Successful management of a nonprofit organization requires attention to detail. Careful administration of expenses and meticulous reporting practices are essential to meet regulatory compliance, and to secure future funding.
Increasing revenue. Consolidating across multiple entities. Budgeting. Implementing internal controls. Facilitating audits and compliance reporting. Sometimes, it’s easy to overlook the fact that CFOs of nonprofit and for-profit organizations alike do, indeed, share many of the same challenges in pursuit of the same overarching goal: optimizing the returns of the organization’s activities by carefully managing all aspects of its finances.
Below are 5 challenges of nonprofit accounting, including solutions and best practices for the nonprofit CFO from Intacct’s, The Nonprofit CFO’s Survival Guide.
Challenge #1: Accounting in nonprofit settings involves significant complexity.
For so many nonprofit organizations, the daily tasks of bread-and-butter accounting and financial management are inextricably driven by a broad array of complexities. For example, revenue management makes nonprofit accounting an especially thorny challenge—particularly with the way revenue is recognized.
The solution: Implement solutions that provide flexibility for diverse accounting and reporting needs.
- Make sure your accounting system can support the separate balanced sets of books required for fund accounting.
- Carefully design your data structure and chart of accounts to support maximum flexibility.
- Be ready to accommodate multiple locations and entitites.
Challenge #2: Nonprofits must be vigilant stewards of donated monies and carefully monitor what they spend on every initiative and program.
Most for-profit corporations create their internal controls, reporting, and financial monitoring by products, divisions, geographies, and entities. Nonprofits have remarkably similar needs, seeking to manage their monies by grants / donors, programs, geographies, and other dimensions.
The solution: Centralized controls only go so far–spreadsheets and single-user “quick accounting” programs aren’t up to that task. Nonprofits need centralized control and distributed responsibility by event, program, donor, and other dimensions—in one system.
- Distribute responsibilities to contributors and managers throughout the organization.
- Regularly refresh rolling plans and forecasts to say on-course.
- Create tight controls to prevent unexpected outcomes.
Challenge #3: No two funds or grants are alike, creating extraordinary complexity in nonprofit accounting.
Whether it’s a major foundation, an anonymous philanthropist, or major sponsor, nonprofits rely on the generosity of like-minded people who provide the bulk of the organization’s funding and resources. But, just as CFOs at for-profit companies must respond to owners’ and shareholders’ (and regulators’) demands for transparent information, the nonprofit CFO must likewise deliver customized slices of results and reports tailored to each funder’s unique requirements.
The solution: From revenue recognition to reporting, the nonprofit’s accounting system must quickly respond to unique needs.
- Balance and close each fund independently.
- Put processes in place to track general vs. restricted dollars.
- Create an infrastructure that supports rapid customized reporting by fund or donor.
Challenge #4: Nonprofits face stringent requirements for reporting and transparent operations – and those hurdles are multiplying.
In a challenging economy, agencies, social-service organizations, charities, and other nonprofits are under tremendous pressure to acquire, secure, and maintain funding sources to ensure their continued operation. Transparency is an essential strategy for securing and keeping those donors and sponsors on board.
The solution: The right financial infrastructure can help nonprofits “know and show” what’s happening in every aspect of their operations with superior speed and clarity.
- Transparency of financial reporting is emerging as a basic requirement for all nonprofits.
- Streamline auditing with online financial software that can support remote audits.
- Elevate financial reporting and analyses to differentiate your organization in crowded market segments seeking dwindling funding sources.
Challenge #5: IT budgets and expertise are scarce and financial management software can sometimes seem like a distracting and risky headache.
In the mission-driven nonprofit world, accounting and financial management can sometimes slip down the priority list. It’s not always easy to allocate budget dollars to backoffice infrastructure that doesn’t directly support the nonprofit agenda, and it’s even harder to find the time and expertise to make it all work. Consider some of the obstacles: capital investment for software and hardware, facilities and expert personnel to implement and maintain the system, lengthy deployment cycles, capacity / scalability, reliability / availability.
The solution: Real-time, cloud-based financial management is enabling nonprofits to take advantage of the same functionality, performance, security, and infrastructure that major corporations use.
- Move financial management to the cloud for optimal accessibility and lower cost.
- Enable global real-time access to financials, reports, and analyses.
- Use cloud architecture to eliminate manual work and improve productivity while providing world-class functionality that far exceeds primitive single-user tools.
You can download the full guide here. Or, visit the additional nonprofit resources below.
Additional Nonprofit Resources