Why your non-profit does NOT need to act more like a business

Includes

19 action points to implement right

away

Introduction Why your not for profit does not need to ‘act more like a business’

The last thing you want to hear is that your not for profit should run like a business. You’re not a business: you’re here to create social value. But to create that social value, you are aware that you need to USE good business practices to produce intended outcomes – actual, measurable and sustainable benefits for those you serve. At Checkbox, we’re sensitive to this, and when working with your non-profit, can help tie these goals into your performance management systems.

Performance Management Systems How they keep your non-profit alive and thriving

Performance Management Systems Your performance management system is crucial to the impact that your organization can have. Your numbers can direct you and the decisions you make – and, as we’ll discuss further in this guide, they’re critical to the connection you make with potential donors and members. On the right are some of the numbers your non-profit needs to be aware of.

Donations

Members

Contacts

Expenses

Overhead

Outcomes

Do financial statements make your eyes glaze over?

Do financial statements make your eyes glaze over? When was the last time you remember your organization’s board having a really engaging discussion over your monthly financials? If financial statements make your eyes glaze over, you’re not alone. It’s not that you can’t understand them, it’s that you’ve got a higher goal. Financial statements can seem very dull for most non-profits. If we can use the phrase, many are simply checking the box! It’s important not to look at your financials in isolation – consider these as merely the starting point to help you get where you need to be.

Do financial statements make your eyes glaze over?

Here are some of the reasons why you may not be getting as much out of your financials as you should be: q  The terminology is confusing. It’s not your

language, and you’d rather be talking about what’s important to you.

q  The terminology often relates to for-profit businesses, and so feels irrelevant.

q  The format is dry and over-detailed. You want to get to the important elements that speak to how well you are using your resources, raising the funds you need, and serving your constituents.

q  The figures aren’t explained properly – and you may not want to ask (either out of boredom or embarrassment).

q  They are provided last minute, so you have to approve them in a hurry.

Do financial statements make your eyes glaze over?

Tips for finding your financial statements actually interesting: q Identify the top 5 numbers that are of most

importance to your organization. Review and discuss those first.

q Choose several words or phrases that are either confusing, or seem like for-profit terminology, and discuss them with your accountant. (If they can’t explain it in a way you understand, quickly, you may want to look at another accountant.)

q Consider cloud accounting software that will allow you and your board access to the financial reports and data they need – whenever, and wherever.

q Get training on this software. Give your staff the time and training to learn its full functionality.

q Set goals and milestones with your accountant at the start of the year.

q Meet monthly or quarterly with your accountant to discuss the top 5 numbers, your mid-year results, and any financial decisions that are being made at the time.

Understanding overhead Whether you like it or not, overhead is how your public judges you and your effectiveness. A recent survey by Guidestar* points out a baffling conundrum:

q  92% of people want to see clear evidence of your effectiveness •  Are you accomplishing your mission? •  What are your social outcomes? •  How are you fulfilling your pledge to produce?

However...

q  84% of these people primarily base their decision to support you on how your organization controls its overhead expense.

 *Article source: http://trust.guidestar.org/2015/10/13/the-state-of-public-trust-in-charities/ 

Understanding overhead This is called the “Overhead Myth”

Although overhead – and your management of it – is critical, there can be great misunderstanding when it comes to how this is managed. What gets reported as overhead expense on the organization’s Form 990 filed with the IRS is what charity raters, grantors, donors and the interested public use in evaluating an organization. The truth is that this overhead expense reporting is largely in the control of the organization’s management and, to a great extent, determined by the cost allocation that the organization follows. This is why your numbers, and your financial management, are so important. If you understand them and can display them to the public in a way that is clear and that has integrity, you can increase the support you receive – both financial and personal. However, if there is confusion about how your non-profit is addressing its overhead – whether that confusion exists on your Board or in the minds of the public – this could result in massive financial difficulty.

Understanding overhead Addressing the “Overhead Myth”

The way we at Checkbox look at overhead is that it is an investment in the effectiveness of your organization. Donors, grantors and other funders want to see the link between the reported overhead and the social and environmental impacts of the organization. To quote nonprofit thought leader Mario Morino, they “want proof that their capital is delivering on all fronts”.

Having good, reliable and accurate accounting records, reviewing your numbers regularly in line with your budget goals, and having a cost allocation plan can help turn this “mythical” overhead beast into a more manageable domestic pet.

key areas in your non-profit organization

4and 33 items to help you address these [*Source: The Principles Workbook by BoardSource]

4 key areas in your non-profit organization In the rest of this guide, we’ll review the four key areas of every non-profit organization’s operations that need to be part of your regular performance management review and evaluation.

Legal

Board Oversight

Financial

Fundraising

Legal

If you’re not legal, you can’t succeed in your mission. Ensure you’re staying legal by: q  Considering conflicts of interest, and how you

prevent these

q  Making sure you’re keeping documents and business records for the right length of time

•  If you’re not sure, ask us. q  Asking, “How can we stay transparent?”

•  Sharing the right information with your public is critical to your success. But you don’t have to share everything. Talk to us if you’re not sure.

q  Making sure you’re compliant with tax and

regulatory authorities.

•  Staying compliant on all your reporting, filing, and disclosure requirements is critical. The consequences of not being compliant range from inconvenient to catastrophic. We’ll keep you on the right side of the law.

Board OversightThe oversight of your Board affects your financial management in a big way. The board holds the responsibility, and how you manage that Board impacts how you manage your non-profit organization. Some key elements to consider for your Board are: q  How does your Board:

•  Review and approve the organization’s annual budget? •  Approve key financial transactions? •  Approve fiscal policies? •  Establish compensation?

q  Do you hold Board meetings as often as required?

•  Consider whether your meetings are what you need. Don’t simply think about basic obligations: do you have enough time for strategic thinking and discussion? Are the right people in place to have those discussions?

•  Consider meeting length, style, and frequency q  Do you have the appropriate number of members on

your Board, and is it diverse and independent?

•  We work with nonprofits who are often surprised to discover the benefits that maintaining a diverse and independent board can have. Recruiting people with different skills, experience and perspectives onto the board helps your organization to better reflect the demographic reality of the community you serve (or should be serving) and to develop programs and services that are valuable and relevant.

Financial

As we’ve discussed, the financial side is one that you know you must address, but often it feels like you’re spending time on admin when you could be impacting people’s lives and changing your world. But what we’ve found is that if your financial oversight is strong, then your organization will be strong! Here are some first principles that we always like to start with:

ü  Keep accurate financial records

ü  Keep your financial records current

ü  Produce an annual budget that makes sense and is achievable

ü  Make sure you’re receiving regular financial statements so you can compare budget to actual

ü  Treat each program activity as its own separate cost center with a view to determining the true cost of your programs, including direct, indirect and shared costs.

ü  Have clear policies for reimbursement of expenses

Fundraising

This is one of the most difficult areas for non-profits, and it can also be the most powerful and rewarding. Addressing this properly will relieve you of strain, and it will bring in the funding you need so finances are not stressful. Consider:

q  Are your fundraising materials truthful and accurate?

q  Do you acknowledge tax deductible contributions?

q  How do you know whether to accept a gift or not?

q  Do you have proper oversight with your professional fundraisers (i.e. telemarketers, consultants, marketing agencies)?

q  Are you using social media to its full effectiveness?

q  Is your organization’s website modern, fresh, and updated regularly (at least monthly)?

Conclusion Increasing your organization’s impact

Conclusion In summary, to create social value, you don’t need to act like a business. You do need to USE good business practices to produce other outcomes – social benefits and public benefits. Your action items:

q Identify the top 5 numbers that are of most importance to your organization.

q Use cloud accounting software for greater transparency, accessibility and the ability to perform real time accounting and reporting.

q Get training on this software. q Meet at least quarterly with your accountant to discuss

your top 5 numbers, your mid-year results, and any financial decisions that are being made at the time.

q Understand your overhead, and how it is communicated to the public

q Keep documents and business records for the right length of time

q Produce an annual budget that makes sense and is achievable

q Regularly compare budget to actual numbers q Review what percentage of your budget is spent on

programs, overhead, and fundraising q Explore the use of social media q Review your website and keep it fresh

When you address all these areas together with a proper financial management system, your non-profit organization will be more efficient, less stressful, and best of all more enabled to help those you are here to serve.

Checkbox is here to serve you.

1420 Rocky Ridge Drive, Suite #130 Roseville, CA 95661 (916) 782-8500 info@CPAcorporation.com www.checkboxaccounting.com www.checkboxaccounting.com/ not-for-profit

Get in touch today to arrange a meeting with us – or we’re happy to come meet with your Board.