Category

Nonprofit

Expert Tips for Accounting Automation

By | Accounting, Nonprofit | No Comments
person using tablet with accounting software to demonstrate accounting automation

Accounting or finance automation is a term you will see in many places today. Automation does indeed save time and improve efficiency. However, good automation workflows begin with a sound process. Here, we map out the steps to take before you automate your finance processes. If you take the time now to refine your processes before you set up automations, you’ll gain more benefits from automation.

Good Finance Automation Begins with Simple, Effective Processes

Even before discovering which automations are possible in your current finance or accounting software, ask yourself why you want to automate a process. Consider automation when a process:

  • Takes considerable time and effort
  • Reoccurs at regular intervals
  • Follows a logical sequence

Knowing why you want to automate a process starts with such questions. And it’s not just about what you want in your role with the organization—ask what other team members need too. Consider gathering your team and brainstorming ideas around which processes can be automated. Is there one task that takes up a great deal of time for someone? Is it something they must do regularly?

When you have your list of tasks, move on to the next step.

Map the Process on Paper Before Automating Through Software

It is important to map out the process and workflow from start to finish on paper before programming it in your finance system. This ensures that you’ve considered every step and haven’t missed anything. It also gives you time to review the process and make sure it is still accurate and needed. Sometimes, organizations continue to enact processes because “that’s the way it’s always been done.” Forcing yourself to sit down alone or with the team and map it out on paper gives you another opportunity to review the process, make refinements, and reduce the steps, if possible.

List the Processes to Automate in Order of Priority

Next, take the list of processes you’ve created and order them according to priority. Which process, if automated, saves the most time? These should be your priority automations.

Work with the Technology You Have

Now it is time to set up automations. Start with the system that you have. Most finance and accounting systems have at least some form of automation built in. You may need to ask a consultant or find information on the vendor’s website to set up the automations you require.

Do You Need Custom Programming or Replatforming?

What if the current platform you’re using doesn’t offer the automations you need? You have several choices. Exploring custom programming may be a good step if you aren’t ready to replatform or choose new software. While custom programming isn’t cheap, it may be the right solution for your needs if you can quantify the return on investment or ROI.

Some finance platforms offer additional components, upgrades, or add-ons that may provide the tools you need. Work with your technology consultant or software vendor to explore other alternatives. Many companies have invested in automation within their finance or accounting platforms over the past several years, especially as AI has become prevalent. It may be easier for your organization or more cost-effective to upgrade your current platform than to hire someone to build custom code or to switch to a new platform. The last alternative is to move to an entirely different system, also called replatforming. Such a move should not be undertaken lightly. However, if you find that your current accounting and finance software isn’t supporting your organization’s growth or needs, speak with us, and let’s discuss the options.

Automate Processes the Right Way

Automation in your finance and accounting workflow can indeed save a great deal of time and effort. Ensuring that the basic process is sound, identifying the ones that give you the most bang for your buck, and utilizing the software you already have is the right way to proceed with automating financial processes.

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.

A Guide to Nonprofit Budgeting: Navigating the Essentials

By | Accounting, Accounting Software, Budget, Nonprofit | No Comments
A Guide to Nonprofit Budgeting, people at desk or table with tablet, spreadsheets, and ledger

Budgets provide the financial foundation upon which an organization must run all its activities. Without a budget, it is almost impossible to manage cash flow. Budgets provide structure, organization, and financial stability that helps you with strategic planning.

Although it’s possible to run a company or a nonprofit solely off cash flow without budgeting for specific activities, it makes planning for steady growth and new activities very difficult. Budgets serve as both guidelines and tools, helping organizations plan for activities, manage cash flow, and view expenses. Here, we’ll share with you the main types of budgets used by nonprofits, as well as discuss each section of the budget in greater detail. Lastly, we’ll talk about ways to manage nonprofit budgeting to make the process go smoothly.

Key Components of Nonprofit Budgets: Income (Revenue) and Expenses

We can break nonprofit budgets into two simple categories: income and expenses. Income refers to money coming into the organization, and expenses refers to the money the organization spends. All financial activities can be grouped under each category. The difference between income and expenses results in a surplus when the difference is positive (more income than expenses) or a loss or deficit (when expenses exceed income).

Source of Income

Your organization probably has several sources of income. Some of these income sources are unique to the nonprofit world. Typical sources of income include donations, program fees, membership fees, sales of products or services, grants, and special events.

Because nonprofits invest their income into their programs and services to fulfill their mission, they must track carefully where revenues come from and how they are spent. Sometimes, nonprofit income is tied to specific programs or activities. For example, donors may indicate they wish their donation to be used only for a specific program or added to the general operating fund. If the donation is intended for a specific program, the organization must ensure that they budget the funds or add them to the fund for that specific activity.

A good example is a nonprofit animal shelter. Many have “spay and neuter funds,” which are set up to pay for low-cost or free spay/neuter programs to address the surplus of homeless animals in the local community. If donors give to that program, the shelter must honor the donor’s wishes and ensure that the money is spent on that program. They cannot reapportion the funds for the general budget to pay for advertising, for example, or for salaries and wages; funds raised for a specific purpose must go to fulfill that purpose.

Another example of how nonprofit revenues must be tracked differently from for-profit income streams is grants. Grants are often given for highly specific purposes or to fund specific programs. Granting organizations often require careful accounting of how the funds are spent.

Importance of Diversifying Income

Although we spoke at length about two sources of income—donations and grants—nonprofits receive income from many places. They may sell products or charge a fee for services. They may receive donations of goods. Each of these income categories requires careful tracking and recording of the income received.

As in the for-profit world, smart nonprofits diversify their income as much as possible. It’s never a good idea to put all your eggs in one basket or rely solely on one channel for income. A nonprofit that relies on a single large grant to fund multiple program activities may be in deep trouble if the grant doesn’t continue, for example. A diverse income stream of donations, fees for services or goods, grants, and other sources of income ensures that even if trouble hits one category, it won’t jeopardize the entire budget.

Expenses

Expenses refers to everything your organization must spend money on to keep running: operational costs (overhead, utilities, telephone and internet expenses, professional fees, insurance), rents or licenses, fixed assets such as furniture and computers, marketing and sales, salary, and benefits. You must track all your expenses to ensure that you have a clear and detailed view of how your organization spends its money.

Once you track expenses, it becomes clear which categories are consuming the largest share of the budget. You can then take steps to either minimize this spend or manage it prudently. There are many areas where expenses can be cut without compromising the quality of the services you deliver. For example, you may be able to cut back on insurance expenses by shopping for and comparing different policies and coverages. Or you may find that hiring remote employees helps you keep rent costs low because you don’t need as large an office building. These are just examples of how expenses can be managed to keep them low.

The Most Common Types of Budgets Used by Nonprofits

There are many ways in which you can create a budget. If your organization has a budget in place, you may use that as a starting point each year and adjust income and expenses based on projections. You may also find that a new approach to budgeting is helpful.

The three most common types of budgets used by nonprofits include:

  1. Program-Based Budgeting: This approach is widely used by nonprofits as it aligns budget allocations directly with the organization’s programs and initiatives. It allows for clear tracking of resources allocated to each program, making it easier to assess the effectiveness and impact of those programs.
  2. Zero-Based Budgeting (ZBB): While not as prevalent as program-based budgeting, ZBB is still commonly used by nonprofits, especially those seeking to ensure maximum efficiency and accountability in resource allocation. ZBB encourages a thorough review of all expenses, promoting cost-conscious decision-making throughout the organization. Zero-based budgets start at zero each year, with budgets built from scratch. Each expense and income must be estimated from scratch based on current conditions.
  3. Outcomes-Based Budgeting: Nonprofits are increasingly adopting outcome-based budgeting to demonstrate the impact of their activities and investments. By linking budget allocations to desired outcomes or impacts, organizations can better prioritize resources and measure their effectiveness in achieving their mission.

Ready, Set, Budget! The Budgeting Process

Creating a good budget takes time. Leave at least several weeks to build your budget and, if you need to gain approval from your board or managers, time for review, feedback, revision, and final approval.

Depending on the type of budget you are building, there are several ways to begin the process. You’ll need to understand all the categories you have to account for in the income and expense areas. Gather the necessary information: previous years’ income statements and cash flows, sources of revenues, and the like, as well as expenses.

Determine a reasonable percent by which you think you can increase both income and expenses. It’s natural to hope for the best, but it’s better to conservatively estimate increased income. If you plan to increase income, will you need to spend more on specific activities, such as marketing and donor relationships, to achieve your goals? All of these must be considered as part of your strategic plan as well as the budgeting process.

Your organization’s accountant or bookkeeper is instrumental in the budgeting process. Schedule time to review income and expenses together. Then, connect with staff as needed to gather additional input.

A budget is a living document. Like a good strategic plan or marketing plan, adjustments should be made to it as the year progresses (it’s not a once-and-done activity). Schedule periodic budget reviews and make necessary adjustments to income projections or expenses as you need to ensure an end-of-year surplus that can be invested back into the organization’s mission. A quarterly review may be sufficient. Some organizations conduct budget reviews monthly, others quarterly or twice a year. At a minimum, an annual budget review and budgeting cycle are necessary for a healthy financial picture.

Tools to Make Budgeting Easier

There are several types of accounting software that can make nonprofit budgeting easier. Spreadsheets are frequently used but have several drawbacks. They must be manually updated and can grow to be quite complex depending on the number of programs you’re managing. They also lack good reporting functions.

Many small business software packages seem like they would be a good step up, but these also have several drawbacks. While they can automate many tasks and produce good reports like balance statements, cash flows, and similar reports, they may require extensive customization to track income and expenses by program, or track donation information. They are not built for the unique requirements of nonprofit accounting.

Nonprofit accounting software is built specifically for nonprofit budgeting. There are packages for nonprofits and government accounting, so you start with a system designed with your specific income and expense needs in mind. Some offer cloud or browser-based versions, which make it easy for remote employees and auditors to log into the system to perform the work.

Welter Consulting

Whether you are new to nonprofit budgeting or highly experienced at it, if you need assistance choosing your budgeting method, selecting nonprofit accounting software, or moving from spreadsheets or another software to a new nonprofit-specific accounting platform, contact Welter Consulting. We are happy to help.

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.

Navigating GenAI: Essential Considerations for Nonprofit Boards

By | Nonprofit, Technology | No Comments
person using computer keyboard with AI overlay

Nonprofit boards must consider multiple aspects of their organizations, from finance to operations. One new area of consideration is generative AI or GenAI. With the breakthrough technology now taking firm hold in the minds of businesspeople everywhere, Boards need to make decisions now to ensure that the platform is used appropriately and ethically in the nonprofit environment.

Here, we have put together a series of considerations based on a McKinsey document by Frithjof Lund and expanded upon by our own insights. What do you think? Drop us a note or a comment and let us know.

5 GenAI Questions Every Nonprofit Board Should Ask

Depending on what you have read, seen, or experienced with GenAI, you may view it as a valuable addition to your technology stack or a troubling security risk. Both views are valid. GenAI is new, and it does indeed provide some enhancements to various tasks. It is especially good at improving productivity and efficiency. However, it also comes with some risks, especially to secure, private, or confidential information shared with it.

Here are five considerations for your nonprofit board to review and discuss.

  1. Do we have a GenAI policy in place for employees and volunteers?

Given how new GenAI is, the answer is “probably not.” However, it is essential to clarify the organization’s position on when, how, and why GenAI may be used and by whom.

Consider the following as part of your GenAI policy:

  • When do we think it is acceptable to use GenAI, and for what types of projects? For example, is it okay to feed a published piece of content, such as an article, into GenAI and ask it to summarize it? Is it okay for our staff to use GenAI to outline a presentation but not okay to ask it to write an article?
  • How can it be used? Be clear about the circumstances in which you think GenAI is acceptable and when it is not.
  • Clarify what may be shared with common GenAI platforms. Many executives and security experts have expressed concern about the potential of proprietary information leaks from unwary GenAI users. Any information ingested by a GenAI platform becomes part of its memory or part of the data from which it may draw future outputs for anyone using it. Sharing confidential or proprietary information with it could lead to an information leak that puts an organization at risk.
  1. How might GenAI impact our organization?

The board must consider the impact that GenAI can make on all areas of the organization: marketing, finance, operations, and human resources. There are many proven use cases now available for the usage of AI in each of these functional areas of an organization, but it is up to Boards to decide where or how it may be utilized in each.

  1. When should we begin using GenAI?

If you’re not already using it (and some of your employees probably are already), then don’t wait. Create your GenAI policy. After study and discussion, choose an area for a pilot program. For example, consider the accounting software already in use at your organization. Does the software vendor provide an AI-based tool with it? Is it being used effectively? How might it be used to automate existing processes or improve efficiency?

A pilot project with one department is a low-risk way to test the waters. It helps you make inroads and test concepts without a heavy investment and will help you assess the results quickly too.

  1. Who will be responsible for this moving forward?

Another vital question that Boards must address is who in the organization will be responsible for GenAI policies and use moving forward. It may—or may not—be the IT department. A representative group, comprised of members from each department, may be a good way to begin to ensure that the potential of this emerging technology is considered from every possible angle.

  1. How will GenAI impact our industry?

Any new technology is a disruptor, and GenAI has the potential to be a huge disruptor in all industry segments. The question isn’t whether but how it will impact my specific nonprofit and the area in which we work. Consider researching this topic further and bringing it back to the forefront periodically for review by your board and organizational leaders.

Stay Ahead of the Curve

With the field of GenAI changing rapidly, keeping abreast of trends and changes, and incorporating those that can give your organization a competitive edge is vital. Your board can lead the charge, ensuring that this new tool becomes a useful adjunct to your existing software rather than a distraction.

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.

Your Nonprofit Audit Checklist

By | Audit, Nonprofit | No Comments
person pointing to computer monitor with two others sitting in front of computer monitors

Audits provide the transparency that donors and members need. An audit builds trust, which leads to developing these relationships. It also ensures to a nonprofit board, directors, and staff that their accounting and finances are being handled professionally.

However, audits can be stressful and time-consuming for all involved. To ensure that your audit goes smoothly, we’ve prepared this audit checklist. You can print it out and use it to get the people, processes, and items ready for your next audit.

Pre-Audit

  • Prepare for the Audit

Ensure that you have set up access to the accounting program for your auditors and that their permissions enable them to do their job. Gather relevant records and update the accounting system. If you have paper-based records, some document scanners and system tools (such as those with MIP Fund Accounting) enable you to scan paper records into the system where they are uploaded.

  • Reconcile Accounts

Reconcile bank, credit card, and other financial accounts. Choose a cutoff date and make sure that everything is in the system by that date.

  • Check Restricted and Unrestricted Net Assets and Activities

Using your accounting system, check restricted and unrestricted net assets and activities.

  • Review Grant Reports

Ensure that all grant information has been entered into the system. Enter activities and costs to the appropriate grant lines and funds.

  • View the Accounting System

Review the entire accounting system. Run reports and check figures to ensure there are no surprise findings in the audit. You may not catch every error, but you can prevent wasted time by fixing simple mistakes before the auditors begin their work.

  • Communicate with Your Team

Alert your team that an audit is coming and share the dates with them so they can prepare. Make sure you have space assigned to the auditors if they are coming on-site and that they have the appropriate access to the systems and files they need. Also, be sure to share the information with the Board or Audit Committee that an audit is forthcoming.

  • Review Variances

If you find any variances in the accounts, sit down with your finance team and discuss them so you have a clear explanation for the auditors.

The Audit

  • Meet with the Auditors

If this is the first time your organization is conducting an audit, plan to sit with the auditors and go through the information with them to familiarize them with your organization, its accounting and finance structure, grants, and so forth.

  • Clarify Any Questions

If you aren’t sure what the auditors are asking for, ask clarifying questions. Minimize back and forth with the auditors by providing them with complete access to the required information.

  • Ensure Full Support

Be sure to let your team know it is fine to reschedule meetings to take time to work with the auditors as needed. They should feel free to set aside other projects to meet with the auditors.

  • Trust the Auditors

You’ve hired an auditing firm for a reason. Presumably, you have done your due diligence and researched the auditing firm thoroughly so you can trust their professionalism and judgment and let them do their work.

Post-Audit

  • Check-In

Check in with your auditors to ensure that everything is underway and that they aren’t waiting for more information. Provide assistance and support, if needed, to help them complete their task. Be sure to let them know of any deadlines, such as upcoming board meetings or publication deadlines, which are waiting for their work.

  • Communicate Updates

Communicate updates on the audit status to your team, the board, finance committees, and anyone else who may be involved in the work. Keep them apprised of the audit progress as well as any requests from your auditors for further information.

  • Present the Results

Present the audit results in a clear, concise, and honest manner. Prepare for the presentation by reviewing the audit findings and discussing any outstanding questions with the auditors. You may wish to have the auditor there while presenting to your board to ensure they can answer questions directly. If so, ask your auditors well in advance of any upcoming meetings so they have time to schedule and prepare too.

  • Review Internal Controls, Policies, and Processes

This is an opportune moment to review internal controls. Do you have adequate internal controls in place, or do they need to be updated? If you do update the internal controls, check and ensure that your Policy Manual is also updated.

And finally, how did the audit process go? Did you feel that the process went smoothly, or does it need adjustment? Make notes and take steps now to prepare for your next audit by adjusting any areas of the process to remove roadblocks.

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.