Outsourced Accounting

Article Dean Dorton

Like any organization, nonprofits have operating expenses to consider—which means that nonprofit cash flow statements are a vital part of the organization’s financial considerations. 

Whether you’re at the helm of a small nonprofit or stepping into a financial role at an established 501(c)(3) organization, it’s important to familiarize yourself with these documents.

Let’s take a closer look at how nonprofits manage cash flows from operating. 

What is a nonprofit cash flow statement?

A nonprofit cash flow statement is a financial statement that shows the inflows and outflows of cash in a nonprofit organization over a specific period of time—usually a month, quarter, or year. The purpose of the cash flow statement is to provide information about the sources and uses of cash in the organization.

The cash flow statement usually includes three sections: 

  • Operating activities show the cash inflows and outflows from the organization’s normal business operations, such as revenue from donations, grants, and fundraising events, as well as expenses such as salaries, rent, and program expenses.
  • Investing activities show cash flow related to the organization’s investment activities, such as the purchase or sale of assets.
  • Financing activities show cash flow related to the nonprofit’s financing activities, such as the receipt or payment of loans.

Together, these three sections provide a comprehensive view of the day-to-day financial activities of the organization. Depicted on a nonprofit cash flow statement, they allow leadership and stakeholders to understand how effective they are in managing financial resources.

What’s the difference between a P/L report and a cash flow statement?

A Profit and Loss (P/L) report, called a Statement of Activities for nonprofits, and a cash flow statement are two important financial statements businesses use to track financial performance. The key difference between the two is that a P/L report shows the profitability of a business over a period of time, while a cash flow statement shows the flow of cash over the same period. 

The importance of nonprofit cash flow statements

Beyond its use as a financial guidance tool, a nonprofit cash flow statement also serves a wide variety of other critical functions. Some of the important uses for this financial document include:

  • Providing insight into the organization’s financial health. The cash flow statement provides information that can help determine whether the organization has enough cash to cover its expenses and determine its overall financial health.
  • Helping with short- and long-term budgeting. Creating accurate budgets is critical for nonprofits. Cash flow statements can be used to forecast future inflows and outflows, and to identify potential cash crunches before they become real.
  • Facilitating better decision-making. Financial leaders at nonprofits often rely on the cash flow statement to determine whether the organization has enough cash to invest in new programs or initiatives, as well as which activities may be a burden on the organization.
  • Increasing an organization’s transparency. Transparency and accountability are critical for the success of nonprofit organizations. By making their cash flow information available to stakeholders, they can demonstrate their financial responsibility.
  • Providing information for financing activities. nonprofit organizations may need to borrow money or attract investors to support their operations. Cash flow statements offer valuable information about the organization’s ability to repay debts responsibly.

How to prepare a nonprofit statement of cash flows

If you’re in a position to prepare financial documents for a nonprofit organization, you’ll be happy to know that the cash flow statement is among the simplest to compile. Many bookkeeping and accounting software platforms can generate them automatically; however, it’s worth understanding the process step by step:

  1. Change in net assets: Start by determining the organization’s change in net assets for the reporting period (month, quarter, year). This information is recorded on the nonprofit’s Statement of Activities.
    • Additions and subtractions to cash: Identify all cash changes by their impact on associated asset and liability accounts.
  2. Cash from investing activities: Look at any transactions related to the organization’s investing activities, such as the purchase or sale of assets. Calculate the net result from those activities.
  3. Cash from financing activities: Finally, tally the sum of the organization’s financing activities, such as the receipt or payment of loans. 
  4. Ending balance: Add the net cash from operating, investing, and financing activities to the beginning cash balance to determine the ending cash balance for the reporting period.

Cash flow is critical for nonprofits

Like commercial businesses, nonprofit organizations have overhead and operating expenses to contend with. Yet, they don’t typically focus on selling goods or services as a means to cover those expenses. Instead, they rely on the generosity of donors to help them make ends meet. Behind the scenes, healthy cash flow management keeps the mission alive. 

On the surface, a nonprofit cash flow statement is a representation of the inflows and outflows of cash; however, that cash flow tells a story. It’s important to understand what to look for when reviewing these statements—it could make all the difference when it comes to the responsible financial management of the organization. 

Learn how Dean Dorton can help your nonprofit organization manage its financial statements.

Article Dean Dorton

Accounting & Financial Services Outsourcing Trends

As many as 80% of small businesses plan to outsource finance and accounting services in 2021. Whether to access specialized expertise, handle large-scale workloads, or facilitate growth, companies increasingly see outsourcing as a solution to every problem. The rapid growth of outsourcing is just one of many notable trends happening right now. Here are several more that reveal what accounting and financial outsourcing can add to a company:

  • On-Demand Expertise – The lines between outsourcing and consulting are starting to blur as firms take on more complex, customized accounting challenges. Having access to a deep bench of accounting experts gives a client access to all the resources they could ever need to answer any question or meet any deadline.
  • Turnover Security – Companies are using outsourcing in response to the talent shortage in accounting. When a company loses an accountant, finding a replacement isn’t fast or easy. Outsourcing fills in for that absent accountant, immediately and for however long is necessary, so that everything continues in stride.
  • Agility to Evolve – Outsourcing firms are helping companies respond to disruptive events like the pandemic and the turbulent economy. As accounting needs change – suddenly, unexpectedly, and in sweeping ways – outsourced accountants can adapt while in-house staff focus on the future of the business.
  • Real-Time Visibility – Having accurate, comprehensive, up-to-the minute insights matters for any business, but it takes work. Outsourcing firms are now doing that work and delivering top-quality data back to clients to make real-time visibility into financial performance a reality.
  • Tax Help – The leading outsourced accounting firms include tax prep and advisory among their core services. Clients don’t have to go elsewhere for tax help. And by relying on the same firm that handles some or all of their financials, they create synergy between tax prep and accounting.
  • Budgeting and Forecasting – Complex budgeting and forecasting are good examples of the expanded menu of services that today’s outsourcing firms offer. For companies without the time or resources to handle these critical yet complicated workloads on their own, outsourcing firms can put world-class accountants in charge of the effort.
  • Performance Dashboards – Dashboards collect key performance indicators (KPIs) in one place then update them in real-time so that decision-makers always have the best information at their disposal. In addition to everything else outsourcing firms are now doing, they can set up and maintain dashboards for clients eager to act based on insight rather than intuition.
  • Cloud Migration – Working out of the cloud looks more important than ever after the pandemic. Outsourcing firms make the migration easy by handling the technical, financial, and operational considerations all at once. This is the easy, reliable way to migrate.

Outsourcing can do almost anything for a business. Most importantly, it can do this: Free up decision makers to focus on operations and growth instead of accounting, aided by the best financial insights available. What could outsourcing add to your enterprise?

Follow the link below to learn more about Dean Dorton’s Accounting and Financial Outsourcing Services:

Learn more

Justin Hubbard, CPA, CGMA
Accounting and Financial Outsourcing Director
jhubbard@deandorton.com • 859.425.7604

Article Dean Dorton

The COVID-19 crisis of 2020 has impacted all industries. However, few industries have been impacted as severely as the healthcare industry.

Current Issues Healthcare Organizations Face

  • Emergency rooms furloughed employees due to low census levels, in the middle of a pandemic;
  • Thousands, if not millions of elective procedures could not be performed due to social distancing requirements;
  • Patient safety was threatened by supply chain issues and visitation policies;
  • Administrative duties within healthcare organizations have been moved to remote work environments;
  • Healthcare administrators wrestle with regulations that appear to change daily;
  • Finance teams struggle to stay informed on various government stimulus packages while trying to manage a precarious cash flow situation.

By the second half of 2020, most healthcare organizations had restructured operations to ensure patient safety, protect employee health, comply with regulations, and triaged key business functions to ensure adequate support. However, many are struggling to understand the financial health of their organization. Accounting and finance teams have been decimated by COVID-19.  Many organizations have struggled to understand their financial health for a while now, but the COVID-19 crisis has increased the risk of this lack of understanding to an uncomfortable degree. Providers and administrators are asking themselves “Are we profitable and if not, why?”

Regardless of the impact of COVID-19 on healthcare organizations, the one universal challenge in reaching a new normal is trying to gain visibility and transparency of information across the organization in order to better manage costs and link cost to outcomes and industry performance – without negatively impacting revenue and growth. One of the ways healthcare organizations can avoid over-investing in human and IT resources is to cost-effectively scale or outsource their IT systems, including their financial management systems.

As healthcare organizations strive to cost-effectively scale their business, cloud-based accounting solutions are being recognized as viable solutions. Small offices and mid-sized partnerships, practices with hundreds of specialists, plus laboratories, surgical and urgent care centers, and assisted living facilities are all looking for ways to increase revenues through faster and more accurate billing, reduce costs by automating manual processes, mitigate the risk of employee turnover or shortages, and make better, faster business decisions by gaining real-time visibility into operational and financial data. Outsourcing the accounting function can be the key to financial health and an efficient solution for the accounting and administrative cycle that is vital to success.

Get a free assessment of your organization’s financial functionsEBook: The Secret to Achieving Visibility, Control, & Efficiency in Healthcare

Article Dean Dorton

Since there is no one else in this room to have an opinion, I get to choose what I want to talk about.  I want to dive into a topic that is near and dear to my heart, which is accounting delivery models.  Historically, accounting has been done internally, within organizations.  The owner of a business may start off by creating invoices and paying bills from their kitchen table or the corner of the warehouse they operate out of.  After about 2 weeks of this, the business owner realizes they didn’t start their own business so they can become an accountant so their goal of growing the business to get rich becomes grow the business enough to justify paying someone to do the accounting.  Regardless of the situation, most often someone within the organization was doing the day to day accounting.  I call this the DIY (Do It Yourself) accounting delivery model.

Now, add cloud-based technology allowing multiple users to access an accounting system from any location.  Combine cloud-based technology with automation applications that reduce the number of key strokes needed to input data and drive workflow.  What we have today is an environment in which outsourcing the accounting functions becomes a viable delivery method, one that may enhance the value of the accounting function.

Before you say “I’m out, outsourcing is not for my group, let’s see what they are talking about on True Crime Obsessed (great podcast by the way)” let me ask you a few questions:

  1. Does turnover in your accounting department cause delays in your basic accounting function?
  2. Is your accounting software out of date or prone to crash?
  3. Have you outgrown your accounting software but don’t think you can afford a more robust system?
  4. Do you have good people in your accounting team, but they could be adding so much valuable to the organization if you could re-deploy them to something more meaningful than reconciling the bank accounts?
  5. Is your accounting process full of manual steps?
  6. Does the monthly closing process leave your team in tears?
  7. Are exporting data from your accounting system into excel in order to manipulate the data for the reports you need?
  8. Are you tracking non-financial data outside of your accounting system and building manual reports that combine the financial and non-financial data?
  9. Do you hate hiring accountants?
  10. Do you struggle to use financial statements to tell your organization’s story?
  11. Are you worried about fraud or theft and wish you had someone else to looking under the hood?

If you answered yes to any of these questions then outsourcing might be worth exploring.

Maybe you are thinking that your team could use some help, but you don’t like the idea of outsourcing the entire function.  Maybe you don’t want to risk losing a valuable employee by implementing a big change or maybe you just need someone to offer some guidance at a controller level.  Outsourcing models can be designed to facilitate this.  This is sometimes called co-sourcing.  Examples of co-sourcing might include:

  1. Using outsourced resources to enter invoices and reconciling cash to support the controller you have on staff
  2. Perhaps you use outsourced resources to supervise your clerical staff and to control the month end closing process for you
  3. Maybe you have strong clerical people and a steady controller, but need someone to think big picture about the accounting and finance function.  Maybe you partner with an outsourced CFO

The beauty of an outsourced deliver model is that it can be highly customizable.

Whether you know you want to outsource or would just like to discuss what options could look like for your organization (without any obligation), contact Justin Hubbard or Krista Nash to learn more.

More Information

Article Dean Dorton

Today’s controllers fulfill an increasingly strategic role in their organizations, creating higher levels of financial visibility to help drive growth and profitability. As the job of a controller evolves, so does their relationship with the financial organization. Specifically, modern CFOs need to collaborate with the controller to ensure that the organization gets the full benefit of the controller’s talents and knowledge. The CFO also needs to be certain that the controller’s office is operating efficiently and accurately.

To start a conversation around best practices, consider asking your controller these five questions:

1) How many manual journal entries are we making during the close? Too many manual journal entries delay a closing period—and can also be a leading symptom of deeper problems. They can conceal anomalies and errors that actually have broad, systemic roots. You may be plagued with various accounting processes—or a level of complexity that calls for revised standards. To optimize the closing process and reduce the incidence of manual journal entries, use audit difficulties and exceptions to identify areas needing policy definition, process improvement, and automation.

2) To minimize risk, have you reviewed compliance with local jurisdictions? The controller has a direct role in nearly every financial transaction, making it essential that they help to identify and minimize the company’s risk exposure. This is especially critical for growing companies, whose regulatory compliance risks steadily increase in magnitude and quantity over time. To help your controller steer your company clear of unnecessary risks, create a central review process to ensure the right controls are in place.

3) How long is it taking to close the books, and what might be causing delays? Controller efficiency is best measured by how quickly and accurately the team closes the books. Start with strong planning and preparation, such as handling all billing and expense issues prior to the period end. Automation is also essential—it provides the desired speed, efficiency, and accuracy without increasing staffing levels. A fast close enables the accounting and finance team to move beyond merely reporting results and into forward-looking activities that can shape future outcomes.

4) Why are we still using Excel spreadsheets? There are lots of reasons for the continued use of Microsoft Excel in corporate accounting—namely, familiarity or lack of experience with other tools. However, Excel has its limitations—such as its inherently breakable models, security issues, and lack of shareability—which means no company should rely on it as its financials backbone. However, it can be a valuable tool for specific, limited purposes.

5) Is it possible to integrate our financial information and operating metrics? Many financial systems can now accommodate analyses of operating metrics to create a richer, fuller picture of the business—enabling the controller to assume a role as the provider of financial visibility. Merging financial data and operational metrics could help your organization to:

    • Identify opportunities to maximize revenue and minimize expense.
    • Allow controllers to collaborate with other areas of the company to manage their functions in non-financial terms.
    • Establish the financial truth by ensuring everyone works from a single, merged reporting system.

Exploring the answers to these five questions with your controller will help create a stronger, more effective financial structure that will benefit your entire organization. And when supported by best-in-class financial management software from Sage Intacct, your controller—and your entire finance team—will better understand and control sources of financial risk, implement more efficient processes, and gain deeper insight into both the financial and operational metrics of the business.

Contact Dean Dorton for a free consultation today.

Article Dean Dorton

This blog was reposted from our partner, AvidXchange.

We all know that the accounts payable process isn’t a straight and narrow path. Several small steps can make a big difference when it comes to paying vendors on time—invoice entry, approvals, and handling different payment methods. These steps aren’t all that simple, especially with paper.

Paper is the reason for most problems plaguing finance departments. Common obstacles that stem from paper include hours of manual labor, errors, and fraud risks that could cost your business thousands of dollars. The time and money spent solving these problems are one of the many reasons why finance decision-makers are considering a paperless accounts payable process—AP automation solutions.

Currently, there’s a lot of buzz around finance departments transforming from paper to paperless accounts payable processes. They want to reduce the time spent on manual tasks and streamline the process without missing critical steps. Businesses want flexibility, visibility, and security when paying vendors, which just isn’t possible with paper.

If your finance staff is facing any of the typical payment problems, we have four simple solutions to ease the pain:

4 accounts payable problems and reasons to seek a paperless AC process

1) Your paper-based accounts payable process makes it impossible to improve long-term strategies and visibility.

Even though paper-based accounts payable processes and strategies may be working just fine for your finance department, they’re not the best. Storing invoices, receipts, and vendor information in a file cabinet makes it nearly impossible to predict financial problems or opportunities accurately. Chances are if you’re analyzing payment data with piles of paper and Excel files, there’s a high chance of errors and limited visibility into ineffective spend or vendor costs over time. Not to mention the amount of time spent analyzing information, rummaging through file cabinets, and looking for lost printed invoices and vendor records.

With a paperless accounts payable process, finance leaders have easy access to historical payment information and customized reports to make well-informed decisions without paper or manual labor. The AP staff has all information needed for audits, tax season, and month-end closing, all in one cloud-based SaaS. AP automation’s increased level of visibility helps finance leaders stay ahead of potential overspend based on payment history.

2) You’ve established poor vendor relationships thanks to problems with paper.

Let’s face it: vendors dread calling your accounts payable department to checking on invoices or payment statuses. The reality is, that they just want their payments on time. AP specialists waste hours combing through piles of paper to answer these emails and phone calls from vendors.

Paper-based accounts payable processes often lead to late payments. Late payments and lack of communication often lead to poor vendor relationships. From a supplier’s point of view, they’re counting on your business’ payments from their sales to avoid debt and effectively manage their budgets just like your business. With paper-based accounts payable processes, it’s nearly impossible to provide vendors with real-time updates and visibility into your finance department’s accounts payable process.

The best solution to keep the supplier happy is a paperless AP process. AP automation solutions allow companies to log in to the supplier portal to get real-time updates on each invoice and view payment history without phone calls and emails. Many AP automation solutions also have the option to pay vendors in batches when using electronic payments. There’s also less worry about managing different payment types. For example, the AvidPay Network handles the heavy lifting of contacting vendors to verify payment types to save your finance department time and money.

3) You’re stuck in the Stone Age of paying with paper checks.

Why are businesses still clinging to the Stone Age with paper checks? For most finance departments, it’s convenience and cost savings. However, organizations that use paper processes often have to rely on internal processes to double check for fraud, but that’s not enough. Finance departments that stick to paper run the risk of duplicate invoices which can lead to duplicate payments. Or even worse, they may mail a paper check to a scammer who sent a fake invoice.

4) Your finance department is spending more than expected on payment processing.

Most finance leaders don’t invest in AP automation solutions because they’re afraid that they won’t see a return on the investment. There’s the common misperception that AP automation solutions are for larger businesses that have high payment volume. So, naturally, these companies stick to paper-based accounts payable processes that don’t seem to cost as much money, but in fact, paper processes cost more. On average, companies are paying $22 to process a single paper invoice. According to Due.com, some companies are spending as much as $40. If your company handles at least 500 invoices per month, you may be spending as much as $11,000 to process your payables.

Paper checks also have high costs. According to PYMNTS.com, processing one check can cost your business almost $10. That doesn’t include manual labor costs and hours spent. Multiplying these costs by the number of payments received each month can add up quickly. On the other hand, AP automation solutions cut accounts payable costs by as much as 60 percent for many businesses.