Four Key Signs Your Nonprofit Financial Reporting Needs Improvement

Key Signs Non Profit Financial Reporting Needs Improvement

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Four Key Signs Your Nonprofit Financial Reporting Needs Improvement

Key Signs Non Profit Financial Reporting Needs Improvement

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Proper financial reporting is essential to the health and regulatory compliance of nonprofit organizations, as well as building the integrity and credibility of the organization’s branding before potential and existing donors. With the right strategies, technologies, and personnel, nonprofits can achieve the clear visibility into their finances they need to ensure consistent, reliable cash flow and keep expenses in check.

While across the nonprofit industry organizations understand well the important role accounting plays in their success, for most the practice sits outside their core competencies. Whether your organization is there to aide underserved populations, fund life-saving research, advocate against human rights abuses, or protect the environment, your primary focus remains on your mission – as it should.

To help your organization deliver on its promise to donors, communities, and other stakeholders, your accounting practices must be precise, comprehensive, and fully compliant with the laws and regulations imposed by governing entities.

Here are four reasons to consider investing in your accounting resources today, a move that can help bring much-needed data to the critical budgeting, strategic, and decision-making processes shaping the future of your nonprofit organization.

1. Cash Flow has Tightened in the Wake of the Pandemic

Like other nonprofits, pandemic-related shutdowns, consumer mask mandates, and restrictions on group gatherings and events have likely taken their toll on your organization’s cash flow position and bottom line. In fact, according to GuideStar, nearly one-third of not-for-profits face cash reserve issues today.

To help rebuild cash reserves as the economy returns to normal, gaining clear visibility into the ongoing state of your finances is a must. And that takes close, even daily, tracking of your income and expenses at the most granular level. As recommended by industry experts, “Take a close look at non-mission-critical expenses, identify those that may be easiest to cut, and act. Be aware of penalties or other fees associated with early termination of services or changes in terms.” Through careful bookkeeping and money management, you can achieve your financial goals.

2. The World has Digitally Transformed Faster than You have

Today’s donors to your organization are more likely to be reached effectively digitally than by mail or in person today, and this has implications for your outreach efforts.

For example, nonprofits that have relied on corporate or public events in the past to promote donations may find digital campaigns more effective today. Many are considering new investments in the personnel, technologies, and tools they need to digitally transform. While these investments will certainly pay off over time, they can significantly strain a nonprofit’s current budget. Accordingly, strategic and financial planning is more important now than ever.

As noted by Impactmybiz.com, digitizalization is “not a blanket strategy; no two [organizations] will have the same course of action for their plans. Organizations should always conduct an audit to determine what solutions they might need and the implementation timeframe for adopting them.” Understanding your financial picture at a detailed level will help you construct your approach to new, vitally important technology investments, resources to fuel your organization for years to come.

3. Labor Shortages are Driving Up Your Operating Costs

As cited by the Federal Reserve Bank of St. Louis, U.S. nonprofits are the nation’s third-largest source of payroll income. Like many organizations today, nonprofits are grappling with the challenges presented by the current labor shortage. However, unlike for-profit companies, nonprofits generally have smaller staffing budgets. To navigate today’s tight labor market and corresponding upward wage pressure, many nonprofits find themselves having to cut staffers.

Some sectors of the nonprofit community have been hit harder than others. Consider, for example, a recent survey conducted by Californians for the Arts which revealed that about 64% of nonprofits serving the arts “had shrunk their workforces. Roughly 25% of them had slashed 90% or more of their staffs.”

To avoid the catastrophic impact of these types of deep personnel cuts, you need clear, ongoing data on your operational needs and costs – information and insights you can use to secure the funding required to attract and maintain essential personnel, even in tight labor markets.

4. New, Advancing GAAP Standards are Creating Compliance Headaches

The accounting practices you follow can impact your tax-exempt status – and your viability as a not-for-profit entity. Ultimately, you must ensure that the funding you receive from donors supports your mission while meeting U.S. Generally Accepted Accounting Principles (GAAP) requirements, which are becoming increasingly more stringent as time goes on.

As a case in point, thenonprofittimes.com notes that nonprofits “that accept gifts-in-kind and other non-cash contributions will have to present and disclose them in a new way on financial statements, under amendments to GAAP.” According to the website, FASB has issued this update and many others “to improve GAAP by increasing the transparency of contributed nonfinancial assets for nonprofits through enhancements to presentation and disclosure.”

New amendments to GAAP standards continue to impact how nonprofits operate – and must be tracked closely and followed precisely to ensure regulatory compliance. Engaging in professional accounting services that keep your organization abreast of the latest regulatory mandates is absolutely essential for the legally sound operation of your nonprofit going forward.

The Case for Outsourcing

To keep your organization centered on its goals and moving in the right direction, an outsourced accounting model with the right professional services firm can help. In fact, partnering with an experienced professional services firm can ultimately turn your accounting process into a strategic due diligence resource that helps you uncover valuable business data to inform your operations and fund strategic initiatives, even under the most challenging of circumstances.

At Scrubbed, we understand the distinct issues nonprofits face and are committed to helping improve your financial health. We appreciate the importance of having accurate, up-to-date financials, so your leadership can make decisions based on data and confidently implement new revenue generating programs to drive your organization’s future direction and success.

Our team of experienced professionals is here for you every step of the way throughout your financial journey, working closely with your CFO and in-house accounting department to accurately track all transactions, streamline processes, and prepare financial statements so you can focus on running a successful organization. We bring to your nonprofit a breadth of services, from managing day-to-day bookkeeping and budgeting to tracking donor-restricted funding, government grants, and helping with invoices and reimbursements. We also offer comprehensive reporting services for grants, audits, and financial statements, including for IRS Form 990.

With Scrubbed as your accounting partner, you always know where you stand financially – and that is a strategic advantage that delivers true peace of mind internally while instilling donor confidence for those joining you in your mission.

Working together, we’ll help you make the world a better place, one donation at a time. Contact us today for a free consultation.