Finance & Strategy

Real world nonprofit finance matters, and real world thinking about strategies for financial, programmatic, and leadership sustainability. This column is written by Steve Zimmerman, principal of Spectrum Nonprofit Services.

photo of Steve Zimmerman

Outsource Your Bookkeeping!

The most strategic decision you make regarding how to staff your accounting department may be to not staff it at all. Well, at least not with employees of your organization. Outsourced accounting -- having the accounting done by an outside person or firm -- isn't new, but it is getting a second look as nonprofits search for ways to cut office costs.

We've written here before about using accurate and timely financial information to manage your organization well. But the question for many executive directors is: how do I get that financial information? While a good in-house bookkeeper is probably better than an outsourced bookkeeper, an outsourced bookkeeper is much better than a bad in-house bookkeeper.

"For a long time I had various people in the office do it," one executive director said. "But they didn't have the skills and as we grew we needed real skills. Then I hired an MBA and only much later did I find out that MBAs don't know how to do accounting or bookkeeping. Then I hired an accountant but he didn't know anything about nonprofit accounting and got our grant reports all screwed up. Then I hired a controller who could talk a good game but could never seem to get anything accomplished and in fact ended up suing us for wrongful termination. Finally I hired an outside bookkeeper who is doing a great job."

Many executive directors find it difficult to find someone with the right skills to prepare invoices (for government or clients), produce financial statements, and analyze financial data to answer management questions. And finding such a person at an affordable rate is even more challenging.

What does outsourced bookkeeping look like?

The term outsourcing may sound . . .

Board Insurance: Do You Really Need It?

We wanted an expert's view on what nonprofits need to know about Directors & Officers (board) liability insurance, so we asked Susan Bradshaw, VP at the Nonprofits Insurance Alliance Group. (And don't miss the link to a free booklet on D&O at the end of the article):

In today's tight economic environment, nonprofits are facing tough budget decisions, and one expense that often comes up is D&O insurance (Directors & Officers liability insurance). How should a board of directors think about this insurance?

Some statistics from our 10,000 insured nonprofits that will get your attention:

  • About 1 in 100 nonprofits each year will file a claim under D&O insurance
  • Average cost of a settlement in a D&O claim: . . .

Benchmarking and Analyzing Salaries: A Fast How-To

Everyone's heard of benchmarking and salary analysis, but what are some easy tools to use? This article is adapted from a chapter in The Nonprofit's Guide to Human Resources by Jan Masaoka, to be published by Nolo Press in the fall of 2011.

To illustrate ways to analyze salaries, let's look at a simplified example of an environmental research organization. First we'll chart salary ranges, then add benchmark salaries, and then look at two ways to look at analyzing individual salaries.

The five salary categories in this fictitious organization:

  • Senior Executive: members of the management team and department heads. Salary range . . .

Alternatives to Strategic Planning

In Part 1 of this two-article series, we discussed some of the ways in which strategic planning processes have served nonprofits poorly. One key reason is that strategic planning is the primary organizational change process that nonprofits know about, that boards are comfortable with, and that funders will fund. In this article we give some alternatives, in part because it's helpful just to have choices when facing organizational decisions.

Strategic planning -- when done appropriately for your organization -- can be exactly the right tool for the job. But too often strategic planning is undertaken for reasons that would be better served by other methods: "engaging" the board, "getting everyone on the same page," getting buy-in from stakeholders, and so forth. And sometimes when boards are unhappy with their executive director, the one thing they and their executive can agree to is to undertake strategic planning.

Different processes are better for different types of decisions and challenges. Here are some tips to strengthen any process well as some specific alternative planning processes.

Focus on the questions that need answers

Begin a planning process by asking this: What are the four or five questions to which we must have unambiguous answers by . . .

Stick With Old Media: Not Cool But It Works

In the age of social electronic media, media expert Holly Minch dares to defy the Twitter evangelists and makes the case for the power of traditional print and radio:

There's tremendous strategic value in traditional media . . . yes, still! Three reasons why writing press releases and pitching reporters are still worth it:

1. Third-party validation. As pithy as your latest tweet is, as fun-filled as your latest Facebook update is, there's one thing that social media simply can't give you: third-party validation. Don't forget that more than 58 percent of people get their news from television and 34 percent read the newspaper. Face it: an article about you in the Chicago Times will impress your funders and donors; a post on your Facebook page won't.

2. A reach . . .

Nonprofit Bookkeeping Test

If you're not an accountant yourself, it can be hard to hire a qualified bookkeeper. How can you tell if an applicant really knows bookkeeping? CPA Dennis Walsh created this terrific assessment test you can give candidates for bookkeeping and accounting jobs. We especially like the chart at the end that shows what training is called for based on which questions were answered correctly or incorrectly:

This 21-question quiz samples from general bookkeeping knowledge as well as nonprofit bookkeeping and compliance matters. Use this assessment test as part of your hiring toolkit as well as for identifying staff training needs. Take it yourself and see how you do!

The Nonprofit Bookkeeping Assessment Test

We recommend that you give an applicant 20 minutes to complete the assessment test. The ability to make accurate choices under time pressure is an important indicator of suitability for this type of work.

1. Which of the following regarding the Statement of Financial Position is true?
a) It is also known as a balance sheet . . .

Meaningful Budget Work by the Board

For many nonprofits, the annual "approval of the budget" is the cornerstone of board financial oversight. However, this annual approval is frequently an empty ritual: one where board members peruse a budget that they are unsure is realistic or appropriate to the planned activities.

Consider the following scene:

The budget discussion is at the end of the agenda, and things are running late. Given a complex budget that "needs to be approved," board members react first by looking for things that they can understand . . . usually a relatively small expense item: "Why is this travel budget so high?" "Can this phone budget be reduced?"

As each question or suggestion is raised, staff respond by explaining why each suggestion for a change is unrealistic. "The travel budget has been funded for Program X so we have to do it." "Actually the phone budget is not that big." After a few instances of staff "explaining" line items, board members realize that asking such questions isn't really going anywhere.

In the backs of their minds is the thought, "It's probably okay. It was okay last year and I didn't understand it then either." So they vote to approve the budget.

In short, . . .

The Easiest Way to Raise Money: Register with CFC

Combined Federal Campaign (CFC) guru Bill Huddleston tells how nonprofits can raise money from federal employees in just eight great points:

1. Why should I bother to read this article about the Combined Federal Campaign?

  • Because it's easy to register the first time, and after that it's really easy to renew your registration
  • Because if it were a foundation it would be the 10th largest foundation in the United States
  • Because your small local nonprofit can raise reliable unrestricted money . . . CFC doesn't work only for large or well-known organizations
  • Because in terms of time to dollars it's one of the most leveraged fundraising vehicles.

2. Okay, you've got my attention. What is the Combined Federal Campaign?

CFC is the workplace giving (payroll deduction) program for employees of the U.S. federal government. If you are enrolled with CFC, any of the four million federal employees and military personnel can easily pledge to your organization. CFC is the only vehicle open to these employees.

3. How much can our nonprofit expect to generate from federal employees?

A Board-Staff Agreement for Financial Accountability

Not all board members need to be familiar with financial terms and concepts, but each organization needs to develop a clear and explicit agreement for how financial accountability will be ensured. The following is a starting point for an agreement that the board and staff can make to ensure a partnership for accountability.

Starting with this template, a discussion on the finance committee with the executive director and the finance staff will go a long way towards clarifying roles.

Sample Board-Staff Agreement for Financial Accountability

Read more for sections on accounting, budget, personnel, more . . .

How to Hire a Great Accountant for Your Nonprofit

For many executive directors, hiring an accountant is fraught with anxiety. How will we find the right person? How can I tell if someone really knows accounting? Will an accountant fit in with the rest of us? As difficult as it is to hire a good accountant, hiring an incompetent or incompatible person is even worse. Here are some FAQs on hiring accountants for nonprofits, and what to do if you're having an impossible time of it:

Where do we recruit applicants?

You may spend more time recruiting good applicants for your finance team than you may spend for program staff; after all, accounting skills are often more marketable across sectors than program skills. Competition for strong candidates can be challenging.

  • Ask your auditor: Your auditor not only is connected with the accounting world but also understands your needs. Auditors may know of good candidates who may be looking for work; for instance one of their other nonprofit clients may have just downsized. Be sure to ask where else to recruit in your community.
  • Advertise differently: For the accountant position, look beyond . . .

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