Nonprofit Financial Management Made Easier: Manage Towards Surplus

One often overlooked aspect of nonprofit financial management is managing towards a surplus or ensuring adequate margin to continue your organization’s mission even during lean donation years.

“No margin, no mission” is a saying often heard at nonprofit organizations. It means that without an annual surplus, your organization cannot achieve its mission.

There’s a delicate balance between being prudent stewards of your nonprofit finances and over- or under- investing in programs. Too much surplus looks as if you aren’t doing enough to fulfill your mission; deficits cause undue hardship and struggle. What’s a nonprofit to do?

Mandating a Surplus

One way to improve nonprofit financial management is to manage towards a surplus. A mandated surplus of X percent means that in any given year, a set amount of margin is set aside to act as a cushion against lean times. It’s a similar concept to putting aside money in an old-fashioned Christmas account or tucking ten dollars a week away in an account against a rainy day. For nonprofit financial management, the idea is to create a managed surplus that can be tapped into when donations or other sources of income fall.

A mandated surplus for every department in your organization may seem strange. What about the operational division? How are they supposed to create a surplus? It seems obvious that the finance, donor and membership management groups can work towards a surplus, but how do operational divisions manage it?

Departments that do not generate revenue but support other revenue-generating areas of the organization can budget towards a surplus by cutting expenses. By systemically trimming expenses, they can contribute towards the mandated surplus.

Preparing for Down Years

The economy will also rise and fall, so preparing for the down years is an essential skill of nonprofit financial management. It may not be possible to meet a shortfall through simple cost-cutting during a particularly difficult year. Mandating a surplus and banking that surplus against lean times is your insurance against having to cut essential programs or personnel in order to keep your nonprofit active during lean times.

What If You Exceed the Mandated Surplus?

Just as in some years you’ll find you have a deficit, in good years you may not only meet the mandated surplus but exceed your target goals. During such times, the Board may wish to discuss adjusting the surplus at their annual meeting. For example, if the mandated surplus target is usually 15% but an especially healthy year finds you with a surplus of 20%, the Board may wish to vote on adjusting the surplus down to 10% for a one-year term only. In this way, the mandatory surplus can be flexible without being an arbitrary number. Board participation, discussion, and voting are essential to making a flexible number work.

Tip to Make Surplus Budgeting Work

Many nonprofit organizations have successfully balanced their accounts and improved nonprofit financial management thanks to surplus budgeting. But in order to make it work well for your organization, you’ll need to focus your efforts on communications, strategic planning, and improved budgeting.

Some tips include:

  • Analyze your current financial situation. A good fund accounting program can help you with generating the reports of your accounts.
  • Assess each budget item, especially unrestricted funds. This is typically where surplus may be found.
  • Educate and communicate with all departments within your organization to ensure that everyone understands why you are seeking a surplus and how you anticipate being able to achieve the goal.
  • Align all portions of the organization towards the goal.
  • Underscore how achieving margin enables you to achieve your mission (money isn’t just for money’s sake but to help your constituents).
  • Develop strategic plans and budgets to achieve your goal.
  • Watch the progress carefully and be ready to change course depending on how well you believe you’ll achieve your objectives.

A surplus can mean the difference between a healthy, fully functioning nonprofit organization and one that limps along hoping for the best. Don’t hope or wish for the best – plan for it. With enough margin, you can surely achieve that mission.

Beck & Company: Nonprofit Financial Management Success

Beck & Company can help with your nonprofit financial management needs. We are a CPA and business advisory firm dedicated to the nonprofit sector. Our many years of experience can help you update your financial compliance or handle all types of accounting for nonprofits. Please contact Beck & Company today for further details.

Fund Accounting Best Practices and Resources

Fund accounting records daily transactions based on a nonprofit’s specified funds. You may have a general fund, a project-based fund, and so on to track income and expenses around grants, donor bequests, or special projects. By setting up a system of fund accounting that’s clear and easy to follow, you can keep your general ledger clean and ensure that expenses, income, and capital are tracked accurately.

Benefits of Fund Accounting

Fund accounting offers several benefits to nonprofits. First, it confers greater visibility on your accounts so that the public can confirm that your funds are being used as you promise they will be. It also offers greater insight into the nonprofit’s overall fiscal health. Donors and granting organizations like to know that their money is going to be used to continue your work fulfilling your mission, and not to close down the organization or conduct your work only half-heartedly due to lack of funds.

You can also manage your accounting better when using fund accounting methods. As you manage each fund, you can clearly see where you may need to increase your fundraising efforts and where you may be on a firmer footing. Funds that are low can be shored up; funds that are robust can continue.

Organizations bestowing grants on nonprofits also like to know where, when, and how their money will be used. Fund accounting makes that task easier, and may improve your chances of gaining much sought-after grants.

Setting Up Fund Accounting Software

The easiest way to track your funds for fund accounting systems is by setting up your accounting software so that it can track funds from the get-go. Most software packages enable users to define specific general ledger fields. These user-defined fields can be used to tag specific fund accounts and keep the general ledger clean and manageable. You can set these up when you install an accounting software program.

Best Practices in Action

Once you’ve established your accounts and you know what you have to work with, you can then implement best practices and develop a plan to shore up low funds and utilize other funds more effectively.

A good fund accounting plan includes assigning accountability for the fund, relationship building strategies, fund solicitation strategies, and more. In other words, you’ve got to know what money you have in the fund and how you’ll continue to grow and nurture relationships to keep it coming in.

As you can see, fund accounting is more than entries into the general ledger. It’s about making accounting an integral part of your nonprofit planning and operations. Accounting techniques like this can help you make great progress towards achieving your mission.

Fund Accounting Help

Beck & Company works with many types of nonprofits to help them organize, streamline, and refine their accounting and operations. We can help you establish your fund accounting system or clean up one that’s already in place but may not be doing what you’d like it to do.

You may also be interested in an upcoming webinar on fund accounting best practices. It’s free, and provides many resources you can use to improve your financial reporting.

We work with nonprofits to transition them into new systems and help them enhance their business and accounting processes. We can help you select the best accounting system for your needs and help you transition to a new system with minimal disruption and downtime. Contact us today or call 703-834-0776 ext. 8001.

Training Your Team for Fund Accounting Systems: Tips for Successful Implementation

It’s go-time, and your staff is excited about the new fund accounting systems you’ve put into place. But wait: before launching the new system, have you made plans for training everyone on how to use the new fund accounting system?

Training, it seems, is often an afterthought when it comes to new software launches. Managers, IT staff, and everyone involved with selecting, implementing and using the new software should be involved in the training. Here’s how you can learn from adult educators on the best ways of engaging users in your new fund accounting system.

#1: Sell the value.

Even before you invite the team to a training meeting, you need to ‘sell’ them the value of the new software. Unlike children, who learn out of curiosity or obedience to authority, adults learn best when they perceive the personal value of anything they are expected to learn.

The staff of your organization must know right from the start why you’ve chosen the new software and why this particular product from among many fund accounting systems. How will it help them with their daily work? Will it solve problems, increase productivity, work smarter or faster than what they’ve used before? It’s only by answering these questions upfront will you grab their attention for further training.

#2: Keep training sessions focused on what users need to know.

Users need to know precise information to help them do their jobs well. They don’t need to know the history of the product, or the bells and whistles that so excited your CEO. They want to know now how to use it to do their jobs better. Focus your training on immediate activities the group can do to use the new software.

#3: Use it or lose it.

Another truism with adult learners is that they must use their newfound knowledge immediately or else it is forgotten. Adults need to use new skills repeatedly in order to keep them fresh. Schedule training sessions with the new fund accounting system where users actually bring in their projects and work so that the training can focus on job-related skills, and users can ask questions while actually using the system for real work.

#4: Customize vendor trainings.

Vendor trainings can be a great asset, but you may need to customize a vendor training session to your organization’s needs. You know your team. They may respond best to written materials, hands-on demonstrations, or simple verbal instructions. Work with your software vendor to tailor training needs to your team.

#5: Schedule follow up.

Many training programs fail because trainers pour information out and then leave without follow-up. Users leave the session invigorated and excited, but stumble using the new system when they return to their workplace. To keep the momentum going after training, schedule follow-up meetings a week or two after the initial training. Invite users to bring questions to the meeting so that you can help them use the system to its fullest.

Ready for New Fund Accounting Systems?

At Beck & Company, we understand the unique needs of the nonprofit sector. Our CPAs and consultants have been assisting nonprofits since 1987 with their accounting and operational needs. If it’s time to implement a new fund accounting system, please contact us for assistance. Call 1-703-834-0776.