Nonprofit Accounting Blog

Non-profit Accounting Success Step 3

When is Third-Party Accounting a Smart Move for Nonprofits?

As nonprofit organizations struggle to raise funds and are forced to operate on leaner budgets, some have found that engaging with an accounting service provide to complete certain back-office functions is a good way to keep costs down while maintaining support of their cause and/or community. Working with a service provider is not a new concept. For many years, both nonprofit and for-profit organizations have transferred projects such as accounting, finance and bookkeeping to third-party firms. Yet, a more recent trend has seen an increase in organizations partnering with third-parties to complete accounting processes. What used to be viewed as a strictly internal management function is now routinely performed by a outside CFO and accounting firm.

Working with a contracted CFO or accounting firm is much more than a preference for having someone else perform your detailed, routine tasks. It’s much more than saving money and cutting operating costs. It’s a strategic opportunity to save on overhead while increasing the amount you can spend on those you serve – something every nonprofit would find beneficial. According to analysts, nearly $4 billion will be spent on finance and accounting outsourcing this year as services spending reverts to pre-recession levels.

So, when should a nonprofit engage with an outside accounting partner? When accounting needs to be done better by qualified personnel, faster, and cheaper than the in-house staff resources can do it. Simply stated, it is vital for nonprofit organizations to have their accounting transactions processed correctly, quickly and within certain time constraints, all the time. Having an outsourced team dedicated solely to your accounting functions, rather than in-house staff that may have several duties competing for priority, increases the likelihood that your accounting will be done undistracted, and by people who are qualified to complete the transaction efficiently.

Non-profit Accounting Success Step 2

Reducing Costs with Back-Office Process Optimization (BPO)

The financial accounting outsourcing value proposition shifts with BPO. With a thorough assessment and analysis of your back-office operations and the reorganization of how processes are transacted, costs will be reduced. Additionally, service levels of your accounting functions will be increased by placing people with the appropriate level of expertise over each of your respective processes.

Working with an outside accounting partner will:

  • Significantly reduce overhead – The finance and accounting back-office is a cost center and does not generate income.
  • Optimize processes and improve workflow.
  • Allow management to spend more time and effort on your mission. 
  • Improve back-office operational efficiencies that impact your mission.
  • Re-direct Finance and Accounting expenses to pay for new programs and events.

Non-profit Accounting Success Step 1

Understanding Mission vs. Back Office

Your mission is the heart of your organization. Your focus should be on the cause you support, and your ability to evolve as needs change. However, you must at the same time manage your organization effectively.

Your organization is made up of two key areas, your mission and your back-office. Your mission is the fuel that propels your organization forward and it encompasses fundraising, community outreach, donor communication and messaging, not to mention meeting the needs of the cause and/or community you serve. While your back-office includes the stabilizing functions such as: HR, payroll, benefits, accounting, finance, grants, donation processing, regulations, IT, and tax. These supporting functions stabilize your vision and provide the resources necessary to support your mission.

Mission vs. Back-Office

Your purpose and first priority is your mission. The more time your staff and volunteers can spend on your mission the better. However the back-office supports the mission, and typically needs specialized expertise. The back-office can inhibit or enable growth, and is the primary place to look for accounting process improvements and cost reduction. The more streamlined and cost effective the process – the more time and money you can spend directly on your cause. This is where the option of using a third party comes in. Engaging with a high level accounting service provider to complete back-office processes can be a great way to reduce costs while at the same time improve both quality and efficiency.

Nonprofit executives acting as Controllers, CFOs acting as Bookkeeper, and Accountants acting as HR Managers, all create inefficiencies and risks.  All too often nonprofits are forced to hire over qualified people to handle basic needs which unnecessarily increases overhead costs.  Worse yet is asking under qualified staff to take on tasks which they are not trained to handle which increases liability and provides delayed, inadequate or inaccurate results.

Supporting Your Mission vs. Managing Processes

Many organizations do not need and/or cannot afford a full-time Chief Financial Officer (CFO) or Controller. What nonprofits often do is place the CFO/Controller responsibilities with the Director of Finance and Operations or with the most capable finance/accounting executive on staff. The problem with this approach is that the person placed in charge may not have the right skill set or experience to fulfill the role of CFO. Partner with a service provider to complete the accounting functions bridges the gap between the back-office and the mission without having to hire over or under qualified people.

4 Steps to Accounting Success

Accounting is a very broad topic, and organizations have many different options and services to complete these functions. Nonprofit organizations are constantly looking for ways to make their dollars go further and partnering with a third party that provides high level accounting and transactional services can be a great option to do just that. If you have considered working with an outside CFO or accounting firm as an option, but aren’t sure if it is right for your organization – this whitepaper will help you gain the insight you need in order to make the best decision for your organization.

Over the coming weeks, we will cover 4 steps to establish a successful accounting practices including:

Step 1: Understanding Mission vs. Back Office

Step 2: Reducing Costs with Back-Office Process Optimization

Step 3: When is Third-Party Accounting a Smart Move for Nonprofits?

Step 4: Resources and Skills Properly Leveraged to Economies of Scale

Business Tax-Time Problems Grow from Past Mistakes

Some of the biggest problems small business owners have during income tax filing season are the result of mistakes and oversights they made during the previous year.

Sloppy record-keeping, even when accounting software is used, is a big reason why owners struggle at tax time. Another problem is that owners often short-change themselves by not being sure they’re taking all the deductions they’re entitled to. That can also be the result of haphazard records, but it also may come from not knowing some tax law basics.

USE SOFTWARE TO HELP, NOT HURT

Many owners use software that’s designed to help small businesses keep their books easily. They run into problems when they don’t input their income and expense figures properly. Some businesses have not taken the time to really learn how to use a record-keeping program. They hand us a disk or thumb drive, and they’ve handed us a mess. It’s the high-tech equivalent of what accountants ruefully call shoebox or shopping bag clients, ones who show up with a chaotic pile of receipts that a CPA has to then sort through. When an accountant gets a disorganized disk or drive, it has to be straightened out before a return can be completed. The solution is to become more of an expert at using the software, or outsource accounting functions to input your numbers.

PAY ATTENTION TO WHAT YOU’RE PAYING

A common problem for business owners who use vehicles or homes for both business and personal reasons is they forget to keep track of what they spend for each. For example, an owner who gasses up his car may forget to reimburse himself for the portion of the purchase that should go toward personal use. The reverse can happen: An owner doesn’t think to take a tax deduction for the portion that should go toward the business.

Owners who use their cars partly for the business, or who have a home office, should go over all the expenses from the previous year and be sure that they don’t miss any chances for deductions. With a vehicle, insurance, gas, repairs and garage rental can all be deductible. An owner needs to determine the percentage that the vehicle was used for business and then multiply that by the expenses.

For example, if the car was used 60 percent for business, then 60 percent of deductible expenses can be listed on a tax return. It’s also possible to use the IRS’ mileage allowance to figure a deduction. With a house or apartment, there are similar rules for computing a deduction. In this case, square footage is used. Repairs, mortgage interest or rent, insurance, utilities and maintenance costs can all be deducted.

For more information, an owner should look at IRS Publication 587, Business Use of Your Home, or Publication 463, Travel, Entertainment, Gift and Car Expenses. You can find them on the IRS website, www.irs.gov.

PAY NOW OR PAY MORE LATER

If business owners are concerned about spending money during the recession, have shied away from consulting an accountant during the course of the year. Then, at tax time, their unanswered questions turn into problems. For example, if an owner didn’t ask a CPA for help in making decisions on big equipment purchases, the business could lose out on deductions designed to help small companies. The cost of a few hours with an accountant may be small in comparison to the amount the business ends up paying the government in taxes.

The solution is to get to an accountant or outsource accounting functions early, and get the books in order by a qualified professional.

The 1099 Repeal Amendment is Passed in Senate

The Senate approved an amendment on Wednesday, February 2 to repeal the expanded 1099 information reporting requirements in the health care reform law.

Two similar, but competing amendments were also introduced by Democratic and Republican lawmakers to be attached to a larger re-authorization bill for the Federal Aviation Administration. To view details about these amendments 1099 Repeal Amendments Proposed for Aviation Administration.

The two amendments mainly differed in a few words regarding the handling of administrative expenses at the Social Security Administration. To avoid adding to the budget deficit, the new amendment authorizes the director of the Office of Management and Budget to cut unnecessary unobligated spending, but exempts the Social Security Administration’s administrative expenses from being cut. There are also differences in the cost estimates of the two amendments and in how they would be offset.

The repeal of the 1099 reporting requirements enjoyed passed with an 81-to17 vote. The requirements, which were included in the Patient Protection and Affordable Care Act, would have required businesses to report to the Internal Revenue Service any purchases of goods and services over $600 a year from another business or individual. Eliminating these paperwork requirements lets small businesses focus on the critical work of growing their businesses and creating jobs.

Planning for Change in Accounting Standards

If a change from U.S. generally accepted accounting principles, known as Generally Accepted Accounting Principles (GAAP), to International Financial Reporting Standards (IFRS), or a convergence of the two, becomes reality, experts say the new accounting standard used by all U.S. companies (both public and private) will be significantly different from the standard they are currently using. Therefore, forward-looking business owners and chief executives should start planning now for how these changes may affect their companies.

Over the past few years, the accounting community has been bracing for the possible change in their accounting standards. Creating a single set of global accounting standards to be used worldwide will make it easier to compare and analyze financial information from companies globally. There will be more transparency and clarity when comparing companies internationally because every company will be on the same accounting standard.

But many finance professionals and chief executives are sitting back and waiting for the dust to settle before determining how their companies will adapt to whatever changes emerge. Despite the uncertainty, business owners should still be prepared. Primarily, companies should be prepared to operate within a more principles-based accounting environment. GAAP is rule-based, with extensive published guidance on how to apply the rules, while IFRS, used by many foreign countries, is principles-based, with very limited application guidance.

Recognizing that privately held small and medium-size entities represent about 95 percent of all companies worldwide, the International Accounting Standards Board, which develops and maintains the reporting standards, has created a scaled-down version of IFRS for them. This IFRS drastically simplifies many of the principles contained in the full IFRS and omits topics not relevant to small businesses, thus significantly easing the financial reporting burden of privately held firms.

The Securities and Exchange Commission will decide by the end of 2011 whether to set a firm date by which public U.S. companies must convert to IFRS.

Efforts to pave the way for conversion from GAAP to IFRS date back to 1992. But despite the potential benefits, the switch is not a slam dunk. There is also momentum building toward converging the two into a single new global accounting standard that is significantly different from each standard as it exists now.

Adapted from an article posted at: http://www.allbusiness.com/print/15136468-1-22eeq.html

Changes Ahead for Accounting Standards

By the end of this year the Securities and Exchange Commission will decide whether to set a firm date by which U.S. companies must convert to IFRS. International Financial Reporting Standards (IFRS) were developed by the IASB as a principles based standard that enable international companies to speak the same financial language, by providing for clear and comparable financial statement preparation and disclosure the world over. 

Currently, more than 100 countries are permitting or requiring the new standards, and the U.S. will soon follow. Whether we implement IFRS in place of the GASB standards we are currently using, or combine the two for a new version altogether, it’s imperative that business owners and CEO’s start learning and planning for the change. Even those who consider themselves ‘small-to-midsized’ should take note. The IASB recognizes that around 95% of the world’s enterprises fall in this category and have therefore created a scaled-down, more targeted version of IFRS them.

It is a great time to start researching how the new standards will impact your organization, and planning for how you can implement them in the near future.

Secrets Shared for IRS Tax Audits

If your business has ever found itself involved in an audit by the Internal Revenue Service (IRS) you know that this is a painful process. The time and expense alone can be devastating. Knowing in advance what can trigger an audit and what auditors are looking for if you do get audited can help you structure your systems to clearly demonstrate the validity of your business practices.

There is a wealth of tax audit information available but one resource we have found extremely helpful is the Small Business Notes website. This site provides various Audit Techniques Guides based on the industry you are in. These guides contain audit examination techniques, common and unique industry issues, business practices, industry terminology and other information to assist examiners in performing examinations.

Be aware that the audit guides are written so that auditors know what practices to look for in auditing a business. However, the guides are available to any business owner and are a gold mine of information to help you operate your business from a tax standpoint to keep the auditors away from your door. The guides are relatively technical since they are written for auditors. Sharing the information with your accountant may be wise to obtain clarification on some of the issues they raise.

How to avoid the top 5 financial mistakes that can put you out of business

In this economy, you need to be extremely careful. Avoid making these deadly mistakes that can cost you your company.

1.  Raising insufficient capital. Even in a tough lending market like today, you still need enough capital to get started and carry you through until revenues come in. Make sure to estimate as accurately as possible what your start-up needs will be so you can find the money you require. Check the SBA’s Finance a Startup.

2. Setting your prices too low. The old joke goes: “We lose money on every sale but we make it up in volume.” This is no joke if you think you can overcome small margins by selling more. You may need to raise prices, even in a tough economy, if you are to survive. Check on what your competitors are doing so you aren’t priced out of the marketplace. Find information about market pricing from the Free Management Library.

3. Failing to monitor cash flow. You’ve heard it before: Cash is king. You may have booked sales but if you don’t get paid in a timely manner you can be short of the funds needed to pay your bills and stay in business. Use tools to monitor cash flow, such as Sage Accpac ERP, and take collection action if you notice that your accounts payable are aging.

4. Misordering inventory. You don’t want to have too much inventory on hand because this costs you money, but you don’t want to run short and fail to meet customer needs; you want to have just enough. Establish good inventory systems to help you stay on top of inventory needs. Consider using inventory order management software to help in reordering.

5. Going without expert help. Usually, you need financial guidance, something you can get by turning to experts, such as:

  • Outsourced Accountants
  • Financial planners
  • Experts on employee benefit plans
  • Bankers