community. Driven by their purpose, they tend to focus less on their profit margins and more on their cause. However, this doesn’t mean that these organizations prioritize their financial information any less than other corporations. The reality is, nonprofits should try to have some level of positive revenue to reduce risk and ensure sustainability.
Unique to typical accounting, nonprofits operate under Standard 117 governed by the Financial Accounting Standards Board (FASB) they require NFP to show expenses based on the functions they serve. Because of this, nonprofits must analyze their number regularly to improve overall productivity and meet the various funding requirements and restrictions.
Understanding the ins and outs of the nonprofit sector while accomplishing a mission can be problematic, but it doesn’t have to be. Here are 4 reasons why outsourced accounting helps nonprofits deliver a long-term, scalable, and sustainable global impact.
#1 –Mission-focused tasks drive Financial Position
Nonprofit organizations today are facing severe financial difficulties and constraints. As a result, employees tend to wear many hats dealing with multiple responsibilities to offset limitations. Brian Hayes, a Managing Partner at NOW CFO, explains, “Often the person helping with the accounting functions are under qualified for the position, and that can lead to a series of financial mistakes. Inaccurate accounting results in inefficient processes and can significantly impact fundraising and government reporting.”
Accurate Financials play a crucial part in the operations and overall performance of managing a business’s future results. For this reason, more nonprofits are turning to outsourced accounting to help streamline their financial procedures. “Our accountants are experts in reviewing processes and helping internal accounting team become better in their position. We have experience working with an array of companies, and that allows us to leverage industry knowledge to help nonprofits become more efficient at their financial reporting,” said Hayes.
Streamlining these financial processes is an essential key to achieving organizational goals – a more efficient workflow results in a more productive staff. By turning to an outsourced solution, employees are no longer overwhelmed with managing the finances and can prioritize missions-focused tasks like keeping existing funders engaged, improving program development and delivery while planning for future growth – which all happen to work together to better the financial position of the organization.
#2 – A Strong Understanding of The Nonprofit Sector
Understanding how dollars flow within a nonprofit sector is complicated and can lead to making costly mistakes. The key to navigating this sector is not only controlling costs but becoming a more effective organization. “Quite often, a company will say they need a CFO, but what they describe is primarily a controller level resource,” said Hayes. “One of the benefits our clients love is that our consultants can fill both the Controller and CFO role — this allows our client to have someone with experience in both areas and has access to the skills necessary without paying for multiple consultants.”
Many executives struggle to find the right person with the level of experience needed to gain better control over their finances. Using an outsourced agency removes the guesswork involved in nonprofit accounting and can help stabilize the organization by improving operations, increasing transparency, and minimizing costs. Skilled accounting saves money and time by quickly identifying financial leaks while providing insight on exactly where the money is being spent.
#3 – Providing Checks and Balances for Better and More Accurate Data
A big fear that nonprofits face is hiring an employee that jeopardizes the health/security of the organization and overall cause. Shocking stories buzz around the nonprofit world of fraud and embezzlement that risk the legitimacy and trust of donors/stakeholders. Unfortunately, the underlying mission of nonprofits and their staff do not make them any less vulnerable to internal fraud and mismanagement of financial information.
Internal controls ensure the proper flow of information into the accounting system for accurate financial statements. It also provides a series of checkpoints to reduce the risk of fraud — outsourced accounting for nonprofits reduces the risk even further. “When nonprofits don’t have a lot of help in the accounting office, they are often just trying to keep their heads above water. When that happens, it is easy for internal controls to become lax and problems start to occur in the financial data or even in a nonprofits ability to fundraise,” Hayes mentions.
Arguably, nonprofits are held to a higher ethical standard to deliver accurate financials and given the importance of adopting internal controls, many nonprofits opt for outsourcing their finance processes to standardize and enable the organization to faster obtain better and more accurate data.
#4 – Creates a compelling story using financial data
Nonprofits rely on a diverse set of funding sources such as; government agencies, national foundations, corporations, and individual donors to maintain their operations. These funding sources become somewhat established and provide a level of stability for organizations that is crucial to a nonprofit’s success. So, what information intrigues donors as they look to develop or maintain their relationship with a nonprofit group?
In addition to an organizations ability to tackle is core mission, donors want to see a detailed report showing where every dollar of their donation is being spent to confirm that the resources are being used appropriately. Nonprofits have a government mandated obligation to prove their value. Donors want assurance of their decision to donate, so it’s essential to give a clear picture of where the contribution ends up. “Donors and stakeholders are less likely to donate to a nonprofit that have unclear or inconsistent financial reports,” Hayes concludes. “Nonprofits are likely to go through a review or audit, and if there are multiple findings during the review or audit, it can reflect poorly on the nonprofit and hinder its ability to raise funds or qualify for grants. These mistakes can cause a nonprofit to suffer from cash flow problems, poor publicity, or just an inability to grow.”
Nonprofit organizations can benefit from moving their bookkeeping and accounting services to an outsourced solution. Having a team of industry training consultants to help track performance and the overall financial health of your nonprofit is a proactive approach to achieving a long-term, scalable, and sustainable global impact.