Category

Budget

May 14
0

Budgeting During Leadership Transition – A Guide for Nonprofits

By | Accounting, Budget, Nonprofit | No Comments

There’s an old saying that the only constant in life is change. Changing leadership at a nonprofit organization can be a time of great opportunity. New leaders bring fresh ideas. However, this can mean shifting priorities and the budgets that accompany them.

Nonprofit financial leaders can help manage some of the uncertainty surrounding leadership changes through smart budgeting practices. These include stabilizing the financial position of essential operations, planning for transition costs, and maintaining flexibility.

Stabilizing Essential Operations

Nonprofit leaders establish organizational strategy and direction. From this basis, budgets and plans are made. When leadership changes, strategy can change too, which means new plans and budgets.

Because times of transition can be turbulent, it is important to bring stability to essential operations. This includes stabilizing core financial fundamentals. Ensure you have a strong cushion to cover operating expenses, such as rent, insurance, and salaries. Budgeting for emergencies is also important, as unforeseen expenses can occur during leadership changes.

One area to pay special attention to when building a stable financial core is new expenses. Try to avoid incurring new expenses during times of leadership changes. These may include adding new staff positions, launching new programs or services, or making major technology investments. Hold everything as steadily as you can until the new leader comes aboard and takes the helm.

Planning for Transition Costs

There’s more to planning transition costs than budgeting for a retirement or going-away party for the old CEO. Although it’s tempting to hurry the search team to find a new leader, it may take some time to find the best person to lead your nonprofit. During that time, an interim or fractional CEO may be required. This can be an unexpected transitional cost.

Another unanticipated transition cost may be search fees. Search fees may include the cost of an executive search firm or travel expenses for candidates who come to your office for in-person interviews. Budget for all anticipated expenses related to filling the leadership vacancy.

Lastly, don’t forget to conduct a compensation review for the leadership position. It may have been quite some time since you benchmarked the compensation for a nonprofit leader in your market and niche. After the benchmarking review, you may need to work with the human resources team to make the salary more competitive to attract the right candidate or adjust the benefits package. Either activity can lead to unexpected costs.

Maintaining Flexibility

Lastly, focus on maintaining flexibility. It’s easier said than done, right? Keeping an open mind and anticipating various scenarios can help you maintain a flexible budgeting approach.

We briefly touched on transitional financial planning—how the position may remain vacant for a while, requiring a fractional or interim CEO, or how a compensation benchmarking study may necessitate raising the salary or benefits package to attract a good candidate. These are great examples of maintaining flexibility during leadership transitions.

Other examples include watching for staff uneasiness with the transition. Staff loyal to the previous leader may be uncertain about their position with the newcomer. Consider how you might approach retention activities and incentives.

Donations may slip during times of transition too. Donors who liked the previous administration’s strategy may wonder if the new leader will do things the same way. They may withhold donations until they can see which direction the organization is headed. You may wish to proactively seek additional revenue sources or cut back on expenses until the transition is complete. This flexible approach also helps build that stable core that is essential to supporting an organization during times of transition.

Change Is Inevitable – Budget Stress Isn’t

Change may be inevitable, but budgetary stress shouldn’t be. A flexible, proactive approach to nonprofit budgeting, focusing on reducing expenses, holding off on new expenses, and planning for some financial uncertainty, is the best way to build a sound budget during the transition to new leadership.

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.

May 21
0

Why Your Nonprofit Needs a Financial Risk Assessment

By | Accounting, Accounting Software, Budget, Nonprofit | No Comments
person at desk with notebook, pen, and laptop and graphs showing high/low waves for risk assessment

A financial risk assessment is an annual audit of many areas of your organization’s financial preparedness and stability. Such an assessment looks at many areas of your company, including the overall management, human resources, facilities, finances, accounting, sales, information systems, and more. Here is why a financial risk assessment is vital for a healthy nonprofit.

The Purpose of a Financial Risk Assessment

Everything in life involves risk. That includes running a nonprofit. A financial risk assessment examines the current state of your business and identifies potential risks. It’s only after identifying risks that you can take action to address them.

You can conduct your own financial risk assessment; however, many find that obtaining outside assistance from their CPA, a nonprofit consultant, or another similar professional is helpful. Often, we are too close to our own business to see potential risks clearly. An outside perspective can cut through the familiarity of the everyday and see the gaps that we often miss.

Benefits of a Risk Assessment

A financial risk assessment provides many benefits to nonprofits by enhancing their overall operations and safeguarding their missions. It helps organizations identify potential risks, such as fraud or inefficiencies, ensuring that their funds and resources are managed effectively to achieve their goals. By addressing these vulnerabilities early, nonprofits can streamline their operations and make better use of their resources.

Conducting regular financial risk assessments builds trust among donors, board members, and the community. It demonstrates a commitment to sound financial practices, which can attract and retain long-term supporters. Additionally, these assessments ensure that nonprofits comply with legal and regulatory requirements, minimizing the risk of penalties or reputational damage.

Finally, a financial risk assessment equips nonprofits to navigate uncertainties like economic shifts or changes in funding sources. By preparing for these challenges, organizations can maintain their focus on their mission and continue to deliver meaningful impact.

Costs of Avoiding a Risk Assessment

Perhaps you’re thinking, “This is all well and good, but we’re so busy! We just don’t have time to stop and do a comprehensive assessment.”

Do you have time to address a big risk, like a cyber-attack? What about a trip and fall accident because you haven’t assessed the risk of a worn carpet in your reception area?

It’s like owning a car—do you ignore the knock in the engine until the car breaks down, or do you take it to a mechanic to get it checked out?

The costs of avoiding a financial risk assessment may include:

  • Mistakes in the balance sheet, such as liabilities not properly recorded or other mistakes that can muddy the financial picture, can be time-consuming to fix later.
  • Failing to conduct a physical inventory on a regular basis can lead to adjustments, negative equity, and other problems.
  • Missing or poor internal controls can lead to employee theft or mismanaged funds.

There are many more areas where failing to conduct a risk assessment can lead to problems. As you can see, it’s always better to prevent problems than to spend time later fixing them.

Other Benefits of a Risk Assessment

Other than avoiding scary problems, there are many more benefits derived from conducting a comprehensive risk assessment. The assessment can help you build your strategy, setting the stage for thoughtful decisions about where to invest for risk mitigation and where to step out in growth. It may also uncover untapped potential and lead to productive discussions about how your organization can expand.

Start Now

Don’t wait until the end of the year planning to conduct your assessment. You can start now. Pick one department or area of the company, such as finance or operations, and come up with a list of questions. Ask yourself what is working, what isn’t working, and what may be improved.

This is where working with an outside consultant can help. We’re happy to discuss your plan of action and the next steps for financial risk assessment and management.

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.

Feb 18
0

Budgets Evolve, and That’s Okay

By | Accounting, Accounting Software, Budget, Nonprofit | No Comments
Budgets Evolve, and That’s Okay

It’s a strange but true statement: your budget will never be “right.” You’ll be over budgeted on some items and under-resourced on others. Predicted income will exceed expectations, or there will be a shortfall. Unexpected expenses mount on specific projects.

And all of this is okay. Budgets evolve, and that’s not only okay, it’s also expected. Here’s why budgeting should be viewed more as a business planning activity and less a “once and done” accounting function. Thinking strategically about budgeting and planning and working all year long with your budget as a business tool, will help your organization thrive.

Budgeting as a Business Planning Activity

Many people think of budgets as the purview of the accounting department. The best budgeting process, however, is collaborative. Program managers should work with the accounting team to analyze their budgets. The ensuing discussion around budget items should encourage reflection and analysis about program activities, focusing on those that support the organization’s mission and margin-generating activities.

For example, as you plan the annual budget, you may find that some program activities performed below expectations. Reviewing the data together, accounting and program leaders can decide if continuing the program makes sense or whether it should be changed in some way. Sitting down together to review the budget opens the door to important conversations that can lead to significant improvements. This reflection process is a healthy part of business planning and goes beyond financial planning.

Best Practices for Nonprofit Budgets

Budgets are “living documents.” This means that they grow and change over time. A good budgeting process allows for flexibility. Part of sound budgeting practices is regularly checking budgets and updating them based on the available data.

Here are some best practices for checking and updating nonprofit budgets:

  1. Regular Review: Schedule regular budget reviews with program areas, such as monthly or quarterly reviews, to compare actual income and expenses against the budget. This helps identify any discrepancies and allows for timely adjustments.
  2. Adjust for Changes: Be flexible and ready to amend the budget as needed. Financial positions can change throughout the year, so it’s important to update the budget to reflect new realities.
  3. Track Cash Flow: Monitor cash flow closely to ensure the organization has enough funds to cover expenses. This includes tracking both incoming and outgoing cash.
  4. Use Technology: Utilize budgeting software and tools to streamline the process and improve accuracy. These tools can help automate calculations and provide real-time data.
  5. Document Assumptions: Clearly document the assumptions made during the budgeting process. This helps with understanding the basis of the budget and makes it easier to explain any variances.
  6. Plan for Contingencies: Include contingency plans in the budget to account for unexpected expenses or changes in funding. This ensures the organization is prepared for any financial surprises.
  7. Communicate Regularly: Keep open lines of communication with all stakeholders about the budget status and any changes. Transparency helps build trust and ensures everyone is on the same page.

By following these best practices, nonprofits can maintain a healthy financial position and effectively manage their resources.

As you can see, budgets aren’t once and done. They evolve. Frequent feedback, adjustments, and discussions allow for much-needed planning and flexibility that helps an organization succeed.

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.

Jun 06
0

New Law Raises DOL Minimum Salary Threshold for Overtime Pay – Are You Ready?

By | Accounting, Budget, Government, Nonprofit, Overtime | No Comments
binders labeled salary and overtime, with printout, calculator, and magnifying glass, Minimum Salary Threshold for Overtime Pay

Salaried employees are typically exempt from overtime, but a new law from the U.S. Department of Labor slated to become effective on July 1, 2024, may change that for up to one million people. What is this law and how might it impact your business? We’ll look at the law, what it means for the average business, and what you need to do now to prepare for it when it becomes effective.

What Is the DOL Minimum Salary Threshold Raise?

The DOL released a final rule on April 23, 2024, which raises the minimum salary threshold for the standard exemption applied to executive, administrative, professional, and outside sales employees, as well as certain computer employees, exempting them from minimum wage and overtime protections under the Fair Labor Standards Act (FLSA). These exemptions are typically called “white collar” exemptions meaning that so-called white-collar jobs—usually salaried office jobs—do not normally qualify for overtime. The new law may change some of that.

FLSA covers organizations with two or more employees earning $500,000 or more in annual sales. It also includes education institutions and hospitals caring for the sick, mentally ill, or elderly. If your organization falls into these categories, you must adhere to the overtime laws and the new rollout of the minimum salary threshold increase.

What Are the New Salary Thresholds?

The threshold for the EAP exemption’s minimum salary will increase to $844 per week (approximately $43,888 per year) from its current level of $684 per week (approximately $35,568 per year) on July 1, 2024, and then to $1,128 per week (approximately $58,656 per year) on Jan. 1, 2025

The second increase marks the threshold nearly $3,600 more than the previous Department of Labor proposed overtime rule back in 2023. Increases for highly compensated employees’ (HCE) salary are also more than originally proposed.

The new minimum annual compensation threshold for Highly Compensated Employees increases to $132,964 on July 1, 2024, and then to $151,164 on Jan. 1, 2025

How Can Your Organization Prepare for the Change?

Now is the time to take steps to prepare for the new law to take effect. While several states have filed lawsuits to block the law from going into effect, it is uncertain whether this will happen. You should proceed as if the law will indeed be effective on July 1, 2024, and plan accordingly.

First, consider your options. You can adjust an employee’s salary or reclassify them as nonexempt. However, changing classification from exempt to nonexempt may create additional considerations such as how compensation and bonuses impact overtime pay owed to a reclassified employee.

Additionally, changing employees from exempt to nonexempt increases your record-keeping responsibilities. Do you have the right nonprofit accounting software to handle this step? If not, is it time to upgrade or seek new software?

Consider also how reclassifying employees may impact your budget and employee morale. From a budgetary standpoint, you may incur higher overtime expenses, which can strain money you may have set aside to pay bonuses. From an employee morale perspective, benefits tied to compensation may change. Some employees may view the change as a demotion. You may need to think through how you will roll this out. Speak with your accounting and human resources team and consider all options.

Another area of consideration is around workplace policies, such as travel, or equipment use. If you currently restrict nonexempt workers from travel or from using equipment while traveling, you may need to revise your policies if you choose to reclassify people from exempt to nonexempt.

Work with Your Accounting Consultant 

There are many, many considerations when this law goes into effect. Each organization is different, with complex needs and considerations. For our current clients, we encourage you to speak with our team to determine the wisest course of action with minimal disruption to your organization and its finances while fully complying with the law.

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.