Monthly Archives

October 2024

Oct 16
0

Empower Your Mission: Why a Robust Budget Is the Lifeline of Every Nonprofit

By | Accounting, Nonprofit | No Comments
person at laptop with screen overlay of budgeting numbers and graphs

In the ever-evolving landscape of nonprofit organizations, a strong and well-structured budget is not just a financial plan—it’s the backbone of your mission. A robust budget empowers nonprofits to allocate resources effectively, plan for the future, and ensure sustainability. Without a solid financial foundation, even the most passionate and impactful initiatives can falter. Here’s why a comprehensive budget is essential for nonprofits to thrive and continue making a difference in the communities they serve.

A Budget Is More Than Numbers – It’s a Strategic Plan

A budget is more than just a financial document; it is a strategic plan that guides a nonprofit organization towards its goals. By outlining expected revenues and expenditures, a budget helps nonprofits prioritize their initiatives, allocate resources efficiently, and make informed decisions. It serves as a roadmap, providing a clear vision of where the organization is headed and how it plans to get there. With a well-crafted budget, nonprofits can anticipate challenges, seize opportunities, and ensure that every dollar spent aligns with their mission and long-term objectives. In essence, a budget transforms an organization’s vision into actionable steps, paving the way for sustainable growth and impact.

Using Budgets for Planning

Financial sustainability can only be achieved with a well-prepared and continuously monitored budget. Conversely, a poorly developed budget can diminish mission-focused activities and opportunities and threaten long-term success.

Typically, the budgeting process should begin three months before the end of the fiscal year to ensure the budget is approved before the start of the fiscal year. It is important that each of the following budget process best practices are used to develop the budget.

  • Review the current financial status, including income and expenses. Compare it to the existing budget and forecast the remainder of the year. Then, analyze it for variances. Explore the reasons behind any variances.
  • Establish a timeline to review, discuss, and examine revisions. Three months before the current budget runs out should be adequate time.
  • Identify goals for each program area, whether it is increasing revenues, decreasing expenses, or both. Then, collaborate with the program leaders on these goals.
  • Draft a sample expense budget to develop strategic, organizational, and program goals. It is important to break expenses into variable expenses, fixed expenses, incremental expenses, indirect and in-kind expenses.
  • Do the same with income. Draft a sample income budget.
  • Include a variance (typically 5%).
  • Review the budget drafts with each department and make any adjustments as needed.
  • Let the Finance Committee do the final deep dive and polishing of the budget. Present it to the Board and make any requested changes.

You’ll need to assign people to monitor the budget, as well as strategic touch points throughout the year to ensure the budget is on track. Using a nonprofit accounting platform can help make this task easier for all.

Zero-Based or Activity Budgeting?

There are many approaches to budgeting. Some organizations base it on activity, some on the prior year’s budgets.

Many have adopted zero-based budgeting. Zero-based budgeting is a budgeting method where every expense must be justified for each new period, starting from a “zero base.” Unlike traditional budgeting, which adjusts previous budgets incrementally, zero-based budgeting requires a fresh evaluation of all expenses, ensuring that only essential and efficient costs are included. This approach helps organizations optimize their spending by aligning it with current needs and strategic goals, rather than relying on historical expenditures.

Budgets: A Strategic Plan for the Upcoming Fiscal Year

Your budget is more than numbers. It can be a strategic plan to guide the organization’s activities and focus for the new year. Building a strong and realistic budget provides an excellent blueprint for the upcoming fiscal year. It provides clarity and communicates expectations to all stakeholders. Engaging everyone in the process early, and reviewing budgets together often, can also help keep everyone on track.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Oct 09
0

From Number Cruncher to Strategic Leader: How Modern CFOs Are Mastering Cross-Functional Roles

By | Accounting, Corporate Culture, Nonprofit | No Comments
person at desk crunching numbers between printouts and laptop

Although the duties and responsibilities of the CFO and the finance team may appear to be the same on paper, in reality, they are rapidly evolving. Today’s finance team works across multiple disciplines and functional areas to provide cross-functional support for human resources, IT, sales, operations, and customer care centers. The reality is that financial leaders need to better understand a broad range of business disciplines to provide expert leadership and guidance for their organizations.

Why the Role of the CFO and Finance Is Changing

A McKinsey survey demonstrates the broad range of roles reporting to the CFO. These roles include everything from procurement to investor relations. More important than the breadth of the roles is the fact that the depth is changing too; it’s not just reporting lines but interaction that is increasing. The CFO must now be conversant in everything from the organization’s digital strategy to how it procures supplies.

This change reflects the growing awareness that in business, nothing occurs in isolation. Many factors contribute to an organization’s ability to make margin. Increasing margins may mean increasing gross revenues (while holding expenses steady) or it may mean decreasing expenses (while maintaining gross revenues). To help improve the organization’s revenues, for example, the CFO and finance team must understand the nuances of each service and program area, what is delivered, to whom, and the prices charged. All of this used to be the sole domain of either the program manager, the marketing manager, or both, but today, the finance team must understand it as well, to add to the conversation and provide guidance.

Cross-Functional Finance: How Finance Interacts with Each Department

Here’s why finance has become the cross-functional “go to” team—and why the CFO and finance leaders must work across teams with each department. Here are three examples:

  • Human Resources: Salaries and benefits are often the biggest expense on the balance sheet. Therefore, it makes sense to consult with finance when discussing staffing. Understanding both current and future plans, as well as the skill sets needed now and in the future, are all conversations that finance should be part of from the start.
  • IT (Technology): IT used to make all the decisions about the platforms the company needs but when choosing a nonprofit accounting platform, finance should be actively involved in the process, along with representatives from other departments. Additionally, the potential for financial data to be exposed in a data breach is a shared concern of both finance and IT. The two departments must work closely together on IT plans, continuity planning, cyber security defenses, and more.
  • Sales and Marketing: The finance team can help sales and marketing assess the profitability of donor campaigns. They can also provide added insight into pricing, budget allocation, and other areas.

Other departments, including customer service and operations, can also benefit from finance’s inputs.

Preparing Your Cross Functional Finance Team

To prepare your department to become a cross-functional finance team, you’ll need to make some adjustments. During the hiring process, look for applicants who may have cross-discipline skills. Such experience indicates an applicant with a flexible approach to finance, one who may already have ideas about how to collaborate with their counterparts in other departments.

Next, pave the way by making time for higher-level, collaborative work. This means using the automations built into your current accounting and finance platform (or looking for new software that includes these features). AI offers excellent potential to automate many tasks, including preparing first drafts of financial statements and audit reports. Automatic routing of messages, invoicing, approval notifications, and similar repetitive tasks can also save considerable time. Work with your team to determine which routine tasks take up the most time and which can be automated. This will free up time for more cross-functional collaboration.

Although there’s no one-size-fits all approach to the role of the finance team, CFOs and financial department personnel form an important leadership group within an organization. Their knowledge of financial data, combined with business acumen, can guide an organization into new areas of growth and potential.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Oct 02
0

Revolutionizing Finance: How AI is Transforming Reporting and Audits

By | Accounting, Nonprofit | No Comments
person using laptop with overlay screen of virtual financial reports

AI is transforming all areas of business. One area where it holds great promise is in financial reporting and audits. AI brings several strengths to financial reporting and audits, including the ability to review and synthesize vast amounts of data. It is also quite good at pattern recognition and can spot anomalies in financial data. Instead of the CFO gathering reports and data manually, data can be ingested into an AI-enabled system to help prepare for audits. Here, we take a look at the state of how AI is transforming reporting and audits, and how it may impact your organization.

The State of AI Adoption in Finance and Accounting

The latest McKinsey report on AI adoption states that 65% of respondents regularly use GenAI. This represents an increase over the response to the 2023 survey. A KPMG report focused solely on AI and financial reporting and audits clarifies further how financial leaders plan to use AI. Among those responding to the KPMG report, 100% stated they plan to use GenAI for financial reporting in the next three years as compared to 71% who answered yes to the same question in 2023. Clearly, there is growing acceptance of the use of AI in finance. Financial leaders are seeing the benefits and exploring its many uses.

According to the KPMG report, financial leaders see the following benefits and uses of AI in reports and audits. (Note: respondents could choose more than one answer.)

  1. Real-time insights into risks, fraud, and control weaknesses: AI can continuously monitor financial data, identifying anomalies and potential issues as they arise, which 70% of surveyed leaders found valuable.
  2. Lower costs: Automating repetitive tasks and improving efficiency helps reduce operational costs, a benefit noted by 58% of respondents.
  3. Ability to predict trends and impacts: AI’s predictive analytics can forecast financial trends and potential impacts, aiding strategic planning. This was highlighted by 57% of those surveyed.
  4. Increased data accuracy and reliability: AI enhances the accuracy and reliability of financial data by minimizing human error and ensuring consistent data processing, appreciated by 57% of participants.
  5. Better data-enabled decisions: With more accurate and timely data, decision-making processes improve, benefiting 53% of the surveyed leaders.

Getting Started with AI in Financial Reporting

Given these benefits, how can you get started with using AI in financial reporting?

There are many, many considerations.

  1. Assess AI readiness: Is your organization ready for AI? It’s more than a matter of updating your accounting and finance software so that the new features are enabled. It’s ensuring that your organization has a sound data policy in place, including security, privacy, governance, and standards. Smart use of AI begins with good data policies. AI requires copious amounts of clean data to work well. How is your data? If you aren’t sure, speak with a consultant who specializes in nonprofit accounting to better understand your organization’s data, how it may be used, and what safeguards may be needed to utilize it in an AI platform.
  2. Don’t reinvent the wheel: Before searching for an AI-enabled financial tool, explore the platforms you are already using. Most, if not all, software vendors have added AI features over the past year or are planning them for upcoming releases. Check with your software consultant or vendor to learn what’s available within your current platform before buying a new one. You may be able to use the one you have quite well for the tasks you need automated with AI.
  3. Create AI policies for your organization: AI consists of public AI platforms (Microsoft CoPilot, ChatGPT, and others) as well as private AI (those used within a specifically licensed, proprietary platform, such as a finance or accounting platform.) When using publicly available tools like the search function in Microsoft Copilot or ChatGPT, be aware that anything you put into these tools becomes part of its immense data set. Nothing proprietary or confidential, like financial statements, reports, or personal information, should ever be added to such tools. You may wish to add an AI use policy to your existing policy manual and add a session on AI use to any cyber security training you run for your team now.

Adding AI to financial and auditing reports and processes can improve efficiency. It can enhance accuracy, spot problems, and provide draft documents faster than you may be able to do on your own. However, as with anything produced using AI, outputs must be reviewed and fact-checked by humans before sharing it with coworkers, boards, directors, constituents, and others.

AI is a powerful tool that offers excellent potential. When used correctly, it can transform your financial and audit reporting.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.