Is your nonprofit’s accounting in tip-top shape? If it’s not, you’re likely risking inefficient use of resources, and basing crucial decisions on inaccurate information.
Our latest podcast guest is Tosha Anderson, founder of The Charity CFO, an organization offering accounting and thought leadership skills to nonprofits. Tosha created The Charity CFO after realizing the need for specialized skills in nonprofits with limited financial resources and increasing pressure to keep costs low despite mounting compliance and financial reporting needs. With nonprofit experience as an auditor, a CFO, a board member, a volunteer and a consultant, Tosha works with nonprofits with on-going accounting needs.
Many nonprofit leaders often think they can handle the accounting on their own or think that they can have someone who has “some accounting knowledge” help balance their books for them and everything will be just fine as long as they’re not misusing funds. And while it’s easy not to place high priority to hiring a professional nonprofit accountant at the get-go of your organization’s founding, it will prove highly beneficial to get someone like Tosha to help provide clarity and understanding around your finances to help your decision-making and donor relations.
After speaking with Tosha in our interview, here are some takeaways detailing some of the biggest accounting mistakes nonprofits are making:
- Not utilizing a uniquely skilled nonprofit accountant. Many people try to tackle the accounting on their own or have a volunteer or someone they know who is “good at math” try to keep everything straight for them. This is a huge mistake, as most people are unaware of the intricacies, ins and outs, and legal implications that nonprofits must consider with their finances.
- Not utilizing technology to your advantage. There are so many tools that can help you see your financial state at a glance, and in realtime to make sure you’re making decisions based off accurate data. Even QuickBooks is often not utilized to its full capacity. Hiring a professional will ensure everything is efficiently tracked, automated and scalable as you grow.
- Basing large decisions on a general consensus from a nonprofessional running your books. You don’t know what you don’t know. And often, leaders are asking questions of their accountant that the accountant isn’t equipped or knowledgeable enough to answer. It’s crucial that you have someone running your books that can help advise and consult your organization through a financial lens, understanding your goals and realistic finances.
One thing Tosha mentioned doing to help keep a consistent understanding of finances is to create a scorecard of your top five KPIs (key performance indicators). This will help you know what things are important for you to assess on a consistent basis in order to analyze the health of your finances. For example, here are a few KPIs many of her nonprofit clients assess:
- Cash in the bank. Come up with “cash in the bank” benchmarks detailing how much cash you have in the bank and how many day that equates to. Tosha’s tip: she likes to see 30 days of operating cash in bank. If it falls lower than 30 days, she knows it’s time to assess and adjust.
- Contract utilization. Are you utilizing your contracts fully? Are any being underutilized? Your accounting system needs to track these metrics so you can make financial decisions that will impact your bottom line and efficiencies of your spends.
- Budget-to-Actual. Have a pulse on high level “budget to actual” metrics. Are you on track to what you expected to spend each month? Did Program X take too many resources? Did it not use as much as you thought, resulting in needing to place that excess elsewhere?
There are so many intricacies and accounting metrics that need to be tracked in a cohesive way to help you gain a better understanding of your finances. It’s not as simple as output vs. input. There is no greater peace than knowing your finances are being kept with integrity and in such a way that you know it’s all being tracked and assessed for health and growth. If you’re looking for a professional nonprofit accountant to help you start getting your accounting processes in line, reach out to Tosha at thecharitycfo.com to request a meeting to find out if they’re a good fit for your organization.
To listen to this podcast conversation, click here.