Accounting and Financial Outsourcing

Article Dean Dorton

The world of accounting has witnessed a significant transformation in recent years, thanks to the advent of automation technologies. Gone are the days of manually crunching numbers and sifting through mountains of paperwork. Today, accounting departments are at the forefront of embracing automation to streamline their processes, improve accuracy, and enhance overall efficiency. Efforts to automate manual processes result in significant returns on investment, enhanced operational value through resource realignment and recovery of every management group’s most valuable asset, its time.

There are many benefits automation brings to the table. Here are a few to think about:

Automating Data Entry

One of the most time-consuming tasks in accounting is data entry and bookkeeping. Traditionally, accountants had to manually enter financial transactions into ledgers and accounting systems. However, with automation, this laborious process is now a thing of the past. Advanced accounting software can now automatically extract data from various sources, such as bank feeds, credit card feeds, vendor invoices and receipts, and enter them directly into the system. This not only saves time but also minimizes the risk of human errors, ensuring accurate financial records.

Streamlining Accounts Payable and Receivable

Automation has revolutionized the way accounting departments manage accounts payable and receivable. With automated systems in place, businesses can process invoices, send payment reminders, and even make payments automatically on predetermined dates. Similarly, when it comes to accounts receivable, automation helps in tracking and following up on pending payments, improving cash flow management and reducing the risk of late payments.

Enhancing Financial Reporting & Analysis

Generating financial reports and conducting in-depth analysis used to be a tedious and time-consuming process. However, with automation tools, accounting departments can now generate real-time reports with just a few clicks. These reports provide valuable insights into a company’s financial health, allowing decision-makers to make data-driven choices. Moreover, automation enables accountants to perform complex financial analysis quickly and accurately, thereby adding more value to their roles. Many accounting systems can automate notifications for budget variances and performance measurements that fall outside of acceptable parameters.

Managing Payroll & Employee Expenses

Payroll processing and managing employee expenses are critical functions in any organization. Automating these processes not only saves time but also reduces the chances of errors in calculating salaries, benefits, and reimbursements. Automation ensures compliance with tax regulations and labor laws, minimizing legal risks and penalties. Additionally, automation provides internal controls that can prevent the creation of fictitious employees or unauthorized adjustments to employee pay.

Ensuring Compliance & Security

Accounting departments deal with sensitive financial information, making security and compliance top priorities. Automation can strengthen security measures by restricting access to authorized personnel only. Moreover, automated systems can track changes made to financial records, leaving a digital trail for audit purposes. Compliance-related tasks, such as tax filings and financial reporting, can also be automated, reducing the chances of oversight and non-compliance.

Integration with Other Business Systems

Modern accounting automation tools can seamlessly integrate with other business systems such as Enterprise Resource Planning (ERP) software, Customer Relationship Management (CRM) tools, and Inventory Management systems. This integration ensures that financial data is consistent across the organization, facilitating better decision-making and strategic planning.

Transformation Through Automation

The transformation of accounting departments through automation is revolutionizing the way businesses handle their financial processes. By automating routine tasks, accountants can focus on more strategic and value-added activities, such as financial analysis and business forecasting. Additionally, automation ensures accuracy, reduces the risk of errors, enhances security, and facilitates compliance with regulatory requirements.

While the adoption of automation within accounting departments has been met with some resistance due to concerns about job displacement, it’s essential to recognize that automation complements human expertise rather than replacing it. Embracing automation allows accountants to elevate their roles and add greater value to the organization they serve. As technology continues to advance, accounting departments that embrace automation will undoubtedly continue to evolve and will lead the way into a more efficient and prosperous future.

Dean Dorton’s accounting and financial outsourcing and ERP software teams focus on leveraging cutting-edge technology to drive automation in the delivery of our services. Contact us today if you would like to learn more about our services and what automation could mean for your organization.

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

Turnover

Turnover is detrimental to an accounting function. Processes get lost.  Responsibilities get misplaced. Quality may suffer. You may have to slow down operations until you restock the accounting department. On top of this, turnover can sometimes spread through your organization like a virus!

Timing Delays

If your accounting function is struggling to deliver financial information in a timely manner, or if it is out of breath upon delivery, something may be amiss. Workflows should be in place to allow the accounting function to hum along smoothly. Consistent timing issues may be a symptom of inadequate workflow design that is preventing a smooth flow of information through the accounting function. Timing issues may also indicate that the accounting function is short-staffed or inappropriately staffed.

Outdated Technology

No one wants to spend money on accounting software. However, using an outdated accounting system puts the accounting function at risk. Outdated technology may lack modern features such as cloud functionality, updated security protocols, data analysis, multi-entity collaboration, and the list goes on and on. The older a system is, the higher the risk of operational deficiencies caused by turnover due to it being challenging to find individuals who can operate older systems. Training may not be available for older systems. Additionally, most of your employees are likely familiar with modern sleek applications found on smartphones or on consumer laptops. A clunky antiquated accounting system offers a poor user experience for your employees, thus impacting the likelihood of turnover.

The Scale of Your Business

Your accounting function may be about to break due to your success! Rapid growth, increasing transactional volume, and increased operations can put a strain on even the best accounting department. Many business owners and operators don’t make the investment to build a proper accounting function.  Many do it themselves, from their kitchen table or bedroom, sacrificing sleep to record checks and deposits. Many have a spouse or partner who serves as the accounting function. There is nothing wrong with any of these scenarios, but they often reach a point of failure. Failing to put the accounting function in its proper place may result in the faux accountant being distracted from their core responsibilities.

So…Is it Time to Consider an Upgrade?

If any of the situations above sound familiar it may be time to consider building or expanding an accounting function within your organization.  This may take the form of hiring your own accounting team or outsourcing all or a portion of the accounting function.  Outsourcing the accounting function has become a popular option for many companies as it provides access to professional accounting resources, modern accounting systems, and timely information without the headache of recruiting, training, and retaining accounting personnel internally.

Dean Dorton offers accounting services that can handle your business needs.  We have more than 35 professional accountants serving clients across multiple industries including nonprofits, equine, healthcare, family office, and privately held businesses.

Want to learn more about outsourcing your accounting? Contact Dean Dorton today.

Article Dean Dorton

As we noted in the first article of this series, a key role of the nonprofit finance committee is to assess the organization’s financial health and performance. The finance committee should review various financial data and ratios to accomplish this responsibility.

Financial Reports & Ratios to Consider

  • Financial Statements: Review the organization’s financial statements, including the statement of financial position (balance sheet), statement of activities (income statement), and statement of cash flows. These statements provide a comprehensive overview of the organization’s financial position, revenue, expenses, and cash flow.
  • Budget-to-Actual: Compare the actual financial results with the budgeted amounts. Analyze the variances to identify any significant deviations and investigate the reasons behind them. This helps assess the organization’s financial performance and ability to execute its plan.
  • Liquidity Ratios: Evaluate the organization’s ability to meet its short-term financial obligations. Key liquidity ratios include the current ratio (current assets divided by current liabilities) or the quick ratio (current assets excluding inventory divided by current liabilities). These ratios indicate the organization’s liquidity and ability to cover its immediate financial obligations. A result greater than 1 is desirable. If the organization does not accrual for payroll from month to month, be sure to add an estimate to the liabilities total for payroll-related responsibilities that exist at the date applicable to the calculation.
  • Viability Ratio: Measure the organization’s ability to assume new debt and cover its current obligations.  This ratio is calculated by dividing unrestricted net assets (excluding any funds restricted by the board for specific purpose) by long-term debt.  The generally accepted healthy minimum for this ratio is 1.25.
  • Fundraising Efficiency: Assess the organization’s fundraising effectiveness by analyzing fundraising ratios. For example, the cost per dollar raised (fundraising expenses divided by total funds raised) helps evaluate the efficiency of fundraising efforts. Similarly, the return on investment (ROI) for fundraising campaigns can provide insights into the effectiveness of specific fundraising initiatives.
  • Program Efficiency: Examine the ratio of program expenses to total expenses. This ratio indicates the percentage of funds allocated to program activities versus administrative and fundraising costs. A higher ratio suggests a more efficient allocation of resources toward the organization’s mission.
  • Debt Management: Evaluate the organization’s debt management by analyzing debt ratios. For example, the debt-to-equity ratio (total debt divided by total equity) helps assess the organization’s leverage and financial stability. A high debt ratio may indicate higher financial risk.
  • Revenue Composition: Review the organization’s revenue composition to assess its diversification and sustainability. Analyze the proportion of revenue from different sources, such as grants, donations, program fees, and investment income. A diversified revenue base reduces the organization’s reliance on a single source and enhances financial stability.
  • Reserve Levels: Assess the organization’s reserves and unrestricted net assets. Review the level of unrestricted net assets in relation to annual expenses or the organization’s operating budget. This helps evaluate the organization’s financial sustainability and ability to withstand unexpected financial challenges.  Having at least six months of average operating costs in an accessible reserve account is best practice.
  • Cash Flow Analysis: Evaluate the organization’s cash flow statements to assess its ability to generate and manage cash. Analyze the organization’s cash flow from operations, investing activities, and financing activities. This provides insights into the organization’s cash generation, capital investments, and financing activities. If cash availability has been an issue, consider preparing a cash flow projection for regular review and analysis by the committee as well.

It’s important for the finance committee to review these financial elements and ratios regularly to monitor the organization’s financial performance, identify areas for improvement, and make informed financial decisions. Presenting these items though a mix of numerical, narrative and chart formats can be effective in promoting understanding and attention to trends is critical to creating context.

For advisory assistance developing effective tools for your finance committee, please contact Kaydee Ruppert.

Article Dean Dorton

The finance committee plays a vital role in nonprofit organizations by providing oversight and guidance on financial matters. Its primary responsibility is to assist the organization’s governing board in fulfilling its fiduciary duties related to financial management.

The Finance Committee’s Roles in a Nonprofit Organization

  • Financial Planning and Budgeting: The finance committee helps develop the organization’s financial plans and budgets. It reviews and assesses the financial implications of strategic plans, program initiatives, and resource allocation. The committee collaborates with the executive director and finance staff to ensure that financial projections align with the organization’s goals and objectives.
  • Financial Reporting and Analysis: The committee reviews and monitors the organization’s financial statements, reports, and financial performance indicators. It ensures that accurate and timely financial information is provided to the board for decision-making. The committee also analyzes financial data, identifies trends, and makes recommendations to improve financial efficiency and sustainability.
  • Internal Controls and Risk Management: The finance committee oversees the establishment and monitoring of internal controls and financial policies. It helps mitigate financial risks by ensuring compliance with applicable laws, regulations, and accounting standards. The committee may also engage external auditors to conduct independent financial audits and reviews.
  • Fundraising and Revenue Generation: The committee collaborates with the development or fundraising team to provide financial expertise and strategic guidance. It assesses the financial feasibility of fundraising campaigns, evaluates revenue diversification strategies, and monitors the organization’s fundraising performance. The committee may also review grant proposals, major donor strategies, and sponsorship agreements.
  • Investment and Asset Management: If the nonprofit organization has investment funds or endowments, the finance committee may oversee the management and investment of these assets. It establishes investment policies, selects investment managers or advisors, and monitors investment performance. The committee ensures that the organization’s investment activities align with its mission, risk tolerance, and legal requirements.
  • Compliance and Legal Oversight: The finance committee ensures compliance with financial reporting requirements, tax regulations, and other legal obligations. It may review and approve financial policies, procedures, and contracts. The committee also stays informed about changes in financial regulations and recommends appropriate actions to maintain compliance.
  • Board Education and Governance: The finance committee may provide financial literacy training to board members to enhance their understanding of financial matters. It supports the board in making informed financial decisions and ensures that the organization follows good governance practices. The committee may also participate in board meetings, providing financial updates and recommendations.

Overall, the finance committee plays a critical role in ensuring the financial health, accountability, and sustainability of nonprofit organizations. Its expertise and oversight help maintain financial transparency, safeguard assets, and support the organization’s mission and strategic objectives.  Establishing a charter is a valuable step toward maintaining committee focus on its important role and tasks.

The Finance Committee Charter

Generally speaking, the charter for a finance committee serves as a guiding document that clarifies the committee’s purpose, authority, and responsibilities. It helps establish a framework for effective governance, accountability, and collaboration within the committee and the broader organization.  The charter should provide detail in the following areas and may also include an annual calendar of specific duties:

  • Clarity of Purpose: The charter clearly defines the purpose, roles, and responsibilities of the finance committee. It outlines the committee’s objectives, areas of focus, and authority, ensuring that all members have a shared understanding of their roles and expectations. This clarity helps the committee stay focused and aligned with the organization’s financial goals.
  • Governance and Accountability: The charter establishes the finance committee as a formal governance body within the organization. It outlines the committee’s reporting structure, decision-making processes, and accountability mechanisms. This ensures that the committee operates within the governance framework of the organization and is accountable to the board of directors.
  • Structure and Composition: The charter defines the structure and composition of the finance committee, including the number of members, qualifications, and appointment process. It helps ensure that the committee has the necessary expertise and diversity to effectively fulfill its responsibilities. The charter may also outline the term limits and rotation of committee members.
  • Authority and Scope: The charter clarifies the authority and scope of the finance committee’s activities. It outlines the areas of financial oversight, such as budgeting, financial reporting, internal controls, fundraising, and risk management. This helps prevent ambiguity and ensures that the committee has the necessary authority to carry out its responsibilities.
  • Decision-Making and Processes: The charter outlines the decision-making processes within the finance committee. It establishes how meetings are conducted, how agendas are set, and how recommendations are made. This ensures that decision-making within the committee is transparent, fair, and consistent.
  • Collaboration and Communication: The charter defines the committee’s relationship and collaboration with other stakeholders, such as the executive director, finance staff, board of directors, and other committees. It establishes communication channels and mechanisms for information sharing. This promotes effective collaboration and coordination between the finance committee and other parts of the organization.
  • Continuity and Succession Planning: The charter provides a framework for continuity and succession planning within the finance committee. It may outline procedures for the selection of committee chairs, rotation of leadership roles, and the transition of committee members. This helps ensure a smooth transition of responsibilities and knowledge transfer over time.

Each finance committee is unique to the culture of the organization it serves, but a transparent structure and accountability can go a long way to advancing the mission of the organization as whole.

For assistance in creating a charter or to address other pain points in your nonprofit organization, please contact Kaydee Ruppert.

Article Dean Dorton

Many people understand what an accounting function looks like, but they are unfamiliar with day-to-day operations within an outsourced accounting team. We are intentional about maintaining and building client relationships and balancing tasks throughout the day. A typical day in the life of an outsourced accounting team can be busy and hectic, but at Dean Dorton, we make sure each day is focused on giving our clients the information they need to run their organizations well.

Morning Routine

  • Our team members arrive at the office or log in remotely, depending on the setup.  All services are rendered in the cloud, providing the team and the client with access from anywhere.
  • The team reviews any urgent emails or messages received overnight from clients.  Thanks to cloud-based functionality, we are able to serve clients in different time zones, from around the globe.
  • Prioritize tasks based on deadlines and urgency.

Managing Financial Transactions

  • Process vendor invoices and purchase orders through an application such as BILL (Bill.com).
  • BILL provides a system to capture vendor invoices, allows our team members to code the invoice to the appropriate general ledger account(s), and move the invoice to the appropriate level of approval within the client’s organization, while in sync with the accounting system, which is Sage Intacct.
  • Once vendor invoices are approved, BILL is used to prepare a physical check or initiate electronic payment to the vendor.
  • The outsourced accounting team records daily receipts received from clients or customers into Sage Intacct.  This provides our clients with real-time information.
  • Reconcile bank statements, credit card transactions, and other financial documents.
  • Ensure cloud-based dashboards are updated with current information for real-time use by management.

Accounts Receivable & Accounts Payable

  • Follow up with clients regarding outstanding invoices or payment discrepancies.
  • Coordinate with vendors and suppliers to ensure timely payment of bills.
  • Prepare and send invoices to clients for services rendered.

Financial Reporting and Analysis

 

  • Generate financial reports such as balance sheets, income statements, and cash flow statements.
  • Analyze financial data to identify trends, patterns, and areas for improvement.
  • Provide clients with insights and recommendations based on the analysis

Payroll Processing

 

  • Our outsourced accounting team partners with a 3rd party payroll provider to provide payroll services.
  • We ensure the payroll process is set up appropriately, the payroll account is funded, and payments are remitted to employees.
  • Our team journalizes payroll data into the accounting system.

Internal Communication & Support

  • Clients are assigned an accounting team.
  • The client accounting team has clear levels of responsibility and authority.
  • Members of the client’s team communicate internally to share responsibilities and assist one another as needed.

Client Communication & Support

  • Collaborate with clients to address their accounting-related queries.
  • Provide guidance on financial decisions, tax planning, and compliance. Our team collaborates with the full expertise within Dean Dorton, including tax and consulting services.
  • Schedule regular meetings or calls to discuss financial performance and goals.

Ongoing Training & Professional Development

  • Stay updated with the latest accounting standards and regulations.
  • Attend webinars, workshops, or training sessions to enhance skills.
  • Share knowledge and best practices within the team.
  • Monitor updates to existing software applications as well as new tools that may help our clients.

Quality Assurance & Review

  • Conduct internal quality control procedures to ensure accuracy and adherence to accounting principles.
  • Perform data integrity checks and verify the completeness of financial records.
  • Seek feedback from clients to maintain service quality and identify areas for improvement.

Wrapping Up the Day

  • Complete pending tasks, document progress, and update task management systems.
  • Prepare a to-do list for the next day, including any high-priority items.
  • Address any urgent client requests or issues before signing off.

A day in the life of an outsourced accounting team varies client by client. Dean Dorton’s outsourced accounting services work with our clients to develop an accounting process that efficiently meets their needs, allowing our clients to focus on growing their organization. Our team of 35+ professionals partner industry expertise with vast financial accounting experience to give our clients the insights they need to meet their goals.