Now that you’ve filed Form 990, it’s time to get back to the daily grind of accounting. Was this year more challenging than last? Will next year be even more challenging? As your nonprofit organization grows, you face additional challenges that come with said growth—often facing more stakeholders, stricter requirements, and smaller budgets than a comparable for-profit organization. Needless to say, you face some unique challenges. Today, we would like to look at five of the biggest challenges that financial leaders at nonprofits face, and how to address them as you grow.
Five Top Challenges Nonprofits Face Day in and Day Out
Challenge 1: Complexity in Nonprofit Accounting
For nonprofit organizations, the daily tasks of accounting and financial management are driven by a broad array of complexities. Nonprofits have to work with different documents than their for-profit counterparts, including statements of activities, statements of financial position, statements of cash flow, and the Form 990.
With different cash flows and income streams come different challenges, as well. Grants, donations, break-even product sales, for-profit subsidiaries, and more mean that you have a lot of different questions to answer—all while trying to focus on the mission.
It’s a complex environment with a lot of stakeholders, and nonprofit organizations need to be able to answer questions quickly and accurately.
Challenge 2: Internal Controls
Most for-profit corporations create their internal controls, reporting, and financial monitoring by products, divisions, geographies, and entities. Nonprofits have remarkably similar needs, seeking to manage their monies by grants / donors, programs, geographies, and other dimensions.
For national nonprofits—especially ones looking to improve engagement by decentralizing and localizing operations with a chapter structure, this creates a set of complexities akin to major franchises or other multi-location businesses. Yet in this kind of environment, the central office still needs to take control of these decentralized locations, rolling up all of the information and ensuring that all are operating within the standards of the national.
Challenge 3: Complexities in Grant and Fund Management
While a for-profit business may have to answer to a few external requests for information, a nonprofit has to answer to each grantor and funder differently. Every funder wants to see how his or her investment is going, and this means reporting to a great deal of people with different expectations.
Without automation, these reports could takes days or weeks to complete, and still not provide all of the expected information. In terms of grantors, their expectations, while just as high, also require your nonprofit organization to report on general vs. restricted funds, adding even more complexity and challenge in reporting.
Challenge 4: Meeting Stringent Reporting Requirements
In a challenging economy, agencies, social-service organizations, charities, and other nonprofits are under tremendous pressure to acquire, secure, and maintain funding sources to ensure their continued operation. Transparency is an essential strategy for securing and keeping those donors and sponsors on board.
Communicating the effectiveness of your initiatives can be one way to secure more funding and to maintain your status in the eyes of the government requires accuracy and transparency. Add on top of this internal reporting requirements, and you have even more challenges that can’t be addressed with manual reporting.
Challenge 5: Handling the Needs of a Growing Nonprofit without Growing IT Budgets
Even while struggling to address all of these challenges, you have to do so with a much more stringent budget than your for-profit counterparts. One of these strict budgets is IT—it’s likely you don’t have the people or capital to allocate huge amounts of money on a software solution.
Nonprofits need to be able to do all of this reporting while still increasing their contribution to the mission, and one of the most common ways they are doing this is through cloud financials.
Download the Nonprofit CFO Survival Guide
Is your nonprofit or not-for-profit organization struggling to keep up with increasing needs with the same limited resources? Nonprofit CFOs are under the gun to achieve so much: to automate processes, improve productivity, create greater levels of transparency and visibility, enhance the governance of the organization, and strengthen the team’s decision-making and strategic focus.
If you feel that your organization is being held back by manual operations, primitive tools, and paper-based processes, we would like to share with you an immensely helpful whitepaper for finance leaders at nonprofits looking to take control of their operations and move toward their mission.
Titled The Nonprofit CFO’s Survival Guide—A Mini Field Manual, this whitepaper explores the aforementioned challenges in depth and how to address them. Download the Nonprofit CFO Survival Guide here.
rinehimerbaker, llc is proud to serve the unique needs of nonprofit organizations across the state of Florida. From outsourced accounting to software selection assistance, we have worked with nonprofits before and would love to help you. Learn more about Intacct for nonprofit organizations, compare it to other solutions like Abila and QuickBooks, and contact us for more details.