867e49 2c31d7e1a29149f293bff383214479ae mv2 d 3264 2448 s 4 2 scaled

An Open Letter of Gratitude to Our Clients and Friends

by with No Comment Announcements

It seems like gratitude is the hot new thing. There are gratitude journals prompting us to write down what we’re grateful for on a daily basis, and psychology even says that the expression of gratitude is associated with increased energy, optimism, and empathy.

While it may be cliche to express my deep and sincere gratitude for everything in my business this month, I’m going to do so anyway!

THANK YOU to the 100 Degrees Consulting client family for trusting us to dig into your numbers, prepare budgets, analyze financial reports, create forecasts, and ultimately help you make more informed decisions for your organization.

Each and every one of the leaders we work with is driven by an important purpose, whether it be providing health education to teenagers around the US, providing coaching to disadvantaged and foster youth, tackling unemployment in East Africa, or providing high-schoolers the opportunity to experience another culture by traveling abroad. There are so many stories of the impact our clients are having in their communities around the globe and we are so grateful to have just a small part in that.

867e49_2c31d7e1a29149f293bff383214479ae-mv2_d_3264_2448_s_4_2

Whenever I get off the phone with a client, I’m inspired to serve them at the highest level so that they can serve their communities the same way. I’m motivated to learn more and improve our processes so they get the most out of our relationship. One of our core values is passion and I hope our clients know how much we genuinely care about their work.

THANK YOU to the Master Your Nonprofit Numbers students. We had an amazing group of beta users and our first official round of students who’ve experienced each module, used our actionable templates, and provided feedback to help make the experience even better for our next round of students. If you haven’t taken the course, send me a quick message and I’ll give you an exclusive discount to register today!

867e49_bcaacecc3cc34423965d5f19658573bd-mv2

THANK YOU to my mentors and business buddies I’ve met along the way. Not everyone understands the entrepreneurial journey, the ups and downs and major growing pains that we experience along the way, but I’ve found a tribe of people who do and I’m incredibly grateful for that. I’ve had SO many out-of-my-comfort-zone experiences this year (many of which I hope to never repeat!) and I think my business may have folded multiple times without the support of these people. (Do you have your own tribe of support people? I am pulling together a group of high-impact leaders and I’d love for you to join us. Send me a note and let’s talk!)

867e49_7b7c349d67354c47a331aa833776f95e-mv2_d_3459_2301_s_2

THANK YOU to the 100 Degrees Consulting team. Without this lovely tribe of women across the US, we wouldn’t be able to serve as many clients as we do or make any of the back end of the business work (like posting this blog, for example!).

867e49_73d7982035d147b29b3f1d7c8ef6a478-mv2_d_3024_4032_s_4_2

With that, I am looking forward to another year of building 100 Degrees Consulting to serve our purpose-driven leaders at the highest level we can, pushing each client towards our vision of not needing us anymore! Just like nonprofits often tout that their ultimate goal is to go out of business (because that would inherently mean we’ve eliminated extreme poverty, for example), our goal is for our clients outgrow the need for a part-time CFO.

This coming year we will continue to work together to set up your systems and infrastructure for growth, strategically analyze your finances to ensure sustainability, and you will be scalable. With a solid foundation that we create together, I sincerely hope that each of our clients will be financially sustainable and I’m grateful for the opportunity to make that happen.

What are you grateful for this month?

 

d71efebb1b9f4205a7067ed5984c3e1c

Five Steps to Building Nonprofit Financial Sustainability

by with No Comment BudgetFeatured BlogFinancial ManagementNonprofit

You’ve heard the statistic that half of all new businesses fail within the first five years, right? While I haven’t seen the same statistic about nonprofits, I’d venture a guess that it’s a similar number. In fact, the Nonprofit Times released a study in early 2018 that claimed “most charities are teetering on financial peril”.

Financial peril. Intense words to sit with.

d71efebb1b9f4205a7067ed5984c3e1c

So let’s think about that. Fifty percent of organizations, created to do more good in the world and serve those in need, are disappearing, dissolving, or closing up shop on a regular basis which means that whatever need they were created to fill is still out there. That means 8% of organizations are currently operating in the red and 30% are on the verge. We’re talking about spending more than you’re bringing in and not having enough cash to pay your bills.

The question is WHY? Perhaps there wasn’t a strong enough need for the product or service, leadership was not aligned on long-term planning, they weren’t able to bring in enough revenue to cover expenses, there were too many other organizations or companies doing the same thing, or they weren’t providing enough value to the people they were serving.

The bigger question is HOW do we avoid financial peril and ultimately failure? How do we ensure that nonprofit organizations, created to drive positive change in the world, are financially sustainable so they can continue helping and serving, year after year?

I’ve found a solution and I am thrilled to share it with you because it’s an industry game-changer.

But first, even if your organization manages to pay its bills and make payroll every month, do you have a long-term cash management plan? Do you have a reserve of 3-6 months of operating expenses? Do you lose sleep at night (or at least worry occasionally) that your nonprofit seems like a cash-sucking monster and your fundraising just can’t keep up?

I thought so. Keep reading.

As an entrepreneur who’s always interested in improving myself and my business, I recently devoured Profit First, a book by Mike Michalowicz. He has worked with hundreds of business owners who are slaves to their businesses, miserable, and not making any money. His solution to the problem of business owners not making any money is reframing the traditional thinking of Revenue – Expenses = Profit. Instead of taking whatever is left over as profit, he encourages business owners to take their profit first, so Revenue – Profit = Expenses. In other words, bring in the money, set aside a percentage for profit, and use the remainder for expenses.

You’ve probably heard of Parkinson’s Law: work expands so as to fill the time available for its completion. In other words, if you have 8 hours to complete a task, it will take you 8 hours. If you have 2 hours to complete the same task, it will take you 2 hours. The productivity gurus out there LOVE this (give yourselves deadlines, people!).

Well, Michalowicz says the same thing about money. If you have $20,000 to spend on operating expenses, you will spend $20,000. If you have $50,000, you will absolutely spend $50,000. This becomes a major problem when you don’t take your profit first, because you will have spent that $50,000 before you can set aside your profit, and before you know it, you have nothing left over.

Michalowicz then goes into exactly HOW to take your profit first and it involves setting up a bunch of bank accounts, reviewing your numbers twice a month, and separating your cash according to a handful of formulas he provides. According to his case studies, this method WORKS.

Now that you have the major premise of the book, it really makes logical sense, right?

But what about nonprofits? Nonprofits don’t make a profit. The Executive Director isn’t personally pocketing a portion of grants each month (at least I REALLY hope not!). And what about restricted funding? You can’t just hack off a portion of a grant and set it aside, right?

You’re right that nonprofits aren’t looking to make a profit, but what they ARE looking for is FINANCIAL SUSTAINABILITY. And the key to financial sustainability is a healthy cash reserve to support the organization in times of need, a positive net income, liquidity, and solvency. Way too many organizations are creating break even budgets, which means you bring in exactly the amount of money you need to cover expenses but, assuming that you manage to raise all those funds, there is absolutely nothing left over for future reserves because you’ve allocated every last penny to expenses.

Does this sound familiar?

Most nonprofit organizations I know are entrenched in the scarcity mindset and believe that there is a limited amount of resources out there and there’s a limit to how much they can fundraise. Now, to an extent this is true because there are only so many hours in a day, but we tend to place more limits on ourselves than we need to.

So if an organization’s expenses are $1M, we budget that we will raise $1M because that’s all we think we can do and all we think we’ll need. If you haven’t figured it out yet, this is incredibly short-sighted and essentially the equivalent of living paycheck-to-paycheck.

I am going to walk you through today how to implement the Profit First strategy into your nonprofit to build long-term financial sustainability.

Let’s dive in!

1. Budget strategy Most organizations get their budgeting process wrong. They try and figure out how much money they can realistically fundraise this year, then lay out their expenses that take every last penny. I encourage leaders to shift their thinking and budget your expenses FIRST. Tell the story in your budget of exactly what you need to accomplish your mission thoughtfully and efficiently without trying to scrape by on fumes.

Once you have your expenses for the year laid out (and don’t be afraid of the big, bad overhead monster!), back into your revenue number. How much money will you need to raise in order to meet these expenses and set aside some funds for a reserve? We’ll talk more about a reserve next.

To figure out your reserve goal, take your total annual expense budget and divide by 12. For example, if you annual expenses are $2M, your monthly expenses would be $166,667. For your first year of budgeting in this way, include a surplus of just 1%, so on this $2M expense budget, plan to fundraise $2,020,000. Make sense?

Watch our free masterclass to learn how to raise more money by sharing your financials.>>>

2. Reserve building Our goal in building a reserve is to have 3-6 months of operating expenses in the bank to support the organization in times of shortfall or emergency. In the example above, our monthly expenses were $166,667, so a 3-6 month reserve should be $500k – $1M.

This number may sound downright terrifying, and I agree, it’s a BIG goal especially for an organization that coasts into payroll every two weeks on fumes. But we’re not going to get there in a month or even two months. This is a long-term process that will lead to long-term sustainability.

Because you’ve made it this far reading through the post, I know you’re in it to win it, so the first step you need to take is to create a separate bank account. We simply cannot create a reserve with cash sitting in our checking account. This special reserve fund needs its very own account.

Now that the reserve fund has a place to live, we need to start putting money in there and we are going to start small. Each month, once the financials have been completed by your bookkeeper, accountant, or finance team, we are going to move 1% of our unrestricted income into the reserve account.

For example, let’s say in March you brought in $225,000 (great job!). $75,000 was a grant restricted to a particular program but the remaining $150,000 was unrestricted income, mostly from your annual event. Once you have closed the books for March, you’re going to move 1% of that $150k, or $1,500, into your reserve account. That’s it. $1,500.

And so on and so forth. On a $2M budget, this will eventually add up to $20,000 sitting in your reserve account. It’s not enough for an entire month of expenses YET, but maybe it’s enough to cover a whole payroll!

Once we’re in a good routine of setting aside 1% of our monthly unrestricted income, we can increase the percentage to build up that reserve just a little bit faster.

3. Clean up liabilities Just like we know that consumer debt is a major hindrance to personal financial freedom, having any long-term liabilities, or debts, on your nonprofit’s balance sheet will keep you from long-term financial sustainability too. Maybe you have a credit card but you haven’t been paying it in full on a monthly basis or perhaps your organization utilizes a line of credit from your bank.

We want to get this paid off so we can build our reserve and the path to financial health much quicker! Again we go back to the budget process. If we know we need to pay down a handful of liabilities, we need to bump up our fundraising goal for this year to cover those expenses.

Do you struggle to understand what your financials really mean? Watch our free masterclass >>>

4. Fundraising Now that I’ve told you a few times that we need to increase our fundraising, you’re probably wondering how the heck you’re going to raise even MORE money next year when you felt challenged and strapped this year!

First of all, I hear you and I salute you. I’m not a fundraiser but I’ve seen just how much work goes into raising every single dollar for your organization, and at the end of the day, I truly think it’s the hardest job at nonprofits. Go you! You are making a difference with the work you do every single day and it’s because of YOU that we can operate and create positive change in the world.

Now, I may not have all the answers, but I do have a few questions. Do you know the percentage of revenue that you bring in that’s unrestricted vs. temporarily restricted? Does the scale tip heavily in one direction or the other? Obviously, unrestricted funding is the magical unicorn that we all want to increase in our organization. What about grants? Are you sure to include a portion of administrative overhead to every single grant to cover your operating costs? It’s a missed opportunity if not!

5. Cash flow rhythm And finally, this is where the CFO in me comes in. As the leader of your organization, you need to get into a monthly rhythm with your accountant (or bookkeeper or CFO) to review the financials, transfer the 1% into your reserve account, and forecast your cash flow for the next 12 months.

Most organizations I know have an income statement and a balance sheet that they review on a monthly basis, but they skip one of the most important pieces of financial management that will literally make or break your organization.

Your cash flow forecast!

Your cash flow forecast is not a report that Quickbooks will spit out. It requires a bit of manual manipulation and a moderate level of Excel proficiency. This report and analysis will show you the inflows and outflows of cash into and out of your bank account, and your ending balance by month, so you can see exactly where cash gets tight and make decisions NOW to avoid a cash crunch LATER.

If you don’t have a cash flow forecast template, I have a simple one here that you can download and fill out for your organization. Then, your bookkeeper or accountant can update the actuals on a monthly basis and you can forecast out the remainder of the year, again, being easily able to spot problem months and make changes now.

So, there you have it. I’ve laid out five simple steps to building a reserve and financial sustainability at your organization, using the Profit First methodology. It’s a slow but consistent process that will eventually lead to a stronger balance sheet, more “profitable” financials, which will ultimately make you irresistible to funders. Funders will see that you take your resources seriously and are in the game for the long-haul. What donor doesn’t want to see that?

Do you feel stumped or overwhelmed by everything I’ve just laid out? I promise it’s not complicated, but it might be helpful to hop on a phone call to walk through it specifically to your organization. I’ve opened a handful of spots on my calendar here if you want to claim one so we can walk through this process together!

Now go build FINANCIAL SUSTAINABILITY!

 

09429dd9edacdde2321a0b30a57574bc

3 Lessons in Storytelling from a CFO

by with No Comment Featured BlogFinancial ManagementNonprofit
09429dd9edacdde2321a0b30a57574bc

Storytelling.

The latest buzzword in the business world. It makes sense in the marketing space, because I’d sure rather hear a story about how a product or service changed someone’s life than have a stranger shout BUY THIS! BUY THIS! BUY THIS! or DONATE! DONATE! DONATE! at me.

I just got back from the Nonprofit Storytelling Conference in Orlando where I led a session on Storytelling with Financials. I taught leaders how to use metrics within their basic financial statements to build a more robust story about their organization. Instead of saying, we are financially healthy and sustainable, why not calculate your months of cash on hand and revenue diversity to add color to that story?

(Quick side note: Do you want the financial metrics calculator I shared at the conference so you, too, can tell a more robust story about your organization? Grab it here!)

Today I want to share a few super practical tidbits I learned at the conference about storytelling that are applicable whether you’re a nonprofit leader looking to increase donations OR an entrepreneur looking to grow your business through various methods of communication.

Let’s do it!

  1. People only read the top and bottom of your letter, email, etc. So make your point quickly, tell them exactly what you want them to do, and repeat it in the bottom third of your communication too. You can use the body of your email to go into more detail for the few who may read it, but dive right into the point of your communication FAST. You have approximately four seconds to make a quick impression on your reader which will determine if they continue reading or not.
  2. Talk about outcomes and how they impact the reader. Don’t talk about yourself, your organization, or your experience all over your website, email, or letter. Frankly, people don’t care that you have a Master’s degree or that your organization has been around for 15 years. Talk about what people DO care about: THEMSELVES. Share how your services can help them and the outcomes they might experience.
  3. Your call to action must be super clear. When people are reading your website, email, or letter, what do you want them to do? Surely you don’t want them to read and delete, right? You may want them to donate, invest, partner, schedule a call, sign up, so TELL THEM. Make this call to action clear and consistent by including line breaks, making the font larger and bold, or adding a colorful button.

AND! I have one bonus tidbit for the nonprofits out there that comes straight from Lori Jacobwith of Ignited Fundraising and speaks to my finance heart.

Your money story must accompany all other stories so that people understand what it takes to do your work.

Let’s not pretend that we can operate on pennies. We need to make investments into our organizations and our people because that’s the only way we can make a greater impact on the communities we serve. And, we need to tell potential donors what it really costs to run our programs and cast a vision of the financial support we’ll need to be sustainable for the long-term.

My talk on Storytelling with Financials shared exactly how to tell your numbers story, so I was thrilled when Lori shared that gem.

Your Next Steps:

If you want to tell a better, more robust story about your organization, grab our financial metrics calculator here.

Better yet, if you’re ready to be a more confident leader who makes better decisions for your organization based on your financials, join us to Master Your Nonprofit Numbers! (And because you found us here on the 100DC website, use coupon code FRIEND35 for 35% off tuition!)

The Nonprofit Storytelling Conference was one of the best I’ve attended and I hope to return in 2019. Traveling to San Diego in October won’t be half bad either! Do you want to attend? Check it out here.

 

be2c632522231bd3c200e58f5dc4b4a4

Five Steps to Closing Your Monthly Books

by with No Comment BudgetFeatured BlogFinancial ManagementFinancial Statements

One question I ask when getting to know a new organization is: What does your monthly close process look like? I often get the answer: What’s that? [Insert wide-eyed emoji here].Many organizations I speak with don’t have an official monthly close process. They generally make sure all the month’s transactions are in the books and then run reports when it’s time for a board meeting. Or maybe they close the books on a quarterly basis instead, again, aligned with a board meeting or quarterly tax payments.While these aren’t necessary red flags, I know that we can do better! Monthly financial reports give you almost real time visibility into your organization, allowing you to be more agile and nimble, and make better decisions in the moment. You remain more organized by getting everything into the books immediately, rather than waiting to make entries months later and deal with messy numbers clean-up later. Finally, your books are going to be much more accurate with real time entry.This is why I work to implement a strong monthly close process for each organization I work with. You don’t need a big accounting team or several extra work days to make this happen.

be2c632522231bd3c200e58f5dc4b4a4

Check it out.

The basics of a monthly close process: Deadline: 10 business days after the end of the month (Example: November books are to be closed by December 14th – and then no changes to November are allowed) Process & Actions:

1. Enter all expenses

  • Petty cash
  • Credit card
  • Payroll
  • Depreciation
  • In-kind
  • Expense reports

2. Enter all revenue

  • Pledges
  • Cash receipts
  • Donations
  • Sales

3. Reconcile all cash accounts

    • Do your book balances tie with your bank statement balances?

4. Run your reports and analyze

      • Balance sheet – compare last year to this year, check for any major variances. What’s happening to cause the big variances?
      • Income statement – compare last year to this year, check for any major variances. What’s happening to cause the big variances?
      • Budget vs actual – compare month actuals vs. budget and YTD actuals vs. budget
      • General ledger – eyeball the details and make sure all looks correct
      • A/R Aging – what account receivable do you have outstanding? Make another effort to collect!
      • Cash flow – how much cash is in the bank? When does it look like cash is getting low?

5. Bonus points: Forecast the rest of the year

      • After you close each month and review your reports, create a spreadsheet and fill in your projections for cash, revenue, and expenses for each month for the rest of the year.
      • How far off are you from your budget? Do you see any major gaps in revenue or cash? Any months that are heavy in expenses? Why?
      • This exercise will do wonders to help you see around the corner for your business.

Okay, so there were a LOT of finance-y words above that might make you feel overwhelmed. Am I still speaking a foreign language? Does Excel make you cringe? No problem!

Reach out and I’ll walk you through getting your financial house in order, step by step. You WILL become the master of your financial domain!

cf028f85a6be4c119a6d6c6cfb2fb645 scaled

How to avoid the most common audit management letter comments

by with No Comment AuditFeatured BlogNonprofitProductivity

Grab this amazing guide to help avoid the most common management letter comments!

Remember back to elementary school when it was report card day, and you’d go rushing home, excited to show your parents your straight As? Maybe that was just me?

cf028f85a6be4c119a6d6c6cfb2fb645

I spent my school days as a complete over-achieving nerd, so I never really had the experience of bringing home a bad report card, but I imagine it didn’t feel great.

I have, on the other hand, been through many audits with different nonprofit organizations, and getting a laundry list of management letter comments feels like a bad report card.

You wish you would’ve worked harder or done things differently throughout the year, and it’s amazing how a few typed words on a letter (that goes to your board – yikes!) can motivate you to make whatever changes necessary.

So that you don’t get that icky bad report card feeling, I am going to share three common comments I’ve seen on many nonprofit organizations’ management letters. Make sure you’ve got these items cleaned up and in order:

1. Cash. The old adage “cash is king” rings true. Cash will be one of the first things the auditors look at and something they focus on, for good reason, because cash = risk.

How to nail it: Make sure all bank and petty cash balances tie to the reconciliations and the statements. Clean up any unreconciling items and make the appropriate journal entries to adjust, if necessary. Ensure there is a proper review and approval process for all bank reconciliations, and document it. Organize all backup documentation and bank statements.

2. Temporarily restricted net assets. I shared the basics of TRNA here and be advised that this will be the second thing the auditor looks at because it is all about donor intent and how we’re spending our money. We should be accounting for any type of restrictions on our funding so we know at any given time how much of our assets are temporarily restricted or unrestricted.

How to nail it: You must begin tracking restrictions long before the auditors arrive. Make sure you have the systems in place to categorize revenue and expenses by donor or award. Reconcile all TRNA, make sure it ties to the trial balance, and prepare all backup documentation for the auditor’s review – they will want to see the donor’s letter that shows exactly how they want their money spent.

3. Finance manual & policies. Every organization should have a finance manual that documents approval policies, procurement process, bank signatories, and much more. Oftentimes, an organization creates the manual then completely forgets about it. Same with conflict of interest policy – we create it, have everyone sign it once, and file it away, never to be seen again. The auditors want constant vigilance on policies and procedures.

How to nail it: Set a time to review your manuals and policies annually. Update as needed, get new staff to sign the appropriate policies, and add any new changes to your business. Did you expand to a new location or add another restricted bank account? Update that manual!

So there’s your head start to the audit. Make sure you tackle these items starting NOW to ensure they don’t end up as comments on your management letter.

Want more about audits?

Grab this amazing guide to everything you need to know about nonprofit audits.

db44510e341d45079690211a18860cb6

How to Create a Nonprofit Budget: The 6 most frequently asked questions

by with No Comment BudgetFeatured BlogNonprofit

If your fiscal year is the calendar year, October is the start of Q4 and when you should begin crafting your next year’s budget. Your budget is the road map to accomplishing your mission, growing your organization, and making a bigger impact, and without a detailed budget you will be lost.

To help you get started, I’ve put together a list of frequently asked questions about budgeting.

First, grab our Budget Checklist to ensure your organization is on track to make the biggest impact this year with a solid road-map!

db44510e341d45079690211a18860cb6

Big Picture Budget Questions:

  1. Do you have to have a break even budget? No! There is no nonprofit law that says you MUST have a break even budget or someone will revoke your 501(c)(3) status. It is generally understood (and the IRS says) that nonprofits exist to execute their mission, so your primary goal is not to generate massive profits that will pad someone’s pocket, but there are some important exceptions.
  2. Can you budget for a surplus? Yes! As nonprofits, we are not out to make a profit that will be put into shareholders’ or CEO’s pockets, but we can budget a surplus and oftentimes, we SHOULD budget for a surplus. If we need to build up cash reserves to have at least six months of expenses in the bank to ensure sustainability, or we want to start a new program next year and need the extra cash flow, these are great reasons to budget for a surplus. This is one area where nonprofits should operate more like businesses, so be prepared to share your goals and intentions with your board and stakeholders.
  3. Can you budget for a deficit? Again, yes, but with a few caveats. It’s certainly not a practice I would encourage on an annual basis if the reason you’re budgeting a deficit is simply because you are unable to bring in enough revenue to sustain your programs. That would be a cause for concern and a reason to take a deeper dive into the numbers. However, if you booked multi year revenue in one year and the expenses will catch up the following year, budgeting a deficit is perfectly okay. Again, do the analysis and ensure that your revenue stream is enough to keep the organization going without that bump in revenue, so you’re not just draining your cash.

Logistics of Preparing Your Budget:

  1. When should you complete your budget? Ideally, you would have the budget approved and input into the accounting software by the first day of your fiscal year, so you can immediately begin reporting budget versus actuals to ensure you’re staying on track. Start by getting input and buy-in from your team, then approval from the board. Here is a great timeline to get you started!
  2. How do you project next year’s budget? A great start is to look at this year’s actual numbers – both revenue and expenses – plus projections. So if you’re preparing your budget in October, look at January through September YTD numbers, PLUS October through December projections, to get a total estimate for the whole year. Then go from there. Maybe you know you will be expanding a program or adding a new staff member – add it in! Avoid contingency or “miscellaneous” line items and be as accurate and realistic as possible. Don’t forget to budget revenue too!
  3. How do I analyze my budget draft? Once you’ve compiled your first draft of the budget, it’s time to step back and give it a thorough once-over. Add in variance amounts and percentages so you can see your projected growth or budget decrease. Do you have the resources to grow by as much as you’ve projected? Maybe we scale back and progressively grow over multiple years instead.

Budgeting season is a great time to step back and review your numbers from 30,000 feet. Does your budget align with your strategic plan? Do you have a solid plan in place to accomplish your goals? Dig deep – do you really need to budget that much for office supplies?

I love budgeting, my friends, and you can too. You will be amazed at how a well-made road-map next year will transform your organization by attracting more dollars and enhancing your mission impact.

Ready to dive in? Grab your Budget Checklist here to ensure that you’re on track for next fiscal year!

#budget #CFO #nonprofit #finance #consultant #strategicplan #strategy #planning #budgeting #mission #projections

d9432c766b2f42f0adad25f6b48d00df scaled

Which accounting system is best? Quickbooks Online, Xero, and Freshbooks

by with No Comment Featured BlogResources

Can I be super honest with you right now?

It took me a solid six months of running my business to move from tracking revenue and expenses in Excel to Quickbooks Online. I am a CFO, for goodness’ sake! So I completely understand when newbie entrepreneurs tell me they don’t have an accounting system set up yet and ask me which software I recommend.

Ever since then, I’ve been rock solid with keeping up with my business accounting on a monthly basis and have tested a number of systems out there, both for myself and my clients.

d9432c766b2f42f0adad25f6b48d00df

Today I’m sharing the insider CFO’s view on three popular accounting systems, what works and what doesn’t, and how to choose what’s best for you. You will find a hundred articles out there from bookkeepers on what systems are best but as a CFO I’m interested in not only ease of entry, but analytics. (Remember the difference between a CFO and a bookkeeper?)

Why are analytics important, you ask? Don’t I just need to give my accountant some numbers at the end of the year so they can do my taxes?

Yes, BUT your numbers are more than just what you give to your CPA at tax time. Your financial statements hold a ton of insight into your business and help you make better decisions around growth (when and how you should grow), structure (can you afford to add team members), and more (SO MUCH MORE!), so those financials need to be sitting in the right house.

A CFO’s Accounting System Comparison:

Quickbooks Online

Why I love it: This is what I use for my own books and 90% of my clients. The interface and dashboard upon login is very helpful and visually appealing – it shows charts and graphs of your revenue, expenses, and net income at a glance.

867e49_c086728d4ed4460dabc6e5b0a6b9243d-mv2

It comes pre-populated with a chart of accounts and set-up is incredibly easy. You can invoice customers and receive ACH payments totally for free – yes, you get to KEEP all the money you earn! And most importantly for all non-accountants and accountants alike, it’s easy to use. Reporting is comprehensive – as a CFO, I NEED good reports. I need to play with different formats, time periods, and line items and Quickbooks lets me do it quickly and efficiently. Bonus points that Tech Soup Stock offers a DEEP discount for nonprofits!

What could be improved: Customer service is not great. Fortunately, I don’t need to call Intuit often, but when I have in the past, questions have taken ages to resolve. You may never need to call them if you have a CFO or accountant on board who has strong expertise in QBO so take that for what it’s worth.

Xero

Why I love it: It’s easy. Non-accountants will find the interface simple, uncluttered, and easy to use. There are a handful of tasks that business owners need and they’re all in Xero. Reports are simple enough for a small business owner to have a very clear understanding of their business. Customer service is excellent – I’ve submitted tickets for a few issues and they’ve gotten back to me via email quickly and persisted until the issue was fully resolved. Xero is also compatible with tons of other programs like Harvest, Stripe, and Expensify.

What could be improved: It’s TOO simple. Reporting is not as robust as a good leader NEEDS and some of the formatting is wonky. For example, if I want to see a comparative balance sheet for five years, it comes out from newest to oldest, so I have to look backwards to spot trends – super awkward. Xero doesn’t have the capacity to use classes in the same way that Quickbooks does so it’s probably not a good fit for organizations that need to segregate revenue and expenses into different buckets and run a separate P&L by department or program.

Freshbooks

Why I love it: Even the most creative, right-brained souls can get comfortable with their numbers in Freshbooks. If you own a business and have yet to digitize your financial records but are so, so terrified of getting started, Freshbooks is a good place to dip your toe in the water. They allow you to invoice your clients, get paid through the system, and track your time, and it’s all very easy.

What could be improved: Even with Freshbooks’ most recent update, their software is still not up to par with Quickbooks or Xero in terms of robust financial reporting for the savvy CEO (yes, I mean YOU!). I wouldn’t recommend Freshbooks if you have a growing or even slightly complicated business, or if you plan to hire a bookkeeper or CFO.

e086b3c0c10046cc9322196bb0d8336e

All Three Software Programs

  1. Subscription model with a monthly fee
  2. Cloud-based technology; access your books anywhere
  3. Integrations with other platforms

My Recommendation

If you hadn’t gathered above, I LOVE Quickbooks Online. It’s robust enough for me, a savvy CEO and Chief Financial Officer, but simple enough for even the business owner who HATES math. The price point is reasonable and their banking integrations make monthly bookkeeping take a matter of minutes rather than hours.

Highly recommend!

Becoming more confident in your numbers is direct result of which accounting system you have and how comfortable you are using it. And we all know that knowing your numbers is a critical role of any leader. Knowing your numbers will allow you to make decisions with confidence based on black and white numbers – there’s no greater clarity than a P&L!

It may not seem like much, but choosing your accounting system is a critical business decision so check out each of these three systems, then dive in!

 

867e49 713bf84764654a89b6d2eb95741f9945

How to Track Temp Restricted Net Assets

by with No Comment AuditFeatured BlogFinancial ManagementFinancial StatementsNonprofit

Temp restricted…what…what?

Today’s as good a day as any to tackle unrestricted vs. temporarily restricted income, both the bane and the lifeblood of so many nonprofits’ existence. Donor restrictions are often the first thing the auditors look at, and often the hardest thing to track accurately and appropriately. What it boils down to is:
  • How you’re tracking and spending your donor-restricted funds
  • How you’re using your cash and whether you have enough to cover all restricted future activity
  • Whether you’re dipping into one restricted pot to cover another while you wait for cash to come in. Or maybe you’re dipping into unrestricted cash to pay for your programs, meaning you’re not charging enough for services.
These are all very important things to consider – donor intent is the lifeblood of your organization! – and if you don’t have a solid system to properly track restricted activity, you may not know the answers to any of the above.

Let’s start with the basics.

Unrestricted income has no donor requirements. We can use it when we want, how we want, for operating expenses or program expenses. We are not necessarily obligated to report on those specific funds. You may also see it called: Without donor restrictions. Temporarily restricted income, on the other hand, is subject to donor imposed stipulations that will be met by the actions of the organization (i.e. programmatic accomplishments) and/or the passage of time. And contrary to what many nonprofit accountants probably wish, temporarily restricted income must be tracked separately from unrestricted income in the books and a schedule must be created offline. You may also see it called: With donor restrictions. When donor-imposed restrictions are met (like the time period has passed or we’ve spent all the money on the designated programs), temporarily restricted net assets are released and reclassified to unrestricted net assets.

How about a few examples?

The Jones Family Foundation gives $10,000 to your organization. Their pledge letter, dated June 1, 2023, states that their gift is for “operational support”. Unrestricted or temporarily restricted? Susan Jones gives $5,000 and the post-it attached to her check says “for 2024 adult education program”. Unrestricted or temporarily restricted? The World Educate Foundation pledges $100,000 over four years – $25,000 in 2023, 2024, 2025, and 2026 – but did not specify a project to fund. Unrestricted or temporarily restricted? Did you get all the answers right? Keep reading…

So now that we know what unrestricted and temp restricted funds are, how should we be tracking them? The answer is twofold.

First, the funds need to be marked in your accounting system as unrestricted or temp restricted. That can be accomplished by creating an account code for temp restricted income, or perhaps a class that identifies the type of revenue, then every single income entry must be tagged to the appropriate restriction. (Want to know how to set up your accounting system to track temp restricted net assets? Go to our post here >>>) The second method for tracking is offline in Excel. Your auditor will want to see a temp restricted net assets (TRNA) schedule that shows opening balance of temporarily restricted net assets by program, additions throughout the year, releases (aka how much you spent) throughout the year, and ending balance. This number will flow directly onto your balance sheet of your audited financials so it’s important the numbers tie!
867e49_713bf84764654a89b6d2eb95741f9945

To recap, here are the three steps you need to take to ensure you’re handling temporarily restricted income properly:

  1. Are you identifying income restrictions as they come in? Are you tracking in both the donor database and accounting system?
  2. Are you tagging/coding income restrictions into your books?
  3. Are you preparing a schedule outside of the accounting books on a regular basis (annually at the bare minimum) that shows opening balance, additions, releases, and ending balance, that then flows into our balance sheet?
If you can’t shout YES from the rooftops to any of these questions, then we should talk! We can help you get set up and on the right track so that you, your donors, and your auditors are confident that you’re both tracking and using your funds as intended. Hip hip hooray, TRNA!

Do you want to manage your restricted funding with clarity and ease but don’t know where to start? Are you ready to truly understand your restricted funding picture so you can fundraise more strategically?

Master-Class-NP-Laptop-1024x664

I created Master Your Restricted Funding to help you do just that! For $27, you get a Masterclass, a template to track all of your restricted grants and expenses, and I walk you through step-by-step on how to use it. This will help you revolutionize how you’re managing, analyzing, and spending your restricted funds!

Grab it for just $27 here!

More Resources:

Here’s a detailed step-by-step process to tracking temporarily restricted net assets in Quickbooks Online >>> Still feeling stuck? Set up a time to chat with us and see how we might be able to help >>>
12316e44d26649c69a935420b4dbb784

Three Ways to Be Transparent the RIGHT Way

by with No Comment Featured BlogMindsetNonprofit

The concept of “open book management” isn’t new, but it seems to be making a comeback recently due to years of corporate scandals and catastrophes. Investors and employees alike want to know who they’re supporting or working for and what’s going on behind the scenes, so CEOs are putting it all out there.

Allowing access to your most intimate (usually financial) data can be risky though. Often there are nuances or anomalies within the numbers that someone could easily misinterpret, causing even more distrust or concern than before they had that inner circle level access.

I’ve compiled a Transparency Tip Sheet to help you share your financials the RIGHT way. Download it here! >>

12316e44d26649c69a935420b4dbb784

As a CFO, I LOVE sharing the financials with anyone and everyone – your employees, your board, your leadership team – so I’m a huge proponent of financial transparency. However, transparency is easy to get wrong when you share too much information without explanation, so I NEED to share three ways to be transparent the RIGHT way.

1. Begin by sharing strategy and goals. In order to execute the strategy and accomplish the goals, your people need to be on board with what you’re doing. Better than just sharing your strategic plan with a top-down approach, why not get everyone involved in the creation process? Hold roundtables, create working groups, and let everyone be a participant in the process to ensure buy-in. Without this background and investment in the strategy, the numbers you share will mean little.

2. Add context to the numbers. Sure, it’s easy to run a P&L and balance sheet and drop them into an email, or just forward your board documents to the organization. But the financial dexterity and comprehension of your team surely varies and many people won’t have the first clue on how to interpret the numbers. If you’re going to share, you must take the extra step to explain the numbers. Whether you send a dashboard with concise and clear talking points, or host a webinar or meeting to walk through the actions behind the numbers, this step is crucial. Bonus – this is great professional development for your employees!

3. Don’t leave out the negative stuff. Of course we all want to share the good – people get excited when we exceed our revenue numbers or land that multi-million dollar grant. But what happens when we miss our targets or severely exceed our expense budget? If you want to build trust, you still have to share the bad and the ugly. Worried that it will freak your people out? See above – add context to those numbers! For example, you missed your target because a funder’s board meeting got rescheduled, NOT because your organization is folding – and your people need to know that critical fact.

Are you ready to put it all out there? Grab our Transparency Tip Sheet to help you determine the Who/What/Where/When of sharing your numbers.

#strategicplan #strategicplanning #transparency #financialmanagement #financialstatements #finance #CFO

867e49 ea492bc1556e4f67806a7f86da0361e1 mv2

Three Steps to Ensure Your Strategic Plan Stays Alive

by with No Comment Featured BlogStrategic Planning

Let me clarify: Old school strategic plans are dead. Picture a bunch of old guys in suits sitting in a room, developing a plan for the next five years, which gets printed and put into three ring binders, and promptly filed on dusty bookshelves. THAT is dead.

The new strategic plan is filled with energy, creativity, ideas, vibrancy, and life. The new strategic plan lives on in our daily work lives but isn’t cumbersome. Most importantly, the new strategic plan encourages and generates results.

There are a ton of very good resources out there that talk about SWOT analyses and environmental scans, which are very important, but I’ve found very few resources that help organizations through the actual process and format of a plan that will be useful and results-oriented. So today’s post is intended to add to the strategic planning conversation so you can walk away with a plan that changes the world.

Do you need a strategic plan template for your organization? Download one here!

867e49_ea492bc1556e4f67806a7f86da0361e1-mv2

So how, exactly, does an organization ensure they have the new strategic plan instead of the crusty, old, dead plan? Check out my three part process:

1. Center your plan around a vision​

a. A good strategic plan is centered around an organizational objective, or vision. The vision is big picture, long term, change the world type thinking. Typically, this is well-aligned to the mission of the organization and the team is on board with this – it’s likely one of the reasons they joined the organization!

b. I’ve found an ideal format for the strategic plan to be as follows:

i. A three year vision…

1. Followed by 3-5 big strategies to accomplish this vision…

a. Followed by 3-5 tactics under each strategy…

ii. Each tactic has a measurable Key Performance Indicator (KPI) associated with it too, because the only way to ensure a living, breathing plan is to measure your results periodically. (These tactics should be SMART!)

2. Promote organizational inclusion

a. In order to get results, your team needs to be bought into the plan, and the way to get buy-in is through an inclusive process. The leadership team should not be the only people contributing to the strategic vision of the organization. Create thoughtful, multi-disciplinary teams with the same objective: to create strategies, tactics, and KPIs to accomplish the organization’s mission and vision.

3. Execute your plan to keep it alive!

a. Once the plan is completed and approved by the powers that be (leadership, board), share it with the entire organization. This is the critical step that most organizations forget and where almost all strategic plans go to die. Everyone needs to be familiar with the plan in order to execute. One of my clients had their strategic plan blown up to poster size and hung on the wall – talk about a daily reminder!

b. Quarterly reviews are vital to making sure the plan stays alive. Since we built KPIs into the plan, we must update our actual results so we can compare where we thought we’d be to where we actually are. I’ve found that monthly reviews are too often for bigger picture goals, but annual reviews don’t allow us to change course along the way. Quarterly reviews are perfect to check in and adjust our actions to achieve maximum results.

c. Because our plan is meant to be long-term, we need to reassess annually and sometimes make changes. We’re not likely going to revamp the entire plan unless your mission makes a major pivot, but we may need to adjust a couple strategies along the way so I recommend an annual review. Do a deep dive into each strategy and tactic to make sure they still make sense.

Follow along with the steps above to ensure your strategic plan doesn’t go to three ring binder hell AND to help your organization create lasting change in the world!

Grab your strategic plan template here and create a plan filled with vibrancy, creativity, and LIFE!

#transparency #finance #guidestar #financialmanagement #incomestatement #balancesheet #nonprofitmanagement #trend #strategicplan #strategy #strategicplanning