The Not For Profit high wire act
Don’t fall off
It’s the ever-present challenge of the non-profit organisation – the fundamental tension between being highly accountable for your financial actions but having limited accounting expertise available.
Whether it’s raising money for good causes, providing community services, helping society through specific projects or one of the other many reasons that non-profits exist – every cent counts and has to be accounted for. However, just because your team is passionate about its mandate, there is no guarantee the skills needed to meet the financial requirement demands are there.
This month we sought to build a picture of this and the other challenges that non-profits face, learn from the common mistakes that are made, and find out how cloud software and cloud accounting such as Xero can help.
We pulled together a panel of six experts, non-profits and accounting partners in the United States, Australia and New Zealand, and sought their advice. It soon became clear that there are distinct issues that would worry any small businesses, but in the non-profit context can be critical. Cloud computing has a valuable role to play in addressing them.
Face the fear!
Non-profit organisations often rely heavily on a few paid staff and many volunteers, with limited budgets for financial expertise, PCs and servers. In many cases the need to be accountable to and communicate comprehensively to governance, members and funders can lead to overheads that are out of sync with the size of the organisation.
On top of that, money is raised to use for the purposes of the organisation and any excessive expenditure in other areas will face scrutiny. Budgets may be fixed with little room for movement. In this environment, infrequent or unexpected costs such as technology upgrades or financial reporting changes can be a killer.
It’s great when we can learn from each others mistakes. Problem is, many non-profits are operating in relative isolation and laser focused on their sector. Governance selection may not require financial expertise and staff may not get to network with others in the same job. Some of the mistakes our experts noted are consequences of this, others cite a general lack of financial management expertise or funding for it.
It’s tempting to take the cheap or shortcut option with finances, to not prioritise or invest in getting professional help when needed, especially when hourly rates are involved. Problems and potential issues may then fail to be recognised due to lack of appropriate reporting.
Even with good advice and reporting, a lack of at least a common language for discussing financial issues between boards and managers can be an issue, stemming from a lack of financial knowledge in key personnel.
Cloud to the rescue!
So how can cloud accounting such as Xero help non-profits? Firstly, by making good financial management achievable to management and boards and at a predictable and affordable fixed monthly cost.
Xero’s single ledger is a great example of a feature that benefits non-profits. The financial data only needs to be entered once, then that data is visible across the Internet to business partners and accounting advisors. It enables accounting advisors to provide key advice in real time and reduces any need for rekeying of data at the accountant’s office. Aligned with this is a trend of accountants and bookkeepers starting to provide their services at predictable fixed costs instead of hourly rates.
With the cloud-based single ledger, any number of staff or volunteers can be given appropriate access from anywhere they can get onto the Internet, including from smartphones, leading to efficiencies in record keeping and more up-to-date records. Bank data can be automatically downloaded everyday into the software so that perilous financial positions can be closely monitored.
Xero has many other features that are proving as useful to non-profits as they are to small and medium sized business. These include easy to read reporting, budgeting by tracking, cash-based reports, and the plain language dashboard. Watch a video and learn about our 25% discount for non-profits.
Tips and Tricks
To finish off this discussion we asked our panel for their top tips and tricks. Here is a sprinkling:
Standardize your non-profit’s reporting system
As most non-profit staff and volunteers likely will not have a background in accounting it is important to keep and use financial reports and systems that can be understood by all. Implement a standardized format that is easy to read. Keep reporting consistent over time so that anyone from a volunteer to a board member can pick up where the last person left off.
Be transparent with your board
Allow board members and senior managers full visibility into the numbers and educate them about how to read non-profit financial reports. Non-profits have a responsibility to inform their principals about their fundraising methods, how much is being raised, how it’s spent and what is owed.
Diligence is critical for NPOs
It is essential to keep good records no matter how small or large your organization, or how minor or major the amount of money. Non-profits cannot afford to be sloppy or inaccurate with financial records. Employ an easy-to-use, easy-to-read recordkeeping system to make record keeping more manageable.
Do your mission a favor, and budget for administration
Put together a strategic plan, budget and monitor against it. Allocate for costs that might not appear to be directly associated with your ‘mission’, including financial administration, marketing and IT. Set aside a portion of funds to build in as a reserve from the beginning.
Online accounting was made for non-profits
Non-profits have multiple projects being managed and executed simultaneously by many different people (typically volunteers). The cloud makes it possible for users to submit expenses, track spending and run reports anytime, anywhere. The cloud also makes it easy for accounting professionals working offsite to provide timely and effective council for non-profits.
What tips do you have for non-profits?
Thanks to Morri Young, Matrix on Board, Australia, Will MacGregor, Bushmob, Australia, Steve Chaney CPA, Chaney & Associates, USA, Erica Mohan, Community Education Partnerships, USA, Dave Jessep, DJCA, NZ, and Patrick Knowles, Te Kohanga Reo, NZ
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3 September 2012 #