Creating Financial Order in Small Nonprofit Organizations

A $100,000 organization is large enough to go under by blowing member trust and public reputation.

And it’s small enough to experience bookkeeper & Treasurer turnover…as well as difficulties in getting clear, complete, accurate, and timely financial information on an ongoing basis.

So about getting your org’s financial house in order, here is the quintessential problem:
* The stakes are high enough that the org *cannot* afford drama and waste in finance.
* But the org is too small to afford a high-end expert doing year-round bookkeeping AND board reporting AND internal controls (helping to protect organizational assets)
* So your org isn’t alone, a ton of $100K orgs rely on a volunteer Treasurer or a low-paid bookkeeper or even an intern. Result: Turnover, mess, or both. $100K is too large for a volunteer.

The solution:

[1] First, you get the books fixed by an expert. A one-time project. If you don’t do this, old incorrect balances will roll forward forever and haunt you (there should be no drama in accounting, remember?)

[2] Second, have the expert set up systems for automation of correct accounting and reporting. In accounting, never pay a human being to do what a computer can do. Let the computer run this thing on automatic.

Reserve the human beings for what we do best:
Exercising judgment, innovating, and creating connection with other living beings.

[3] Third, contract with an expert *just* for those functions. To exercise judgment (quality control), innovate by automating and streamlining processes, and to create connection with other living beings (preparing board-friendly reports, setting up financial information flows between key people), and to defend the organization’s assets and reputation (“internal controls” – jargon alert!).

Don’t have a CPA write checks and do the books; never have the same person write checks as doing the books. But there are ways to both automate/streamline payments and making the payments more secure than paper checks anyway. You handle the payments, or your Treasurer, and your expert makes it easy. Have the CPA or other qualified person monitor the quality of the books and prepare reports so YOUR board understands them and can make decisions based on them.

To create a success map, contact one of our team members! Start with (844) 844-3766.

Cash Crunch! Nonprofit Edition

 

The best paths out of a cash crunch depend on the cause of the problem. Some examples are below; I hope one or more is helpful.

We’re going to skip the obvious “Get more grants! Do more fundraising!”

Cause: Solution

Embezzlement: Plug the leak, make them give it back, get a line of credit if necessary to see you through until you do.

Unreimbursed grant expenses: Speed up your processes so you can invoice faster. Engage in faster communications with grantors so they don’t forget about you. Set up electronic inbound payments for the grant funds.

High monthly burn not covered by grants: Take a look at any expenses that aren’t providing the organization with value and cut them. Start with the largest ones, not your deluxe paper clips.

Typical seasonal flux: Consider a line of credit. This financing tool is what a lot of seasonal organizations use to get them through the predictable, seasonal tough times if they haven’t saved up from the abundant times. And next season when the organization has plenty of cash, squirrel more of it into a savings account and then you’ll be your OWN line of credit!

Disallowed grant expenses: Use technology to collect backup documentation so you can submit all of those documents to grantors. For example, use Expensify or Entryless so authorized employees can snap a photo of their receipts or scan them, and send them ultimately to the accounting system. And review grants/authorizations with everyone empowered to spend so no one spends on something not covered by a grant.

Overspending grants: Quickly realign your authorization policies for spending as well as the clarity of your accounting on a grant-by-grant basis. Even basic accounting systems such as QuickBooks and Xero are able to produce an income statement by grant if you set them up to do so.

How should we set – and justify – donation levels?

justify donation levels
Should the dollar amounts be your cost for the service that the donation covers, your cost plus some overhead, or the market value of the service?
I’ve worked with clients in the for-profit world as well as nonprofit, and for this one, I recommend that you take a golden nugget from the for-profit world:
  • There is no “true” value of anything.
  • ┬áThe fair market value of any product or service is only determined at the moment after a purchase occurs between a willing buyer and a willing seller.
Nobody cares about how you came up with the number. They care about whether what they receive is fair for what they pay.
What they receive is the satisfaction that one or more people will be helped in a specific way, and your specific story (i.e. “one therapeutic massage”) plants that satisfaction in the mind and heart of the donor.
You’ll simply have to test it and see if people go for it.
Then you’ll know whether it’s fair or not.