Nonprofit Accounting Blog – Page 27

Does Your Business Need a Disaster Recovery and Business Continuity Plan in Place?

Disaster can strike at any time, in any way. While natural disasters (such as fire or flood) are not as common as you’d think, your company can still be compromised by instances such as power outages, malware attacks, and computer viruses. Many businesses have a simple data recovery plan in place, and that is it. While it’s important to have a data recovery plan in the case of data loss, you probably need a more sustainable plan.

So many businesses depend upon technology to accomplish their daily tasks. If disaster were to occur, they could lose business-critical information, put their vital information at risk, and be forced to put their business on hold. Most businesses cannot afford the risks that come with not have a disaster recovery and business continuity plan in place.
For this reason, we have developed a checklist to aid you in developing your disaster recovery and business continuity plan.

Identify a Project Team
The first step to creating your disaster recovery and business continuity plan is to identify the project team members and project schedule. Make sure that you include any one who will be impacted by a potential disaster. If you all key staff members are involved and included in the planning process.
Revisit Your Data Backup Plan
Most businesses have a data backup plan in place. If you do not, we suggest you create one now. A data backup plan consists of ways to backup your data should an undesirable event (such as a natural disaster or malware attack) occur. Many companies are relying on the Cloud to store and backup their business-critical data for its ease of use and flexibility. Businesses can retrieve data stored in the Cloud from any location, making it a desirable form of data backup.While the Cloud has its advantages, many businesses have concerns about data security in the Cloud. For this reason, many businesses choose to store and backup their data off-site. Choose the plan that works best for your firm and revisit it once a year to make sure the proper security measures are in place.
Review Potential Areas of Impact
In order to develop a disaster recovery and business continuity plan, you have to be able to predict the potential areas of impact. Review the potential disruptions that could occur in the case of a disaster.
Create Disaster Readiness Strategies
Once you have identified the areas that could be impacted by a disaster, you need to begin creating your disaster response strategies. Look at each area in your business and establish a plan for business continuity. Ask yourself the following questions as you are developing your business continuity strategies:
- If ______ is affected, how can we get our business up and running in a timely manner?
- How will we respond to loss of data? Do we have a plan to prevent data loss from occurring?
- How will we replace damaged equipment?
- Do we have policies in place if a disaster occurs? What role will our employees play?
These are good questions to ask as you are creating your disaster readiness strategies. The better prepared you are to face a disaster, the better off your company will be.

Implement the Plan
Once you have created strategies and developed your disaster recovery and business continuity plan, it is time to implement the plan. Make your employees aware of the disaster recovery plan and begin implementing applicable security measures so your accounting firm is ready if a disaster should occur.
Testing and Maintenance
After your plan is implemented and your data back and security measures are in place, you will need to test and maintain your plan. Simply developing the plan is no good; you have to ensure that the plan works as you predicted. Testing might reveal weak areas in your plan and give you the opportunity to create a plan that better protects your business.

Once you have developed an effective disaster recovery and business continuity plan, you need to be actively maintaining your plan. Make sure your software is up-to-date, your policies are current, and your backup methods are reliable. Proper maintenance will save your business from losing business-critical information and time.

As you can see, developing and maintaining a current disaster recovery and business continuity plan is critical for accountants. To learn more about the importance of developing such plans, click here.

Mid-Year Checklist for Small Business Financial Planning

Running a small business requires a lot of planning and effort. While many small businesses focus their attention on the year-end, it is just as important to revisit your company’s financial plan mid-year. Financial planning is an ongoing process for small business owners and taking action now can help you prepare for future success.

Keep the following checklist in mind as you prepare to go over your company’s financial plans this summer:

1. Meet with a tax consultant.

Many small businesses make the mistake of waiting until tax time to begin thinking about their taxes. By then, it is too late to take action and reduce your tax payments. By meeting with a tax consultant earlier in the year, you will have plenty of time to go over your company’s financials and discuss your best options. More importantly, you will still have time to act on your tax consultant’s suggestions for the year.

2. Assess your estimated tax payments for the year prior.

Now that you’ve hit the mid-way point for the year, it is time to assess your estimated tax payments for the rest of the year. Review your business’ year to date financial earnings and forecast your earnings for the rest of the year. Once you have totaled your small business’ estimated earnings for the year, assess your estimated tax payments to avoid any underpayment penalties. Make sure you adjust your final two estimated tax payments as needed.

3. Re-evaluate your business entity.

Mid-year is the perfect time to re-evaluate your small business entity. Many small businesses start out as partnerships or sole proprietorships only to transition to another entity further down the road. If your small business is not incorporated, you may want to consider incorporating it (as a C Corp, S Corp, or LLC) to possibly save money on taxes and protect your company from some financial risk. Some companies are formed with one entity target in mind and may need to reassess the entity for a different revenue level. Whatever your situation, make sure that you adjust your entity before it’s too late. Failure to adjust your entity due to revenue can be a costly error.

Make sure you discuss your situation with your tax consultant prior to making any decisions. He or she will guide you through the process, determine the right entity for your situation, and let you know when to change it.

4. Assess your company’s recordkeeping process.

In order to run effectively and efficiently, your business needs to keep up accurate records. If your business could use some help in the recordkeeping department, mid-year is the perfect time to assess your current processes and procedures. If you have not been keeping track of your business expenses, now is the perfect time to catch up. If your employees are struggling to accomplish certain administrative tasks, look for an alternative solution (such as outsourcing, investing in a technology solution to accomplish the job more effectively, or dedicating a set amount of time each week to that specific task).

It may seem like a lot of work now, but you will be grateful for the updated books come tax-time.

As you can see, there are plenty of tasks your small business can perform mid-year to get ready for tax-time. Plan for any equipment maintenance that needs to be done on equipment still under warranty. Re-evaluate your small business budget for the year and redistribute expenses as needed. Do everything you can to ensure that your company’s financials are in tip-top shape come tax-time. While it may seem like you just filed your return for this year, it is never too early to start preparing for the next tax year.

Why It’s Necessary to Re-evaluate Your Nonprofit Budget Once a Year

As we have already discussed extensively on our blog, creating your nonprofit budget is an important factor in managing your organization’s finances. Without the proper nonprofit budget in place, you have no idea what programs you can spend money on, where to allocate your funds, and how to plan for the upcoming year. A budget gives your organization the clarity it needs to run to the best of its ability.

Nonprofit budgets – like many other business processes – need to be tuned up every so often to remain effective. If you feel that your nonprofit budget is no longer driving results, it could be time to re-evaluate your current budget and make some changes. Nonprofit organizations should plan on re-evaluating their budgets at least once a year.

When you sit down to re-evaluate your nonprofit budget, keep the following four questions in mind as you are developing a new budget for the year:

Do the key people (non-financial) within your organization have access to the budget and other financial tools/reports?
The people in your nonprofit organization who will use your budget the most are those who are not in financial roles. Project managers, non-financial managers, department heads and senior management will all need access to your organization’s budgets and financial reports. These are the people who will be actively making decisions that will directly impact your organization’s resources. Providing them with budget reports that are easy to comprehend and helpful for measuring results will prove to be an invaluable resource to them.Ask around your staff to see if these key people are connecting with the budget. Observe how they interact with the budget reports and how they use the information for their area of the organization. Are they even looking at the budget reports? If so, are the reports useful? Or could they derive more out of the reports?Taking an honest assessment of your organization and how key people interact with and use the budget is crucial to your organization’s success.
Are your non-financial managers taking ownership for their part of the budget?
Convincing your non-financial managers to take ownership for their part of the budget is no small feat. Start by involving them directly in the budget-making process. If they fell a part of the process from the start, they will be more likely to take an interest in sustain the budgeting efforts.Also ensure that their project management tasks are integrated with the budgeting system in some way so they can get used to comparing the program metrics with the financial metrics. No program can be evaluated by its program results alone, nor can it be judged solely on its financial results. To gain a true picture of your programs’ effectiveness, your managers need to be aware of both the financial and program impacts.
Is your budget being put to use across all areas of your organization?
This question is pretty self-explanatory. In order for your budget to work, all areas of your organization need to be actively involved in the process. They must have the right tools and reports (see Question 1) to make their decisions and have taken ownership over the budget for their area of responsibility (see Question 2).
Are your budget reports giving you an accurate view of your organization’s financial standings, effectively benchmarking results, and forcing your organization to think about the future?
Your budget reports need to be effective and concise. Your managers do not have time to sit around and analyze budget reports all day. They need to be able to look at a report, gather its information, and put that information to use in their department or area of responsibility.

Budgeting is a process that never ends. Once you’ve developed your organizational budget, you have to constantly re-evaluate it and account for upcoming program changes, funding changes, and government regulations. Budgeting isn’t just about allocating funds; it’s about examining those funds and measuring the financial effectiveness of your organization as a whole.

While nonprofit organizations can pick any time to re-evaluate their budgets, many organizations would benefit from waiting until after the Board has approved next year’s budget. This is a good time to look back over your budgeting process and assess how to make it better for the year to come.

Budgeting Strategies for Nonprofit Organizations

Budgeting, in general, can be challenging. Budgeting for nonprofits, however, can be downright frustrating without the proper tools and strategies. Nonprofits create budgets to show their donors how funds are allocated throughout the organization, make smarter financial decisions, determine if they have the necessary resources to begin new programs and, ultimately, to save money. The following strategies were developed to help nonprofit organizations maintain an effective and realistic budget.

1. Determine Your Budgeting Cycle

Most organizations have an annual budgeting cycle that consists of the Board-approved budget. Because these often have 3-4 month cycles and are rarely completed prior to the beginning of the fiscal year, many nonprofits would be better off switching to a mid-year or quarterly budget review. This frequent budget review could be either a formal or informal meeting to determine the organization’s progress as compared to the budget. If any mid-course corrections need to be made, they can be discussed and determined during this budget review.

While most companies stick to yearly budget cycles, nonprofits benefit from more frequent budgeting cycles. This gives them the opportunity to make adjustments for unexpected funds or re-evaluate the distribution of stated funds.

2. Determine the Programs and Activities to be Included in This Year’s Budget

A budget cannot be created until staff, volunteers and board members have determined the programs and activities for the upcoming year. What programs are expected or desired? If your organization needs to make some budget cuts, what programs or activities will be cut?

3. Practice Income-Based Budgeting

The most reliable budgets are those that are conservative and income-based. Nonprofit organizations should always budget for income first. Income projections should be based on realistic expectations and only include reliable income. Never include an income projection to merely fill in a gap in the budget; this will set you up for a budget deficit if your organization fails to meet the income targets. In addition, make sure that your expenses are always lower than your dependable income.

4. Budget Expenses and Revenue

This is the most time-consuming step of the budgeting process, yet it is also the most necessary. Your expenses and revenues will be based off of historical data and assumptions. The differences in previously budgeted amounts and the actual amount will factor into the current budget, as will a realistic view of the economic conditions on revenue and the demand for services.

5. Align Your Budget with Your Organization’s Mission and Goals

A nonprofit’s budget should reflect the organization’s commitment to its mission through numbers. Ask yourself the following questions to ensure that your budget is aligned with your mission and strategic goals:

Does the budget reflect the organization’s mission by the way the resources are allocated?
What types of grants are we pursuing? Are we going after grants because they are easily attainable or because they pertain to our mission?
Are all of our programs either contributing to the organization’s mission or helping to financially support the organization?

6. Invest in Budgeting Software

Finding the right solution for your organization can provide you with the tools and processes that are necessary in reaching your budgeting goals. There is a multitude of budgeting solutions to choose from, making it easier to invest in a solution that fits the needs of your specific organization. A comprehensive budgeting solution will:

Effectively align your strategy with the execution of your operations
Shorten planning cycles to allow executives to concentrate on meeting strategic goals
Free up time and money to explore new areas of growth
Deliver current and relevant information to assist with better decision making
Provide analytical capabilities
Eliminate reliance on spreadsheets and their associated errors

For more information about developing a nonprofit budgeting, click here.

Creating More Effective Financial Reports for Nonprofits

Nonprofit organizations require more than the desire to make a change in the community; they require business sense. In addition to raising funds and fulfilling their missions, nonprofit organizations are required to comply with strict financial reporting requirements. While the actual execution of these reports is fairly simple, staying current with these reports can prove to be quite challenging in the business that comes with running a nonprofit organization. There are a variety of financial reporting tools available to help nonprofits create insightful financial reports according to industry standards.

Gain a clearer understanding of your organization’s reporting cycle and maintain your financial reports accordingly. Like a for-profit business, most of the reporting will be due following the close of the organization’s fiscal year. However, many reporting tasks need to be performed on a much more regular basis (such as monthly or weekly).

Creating effective financial reports is not hard. In most cases, a nonprofit organization’s financial reports can be generated using Microsoft Excel and other basic programs. Take the time to discover the financial reporting requirements for your organization. These requirements will determine what type of reports you produce and when. Here are a few nonprofit financial reporting basics to keep in mind:

Financials

While the purpose of your organization is not to earn a profit, you still need to document and report on every piece of financial information. The most common financial reports for nonprofits are the statement of activities (income and expense) and the balance sheet (assets, liabilities and net assets). Many organizations also find cash flow statements to be helpful. Financial reports are typically prepared on a monthly or quarterly basis for board members, donors, and others who have a stake in the organization’s financial condition. Fortunately, there are many software solutions that will make generating these reports easy.

Annual Report

Most nonprofit organizations are also expected to prepare an Annual Report. Completed at the end of the fiscal year, the Annual Report focuses on describing the activities and accomplishments of the organization over the reporting period. If you do not include financial information in your Annual Report (the decision is entirely up to you), you will need to have the financial information readily available for donors. Many of nonprofits use the Annual Report as a marketing tool to highlight the organization’s achievements and generate enthusiasm for its mission. However you choose to use the Annual Report, you will find it to be a valuable resource as you plan ahead for the organization’s future.

Form 990

Nonprofits are not required to pay federal income tax, but they are required to file an annual form (Form 990) with the IRS. Form 990, Return of Organization Exempt from Income Tax, is due on the 15th day of the 5th month following the close of the organization’s fiscal year. If needed, organizations can receive a three-month extension by filing Form 8868 before the due date. Form 990 is lengthy and is fairly comprehensive including requests for information about contributions, expenses, assets, and the organization’s board of directors. While these are just the basic financial reporting responsibilities of nonprofit organizations, they are crucial in nonprofit management. Over time, you may also find it necessary to fulfill other reporting requirements for your organization. Reports such as payroll withholdings and insurance reports are standard reports for many organizations and do not involve any special requirements for nonprofits. In fact, they usually fall under the same reporting procedures as for-profit businesses.

Stay tuned to our blog for upcoming changes regarding nonprofit financial reporting requirements.

Important Tax Tips for the Small Business

Tax preparation season is here and with it comes a lot of stress. While we can’t eliminate the stress that tax season brings, we can give you some tips to help you prepare for tax season. As a small business owner, you need to have a clear understanding of how this year’s taxes are going to affect you and your business. Keep the following tips in mind as you prepare for the April 15, 2013 deadline:

Maintain Good Records

Ensure that your taxes are filed accurately by maintaining good records year-round. Make sure that you have any necessary paperwork readily available come tax time. Should you be audited, you will need the paperwork to back up your deduction claims.

Know What Deductions You Can Take

Do you know what small business deductions you can take? Remember that if you take any small business deductions, you will need the documentation and original receipts readily available. Tax deductions and credits change each year, so make sure you have thoroughly researched your deductions prior to sending in your tax return.

Take Advantage of the Small Business Jobs Act Tax Provisions

Signed into law by President Obama, the Small Business Jobs Act of 2010 consists of 17 tax provisions designed to decrease the tax burden for small businesses. Several of these provisions can be utilized during this year’s tax season (2013) so make sure you review them thoroughly.

Remember the Credits within the Affordable Care Act

The tax credits within the Affordable Care Act allow a small business to cover up to 35% of the premiums it pays to cover its employees. Keep in mind that in 2014, this rate will increase to 50%.

Avoid the Most Common Audit Traps

Be aware of any following potential red flags and act on them before the IRS has a chance to:

Home Office Deduction – This deduction is very specific. Just because you have a home-based business does not mean that your business will qualify for this deduction. Likewise, if you operate your business from a location outside of the home yet claim a home office deduction, you might trigger some unwanted attention from the IRS. Make sure that your business is eligible to claim this deduction and make sure you know what specific expenses you can write off if you claim it.
Classifying Your Employees as Independent Contractors – Contractors are not the same thing as employees, and it is very important for you to know the difference. The IRS views this misclassification as an attempt to avoid paying payroll taxes and even the slightest mistake can bring penalties and back taxes. Because of this, it is important that you make sure you know the proper classification of those who work for your business.
Large Miscellaneous Deductions – Any time the IRS sees businesses claim a large amount of itemized deductions relative to your income, they become suspicious. Likewise if they see large amounts of miscellaneous expenses reported. Make sure that you are specific and label every deduction accordingly.

Keep Your Personal Expenses Separate from Your Business Expenses

Know that the IRS closely scrutinizes any personal expense that is claimed as a business expense (such as the use of a business vehicle for personal use). Keep good records and maintain a separate bank and credit card accounts for your business. Trust us on this one, you will be glad that you did.

We know that tax time can be stressful, especially with all of the uncertainty regarding changes to tax laws. As you prepare your business to enter tax season, keep the above tips in mind. If you feel that you are in over your head, considering hiring an accountant or CPA to assist you with your tax preparation. For more information on how to go about choosing an accountant, read our article, “What Should I Look for in an Accountant?”.

7 Questions to Ask Your Accountant After Year-End

By now your accountant should have logged your last Business Activity Statement and sent you your business’ year-end financial statements. Generally, you will receive two statements – the profit and loss (P&L) statement and the balance sheet. Take the time to thoroughly peruse these two documents; don’t just look at the bottom line of the P&L to see how much money you made. These statements can tell you a lot about your company – from its performance last year to the adjustments you will need to make this year.

Many companies have questions after examining their P&L and balance sheets. If you know what to look for and have the right questions to ask your accountant, you may be able to increase your profit and surpass last year. Take a look at the 7 questions to ask your accountant after year-end financial statements are distributed:

1. How did my business compare with competitors (or others in the industry)?

Don’t be afraid to ask your accountant to show you business benchmarks relevant to your industry. These are quick and easy ways to compare the performance of your business with the industry average. Is your company’s profit better than the industry average? Are you spending too much on wages or marketing? Business benchmarks will help you identify both the areas in which your business may need some work or in which it currently excels.

2. What is my business’ gross profit (gross margin) percentage?

Gross profit is the difference between the value of your sales and the actual cost of your sales. As a business owner or manager, it is crucial to understand this figure and what it means for your business. Consider the following formula used to calculate gross profit:

Gross Profit Percentage = Gross Profit ÷ Sales x 100%

To increase your gross profit margin, you must increase your selling price or reduce your cost of sales. After calculating your company’s percentage, ask yourself (and your accountant) what you can do to increase your gross profit margin in the next year.

3. How can I reduce my expenses without compromising quality or service?

This is actually a quite common question and in order to answer it, you have to know where your money is going. If you don’t know where exactly it is going, you will never know where to start controlling expenses. Take a close look at each expense and determine its importance. If the expense does not affect the way your business runs right now, then it can be reduced or eliminated completely.

4. What is my “breakeven” point?

Your “breakeven” point is the point at which your business makes neither a profit nor a loss. Knowing this point is critical to the success of your business, as it lets you know at what point you will begin making a profit. The breakeven point can be calculated for any period of time, be it yearly, quarterly, monthly, weekly or daily.

5. Which of my products and services are making me the most profit?

Take a look at the profit margin of each product and service your company provides. Keep the products and services that are giving you the highest return for the least effort and discontinue the products and services that have a low profit margin and take more effort to provide.

6. How can I improve my cashflow?

A surefire way of improving your cashflow is to examine how long it takes your customers to pay you for your products and services. Make it a mission to collect your money on time; after all, it is rightfully yours! Make sure that your customers are aware of your company’s payment terms and designate a short amount of time each week to personally contact clients whose accounts are due.

7. In its current financial position, will my business be able to survive an economic decline?

As you know, the economy affects your business directly. Is your company in a strong enough position to weather a tough economic storm? Ask your accountant about your debt to equity ratio (the proportion of the capital invested by the business owner to the funds provided by external lenders). This ratio gives a comparison of how much of the business was financed by the owner’s equity and how much was financed through debt. An acceptable debt to equity ratio is generally within the range of 1:1 to 4:1 (i.e. a maximum of $4 debt for $1 of equity); however, it will ultimately depend on the individual business and industry circumstances.

Too much debt could put your business at risk, and too little debt could mean that you are not taking advantage of crucial opportunities and allowing your business to reach its potential growth.

Social Media: Is it a Necessity for Accountants?

While many small businesses and nonprofit organizations have jumped on the social media bandwagon, accountants and accounting firms seem to be reluctant to embrace the new trend of communicating with their clients and prospects through social media avenues. According to a recent Resources Global Professionals survey of 261 accountants in and around the Toronto area, today’s accountants are hesitant to adopt social media strategies. The survey revealed the following:

62% do not trust the information posted on social networking sites
58% consider face-to-face to be the best use of time
39% currently have a social media strategy
66% are concerned about the security of their personal information on social networking sites
22% followed key industry leaders on social media sites
LinkedIn, out of every other social media site, is the most popular tool for professional accountants

The survey indicates that there is huge potential where accounting firms and social media are concerned. Social media can be extremely beneficial to accounting firms, if used correctly. As we discussed in a previous post, social media can establish trust with your clients, give you better control over your “brand” perception, lower your marketing costs, drive traffic to your website and improve your website’s search engine rankings. So, with all of those benefits, why are accountants still hesitant to embrace social media?

To be clear, there are many accountants and accounting firms on social media sites; however, a good majority of those accountants only use social media for professional networking rather than for business communications. Because they deal with sensitive information on a consistent basis, accountants want to maintain a trustworthy image with their clients at all times. Although they acknowledge that social media can bridge communications between clients and boost marketing strategies, accountants still have some concerns about the privacy and professionalism of using these sites.

Consider the following uses for social media and discover how to incorporate social media safely into your marketing strategy using the tips below:

What Social Media Sites Should I Use?

The social media discussions should begin with the types of social media networks you or your accounting firm plan on using. Many accounting firms ease their way into social media with LinkedIn, because the site helps accountants develop professional relationships that often result in more business and referrals. Facebook and Twitter are usually used to engage with current clients and prospects. Accounting firms can use each site (particularly Facebook and Twitter) to market to their followers. Many companies offer tax tips, answer questions, address concerns, and promote their specialty services on these sites. Many accounting firms find Twitter especially useful, enabling them to connect directly with industry thought leaders and obtain industry-specific education and information.

Prior to making your decision, give each social media site a try. Observe how other companies or accounting firms are using these sites and evaluate their results. Do you think their social media efforts are paying off? Once you gain a better understanding for how social media is used (or can be used), you can make the best-informed decision for your accounting firm.

Create Measurable Social Media Goals

As an accountant, it is your job to enter every engagement with a defined set of measurable objectives and goals, and social media should be no exception. Accountants who use social media wisely define measurable goals regarding their social media strategies. Sit down and figure out a strategy to effectively incorporate social media into your marketing program. Once your social media strategy has been created, establish measurable goals. For best results, accountants should establish and measure goals quarterly to gain a better idea of their social media impact.

Develop a Social Media Policy

After you have set and defined your measurable social media goals, your accounting firm needs to write a policy to govern social media efforts. These policies help employees understand how to use social media, how long to spend on social media sites during the workday, and the sensitivity associated with posting personal information. This policy is usually included in the employee manual so employees know the rules and regulations regarding social media on the job.

How Can I Best Prepare My Organization for a Nonprofit Audit?

CPAs and accountants receive hundreds upon thousands of questions a year pertaining to both for-profit businesses and nonprofit organizations. Among some of the many questions asked of CPA’s, the most common is “How can I prepare my organization for an upcoming nonprofit audit?”. While we have written several blogs that address nonprofit audits, we’d like to go into a little more detail to help you fully prepare for an upcoming audit.

The best way to prepare for a nonprofit audit is to be proactive and plan ahead. No one likes being caught off guard, especially by an auditor. While it may be uncomfortable to have someone examine everything your organization has done over the past year, being prepared will make the whole experience easier and less frustrating. Consider the following steps developed to improve your nonprofit financial reporting process and, in turn, improve the nonprofit auditing process as well:

Document Your Internal Controls
You are most likely familiar with the term “risk based auditing standards”. If you are not familiar with this term, you should know that these standards came into effect in December 2006 and completely changed the way nonprofit audits are performed. Auditors are now required to focus on identifying areas of risk. In order to fully identify these areas of risks, auditors must spend a considerable amount of time gaining a complete and total understanding of an organization’s internal control structure and the effectiveness of these controls. The organizations that have taken the time to understand what controls they have in place will be much better prepared to face an auditor’s questions.
Improve Identified Inadequacies
Once you have a comprehensive understanding of the internal controls your organization has in place, you should make every effort to improve the areas where inadequacies have been identified. This is important not only for the upcoming nonprofit audit, but for the organization in general. Identifying inadequacies and implementing strategies to overcome them will only help your organization run more efficiently.
Utilize Your Organization’s Strengths
As you know, it can be difficult to staff a nonprofit organization even in good economic times. When the economy is less than desirable, it becomes even more challenging to find enough qualified individuals to improve upon every identifiable control weakness in the organization. If you find this is true for your organization, consider asking specific board members for help. While it is true the main role of the Board is to govern the organization, members of the Board could prove to be a valuable resource. Take advantage of the financial knowledge and expertise of your Board members. Allow their guidance to help you implement beneficial controls, review auditing schedules and draft financial statements prior to your audit.
Educate Yourself on the Nonprofit Accounting Principles
Nonprofit organizations have more specific accounting concepts than the traditional business. Take the time to learn about the accounting principles specific to your type of organization. If the accounting concepts your review seem foreign to you or your organization does not have the appropriate in-house resources to properly record such items, consider seeking outside help from your accountant or CPA. However, keep in mind that new accounting laws are requiring separation between accounting/bookkeeping services and audit services so the assistance you receive from your auditor may be limited.
Keep in Touch with Your Accounting Firm Throughout the Auditing Process
Begin the auditing process with a meeting with your auditors. Request an audit timeline, as well as a client task list (a detailed list of what they will need from you and when they will need it). Make sure that you communicate with your auditor about who to contact in your organization regarding each specific item on the list. Do not hesitate to contact your auditor for advice or to keep them informed of what is occurring within your organization throughout the year. Trust us, they will appreciate the opportunity to address any issues with you prior to beginning the audit.

These steps will prove to be beneficial to your organization during the auditing process. You may also want to look at any letters received at the conclusion of your last audit to ensure that the items are properly addressed prior to the start of your next audit.

Improve Efficiency by Creating an Effective Budget

Improving your small business’ efficiency involves more than simply changing a few processes and procedures; it involves knowing the ins and outs of your company and being able to account for every dollar that passes through your business. While budgeting may not be the first thing that comes to mind when you think about ways to improve your company’s efficiency, an effective budget can save you a substantial amount time and money, allowing you to focus on the areas of your business that need further improvement.

Most small businesses already have budgets in place; however, many companies are failing to take full advantage of the budgeting process. An effective budget is a life-saver for the small business, especially in uncertain financial times. An effective budget will gauge the health of your business, help you plan for future expenses and needs (such as the hiring of a new employee, new hardware or a new office space), and provide you with the necessary tools to help your company grow.

Consider the following basic budgeting tips below to learn how to transform your budget and improve the overall efficiency of your business:

1. Keep Your Accounting Records Updated

Think of your accounting system as the answer to all of your problems? Want to find out how your company faired last year? Pull a report. Need to know the amount of money you are spending on that new project? Pull a report. Do you need access to this year’s projections in order to plan out the year effectively? Pull a report.

Your accounting system contains a wealth of information designed to help you run your business smoothly and efficiently. Start by running historical reports that will show you the breakdown of your monthly and yearly costs. Use these reports to compare this year to last and get an idea of where your business is spending its money.

Make sure that you pull a break down report every month and any other necessary accounting data you may need for forecasting. This will help you gain a better idea of where your business is financially, not only month-to-month, but year-to-year.

2. Set Business Goals and Develop Realistic Strategies for Reaching These Goals

The purpose of a budget is two-fold: to gauge the financial health of a business and to help that business accomplish its goals (financial and otherwise). What are your future business goals? Prior to creating your budget, sit down with key members of your staff and discuss your company’s future. Ask yourself these questions to get a start on developing your goals: What are your sales goals for the year? What costs can be eliminated and what costs are crucial to meeting those goals? What will our marketing strategies look like each month? What is our profitability goal for the upcoming year? How can we realistically meet that goal?

In order to reach the goals your company set forth, you will need to develop realistic and quantifiable strategies. These are realistic goals that can be measured. Instead of saying “I want to increase sales this year”, set a more realistic goal, such as increasing sales by 5% in the first quarter of the year. This will help you not only create more realistic – therefore, attainable – goals, but it will also help you plan more effectively.

3. Incorporate Your Goals into Your Forecasts

Now that you have defined your goals, incorporate them into your new monthly forecast. These forecasts are based on past accounting data and future goals. Remember to adjust your initial forecast based on any irregularities of the past year. For example, if you had a slow June last year, consider revising your baseline to account for June’s irregularity.

4. Compare Your Actual Results to Your Projections Each Month

Once you have created a new forecast for each month of the year, develop a template that allows you to track the actual numbers as compared to those forecasted. Calculate the difference and percentage of variance between what you forecasted and the actual numbers for that month. This will give you a better understanding of your company’s performance, and will help you create more realistic forecasts for the months to come.

Make sure that you review your actual totals vs. your future forecasted totals each month in order to stay on track to meet your initial goals. This will allow you to make immediate and necessary adjustments in order to reach your goals.

5. Identify and Re-evaluate Cost Areas in Your Budget

After you have evaluated your company’s current financial standings and projections, you need to sit down and review the cost areas as compared to the total costs being spent. Are there areas that could use improvement? Are there cost areas that could be eliminated? Ask yourself these questions as you evaluate every area of your budget. Eliminate any unnecessary costs and adjust spending according to your budgeting goals.

As you review your various costs, re-evaluate your suppliers and service providers to ensure that you are getting the best deal possible. Ask around, and get an idea of the average price for that service. If you feel that you are being taken advantage of, look elsewhere.

For more information about creating an initial budget, read our article, “5 Tips for Effective Budgeting”.