AFO

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.

Article Dean Dorton

First generation family foundations are founded on a gut-level need to give back. Founders are energized, motivated, and actively engage in the construction and inner workings of their vision. This direct participation generally leads to the launch of a very successful family foundation, one that makes a measurable difference in the greater world.

Many founders realize the importance of engaging the next generation but this focus is primarily and very rightly on the philanthropic impact of the family foundation. The mundane aspects of operations are downplayed or their transition is procrastinated. Without intent, successive family members are oftentimes left to navigate these and many other administrative essentials without a guide:

Board Meetings
Like all nonprofit organizations, family foundations must designate a governing board with officers. The board must hold meetings at least annually and whenever action requires a vote. States have varying rules regarding whether or not meetings must be held in person and your foundation’s bylaws should also address the format that constitutes a meeting. Minutes should be taken to document the occurrence and legitimacy of the meeting as well as any formal action that was approved by the board.

Tax-Exempt Registration
Most states require private family foundations to renew their exempt status within the state on an annual or bi-annual basis. This renewal may require the payment of a fee and/or the submission of a specific report. Failure to comply could jeopardize the favorable tax-exempt status of your foundation and its ability to continue philanthropic work.

Accounting & Tax Records
Maintaining the financial integrity of the foundation requires that gifts are acknowledged in writing using prescribed IRS wording, even if the gift is received from a member of the governing board. Documentation should also include the maintenance of accounting records and completion of annual tax filing. Payment of awarded grants should be properly issued and changes in investment activity appropriately recorded and reconciled.

Many family foundations choose to forego the employment of staff, so responsibility for these tasks fall by default to a member of the board. An alternative option to ensure best practice management and compliance is through collaboration with a subject matter expert. An experienced certified public accountant or legal professional focused on private family foundations could fill these gaps and free your family to focus on the impactful mission that motivated that first generation.

To learn how Dean Dorton could help your organization, click the link below:

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Kaydee Ruppert, CPA, MSA
Nonprofit Accounting and Financial Outsourcing Manager
kruppert@deandortonstg.wpenginepowered.com • 859.425.7730

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:

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

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.

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