Nonprofit Storytelling Through Numbers | A Guide to Better Financial Statements for Nonprofits

Welcome everybody to part of our nonprofit educational series. My name is Matt Vadie. I'm the CEO and founder of Guru Payroll and HR, headquartered here in Columbia, South Carolina. This is part of an ongoing series that we have to provide value and education to nonprofits because Guru is a mission-first payroll and HR provider. We provide nonprofits with payroll services, HR support, group benefits. We give away 5% of our business to to local nonprofits, including 3% of all of our revenue, 1% of our time, 1% of our product. About 40% of our client base are nonprofits. And so this is an industry and a world that we're very familiar with and one that is very aligned with our vision of giving back and committing to the community. And so we want to do everything we can to provide you proactively with education, guidance, resources to help you to invest in your mission. And today's session's a really important, right? Really important one, right? Because if we, can't tell a good story with our numbers. A, we could get in trouble, uh, right? So we want to make sure that we're maintaining compliance with what we're doing financially. We want to make sure that we're being good stewards of the capital that our, our organization brings in. We want to make sure that we're able to understand where we're heading and what's happening inside the organization. So I'm really, really excited to partner with Elliott Davis on this particular webinar, uh, so that we can provide you with some education around how to be good stewards of your finance and how to tell a story that helps and matters for your organization. And I'm blessed and honored to be joined by Nick and Robin from Elliott Davis today. And I'm going to hand it over to you guys to take it from here.

Awesome. Thanks, Matt. Appreciate the opportunity to be on today with you. And so I'm Nick Cannon. I'm a director with Elliott Davis. We are a full source service accounting firm headquartered in Greenville. I am the market leader here in Columbia, South Carolina for our accounting advisory services. And so what that means, we serve nonprofits, we serve for-profits, really as an outsourced accounting department and a fractional CFO. But nonprofit is one of our main niches, so we really align here in the conversation today. We're serving around the Southeast and have a great experienced team, and that includes my friend and colleague, Robin Campbell.

Yeah, hey, nice to be with everybody today. As Nick said, my name is Robin Campbell, and I work closely with him in our accounting advisory group. I've been at Ellie Davis about 6 years, and I always like to share that I've been on all sides of nonprofits. So here I work as an outsourced accountant and CFO for companies. I've worked as a controller at a Goodwill, the Goodwill of Upstate Midlands, South Carolina. So I had a lot of experience there. And then before that, I did audits of nonprofits. So I even sit on the board as a board treasurer of a nonprofit. So I've kind of seen all sides of it and I just love to get to work with them. I think one of the most, one of the things I love most about that is that we get to hear about all the missions and stories. That come out of that. And so while we might not be boots on the ground serving the people that are benefiting from these nonprofits, if your accounting isn't in the right spot, you're not going to get additional funding. You're not going to get those resources that are crucial. And so I like to get to be a part of that and a part of those stories. So jumping right in here to tell a little story about why it's so important that your accounting is in check and that you're training people to tell the right story, the percentage of expenditures. So what I mean by percentage of expenditures is this is a percentage of money that most organizations, that program service money you spend towards your programs, as a percentage of your total expenditures. So normally we look at that number to be about 85%, and that's a— 75 to 85% is a really good range, and that's a number that's used to measure a lot of different nonprofits, and that number can come from the 990. But that number can be misconstrued whenever we see it in the news in different places. So here is an example of how that number got misconstrued. This was a headline that was published. This is about 10 years ago now, but the headline said the Red Cross CEO has been serially misleading about where donor dollars are going. And this was in the news. I was at Goodwill at the time, and it came up. Came out and everyone was panicking because, you know, what, well, if this can happen to the Red Cross, it can happen to anybody. And basically what had happened was the CEO of the Red Cross had said, "We're very proud of the fact that 91 cents of every dollar that's donated goes to our services." What he should have said was, "We're very proud of the fact that 91 cents of every dollar we spend goes to our services." So that one word difference, one word difference, where he said donated versus spend is what caused this headline. And it was, you know, kind of a marketing nightmare. But, you know, numbers really do tell a story, and making sure that you know how to explain to your donors and people using your financial statements what the numbers that you have from your financial statements means is a really critical part of telling your story. So we're gonna jump right in here to the topics we're gonna go over: transparency to users of the financials, impactful metrics, and budgeting strategies. So I'm gonna jump in here to the transparencies to the users of the financials. And what we mean by that is who is looking at your financial statements? So is it board members? Is it granting agencies? You know, the other thing is that these are public documents. So who, who's looking at those? And it's really important to consider that as we kind of go into what is necessary to come out of those reports. So when you're thinking about board reports, let's dive into that first. You know, GAAP-based financial statements are not necessarily what a board of directors wants or understands. I don't know how many board meetings I've sat in and, you know, why does it only show that we got all this money whenever I know our bank account doesn't reflect that? And that's one of the biggest things that people question is when you get pledges, the GAAP-based treatment, if you get a 5-year pledge for $1 million, you know, you record all of that revenue in the year that it's pledged. Pledged, but the cash doesn't come in until, you know, you know, a couple hundred thousand over the next 5 years. So it's really important to make sure you're differentiating that for your board and explaining to them why there might be a difference in the cash they're seeing and the revenue, the GAAP revenue that's showing maybe on, on the reports. Another situation where that might come up is if you get a grant, say you're awarded a grant. At the end, you know, a lot of times it'll come in at the end of the year or something like that. Well, when you're awarded that grant, a lot of times you record that revenue, but again, maybe the cash isn't coming in. So taking a look at what GAAP-based financials mean versus what's necessary for your organization and what the board wants to see is something that's really important. Another thing is to look at, are you showing comparable financial statements? I think it's really great to show a current year versus a prior year. You know, you can see how you're trending compared to the prior year. Another key report is gonna be how you're doing compared to your budget. We'll dive into budgeting a little bit later, but nonprofits, I think, spend a lot of time creating their budgets, and they're pretty specific with their budgets. So it's a really good metric for board members to look and say, okay, you know, we're behind on revenue. What is, what are we missing? Was there a grant that didn't come in that we intended? Was there a pledge payment that was missed? Something like that. So that's another really good report to show your board. And then lastly, do you have a way to kind of see a snapshot of the types of funding your organization is getting? So I think it's really important as a nonprofit to always be thinking about how you can diversify your revenue. I think we all, we all went through COVID, and whenever that hit, it really impacted revenue and it made everybody think, okay, well, you know, if donors can't contribute one year, or if we can't have events, so much revenue is driven by events in nonprofits. What other revenue sources can we have? So I think it's great to have a report that can show the different types of revenue sources that you have that can help support your organization.

Well, I think too, an important thing to consider there, really a foundational piece of being able to have that transparency in reporting, is making sure that your chart of accounts is set up the right way, right? So that you're tracking these major, you know, mission areas or grantors, so that you're actually able to measure those things and follow those metrics., right?

Yes, definitely. And I, I think that's one thing to really think through as you're setting up your chart of accounts. You know, is it really hard for you to manipulate that chart of accounts to be exactly what your board members want? And if that's the case, do you need to go back and maybe edit your chart of account a little bit to make it flow more, to show those different revenue categories or expense categories that are most important? This is just an example of a really specific report that we've used to help track grants in the past. And this is, like I said, this is just an example to kind of show that you can be creative whenever it comes to creating reporting. This is something that we call a financial utilization report, and it basically shows over here, starting on the left, your funding source for your grant, the amount of funding that the grant has awarded you, and then you go across the board and it kind of tells you what the grant does, when you can spend the grant, and then you get the budget. So a lot of times this number is divided by 12 on a monthly basis, or it could be, you know, if the grant has different, um, is not so evenly split, if it's like cyclical, say March has a large expenditure you expect, you can update it for that. But this would be like a monthly budget, and then you put what you've spent through year to date and then your current month. Basically, this is a lot of information, but the output of it is over here on the right where you see the colors. You would see like red, green, or yellow to show you 80%, under 80% spent on this grant, between 80 or 90% spent, or over 90% spent. And this just gives a nice color coding at the end of the month of, okay, are we on track with spending? Are we not on track with spending? Because I think if you've gotten a grant, one thing that you know is that it can be really hard to spend. You get all this grant money in, it can be very restrictive. Are we spending this money? How do we spend this money? And so this is a really good report where you can list a lot of different grants and then have a snapshot of the color coding at the end and just say, okay, yes, red, we're, we're behind. We gotta figure out how to spend this grant. It's about to expire. Or green, we're doing really good on spending. And if we're overspent, a lot of times we'll just put a little plus in the green so that you know that it's kind of spending ahead of schedule.. But this is just an example of how you can kind of think outside of the box to show your board what's important or to show management, whoever is looking at your reports, a snapshot based on color coding of where your organization is at. Then we're gonna move into the 990. I briefly mentioned this at the beginning, but you know, the 990 is a public document. Anybody that wants to can go to the IRS website and look up a 990. I love to do it in my spare time and just read 990s. No, I'm just kidding. But I really do actually look at 990s if I'm going to an event. I wanna make sure that event's raising money, doing what they should be before I donate. Anytime I donate to an organization, I always look at their 990. And it's really important that you train your organization to be able to know how to read a 990 and look at it. The board, every single board member's name is on that 990. So make sure they're reading through it. They have a fiduciary responsibility to do so. So it's really important to look through that. You also want to have like a policy in place that shows how you're reviewing executive compensation. That's kind of my next bullet point here, but that is such a hot topic on 990s because your top executives are listed and what the what the salary they're being paid is. And then also I think it's over, if anybody's making over $100,000, they're listed on there as well. And that, you know, that is something that is very unique to the nonprofit industry. Nowhere else can you go pull up a tax return and see how much the top executives are making. So it's really important that you have a clear policy that explains how those compensate, those salaries were determined and make sure that you're able to kind of back that up. I think we've seen several news stories come out, right? That, that cannot be favorable for nonprofits because somebody found an executive was making X dollar amount. And it even breaks out further back in the 990. It breaks out the base salary, benefits, and incentives. So if you have an incentive or bonus, you really want to make sure you have a policy surrounding that. And it can get tricky too. You, you kind of want to make sure it's consistent throughout the organization because, you know, think of this, your employees will go look at that and read that. And so if you've got executives making these gigantic incentives that no one else has an opportunity to make, you know, I mean, I understand they have a lot more responsibility in the organization, but you just have to think about that because anybody can look at it. So those are just a few things to look at. And I also like to point out to make sure your mission is really clear and understandable on the 990. On the first page of the 990, there is a section kind of probably a fourth of the way down that says the mission, and it's about 2 lines. So if you can get your full mission summarized in those 2 lines, I think that's a really good hook for someone that is going to look at your 990. It's really kind of a marketing document as well because it's out there in the public. So it's important to make sure like that first page looks really good and kind of tells the story. Again, going back to the story we're trying to tell that you want your organization to know. I know that it's just important to make sure people have training on it too. News outlets do tend to, to find 990s and have lots of questions about them, and they don't understand either, because if they're on a GAAP basis, things could look really different than what is actually happening at the organization. So it's, it's important to have good training around the 990 so that people can clearly communicate what's going on on that one.

I always think too about the mission that you put on there in terms of, as a nonprofit, is engaging in programs, maybe thinking about new programs, that all of that is funneled through the mission, right? So that whatever you're doing is accretive to that and makes sense given the mission that you've stated and publicly, you know, put out there on your 990.

Definitely. And one other area that these are used for is like states and other agencies can look at the 990. And basically, I know in South Carolina there's an Angels List every year that gets put out, and it's based on that percentage of expenditures I mentioned at the beginning of the presentation. The state looks at and sees what some of the better rates of the percentage of expenditures are, and they'll say, okay, these are some organizations that you should donate to. So not only is— can the public look at it, granting agencies, state agencies, lots of people can look at it. And that kind of wraps up that section. So before I turn it over to Nick, were there any questions or comments I see a few things in the chat, so.

I think Matt's just trolling you in there.

Okay, okay.

I may or may not have called you a nerd in the chat for scanning 990s in your spare time, but listen, you weren't supposed to see that. I thought I was managing the chat.

I've known Robin for a long time. I think she would embrace being a nonprofit nerd.

Oh, 100%.

All right, let me, uh, don't hesitate to put questions, comments in the chat, y'all. We appreciate it.

All right. Well, yeah, let's move on now to the impactful metrics. And so, you know, we've set the stage in terms of Having clear financial statements, we've got a good chart of accounts, we've got something that we can report on. We talked a little about the 990 and your mission. And so now this is all kind of coming together when we talk about the indicators and the metrics and how we use those to tell the story of the mission, the story that the public is going to hear, that your board members are going to hear, that your clients are going to hear, right? The people that you, you may be serving through your nonprofit. So we can go ahead to the next page there. And again, tracking these, this is all about supporting your mission alignment, your transparency and accountability, creating a compelling case for what you're trying to achieve. So it can do that or it can be an indictment of your inefficiency and lack of effectiveness. And so you definitely want to be telling a good story there. So really wanted to cover high level just these metrics. And these are really categories of metrics you can think about. There are a number within each that you can consider, and it's going to be really organization-driven what you might use. Within each of these domains. But the first one you see there is mission-driven, and these are metrics that align with your mission goals, right? We talked a little bit about that program efficiency earlier to show how much of your budget is actually going into your programs rather than your overhead, right? So if you think, okay, if you're an animal shelter, you might be able to say, hey, we spent 80% of our budget on the animal care, and that efficiency ratio will tell donors that their support is going right to the mission. The next one you've got there is cash flow and liquidity. Cash is king, right? If we don't have cash, we don't have an organization. And so monitoring those kind of metrics, your days of cash on hand, a liquidity ratio, these are all helping you to manage cash and cash shortages. Many organizations, I think, have seasonal-type cycles. We all know individual donations, right, they probably tend to come in later in the year as people are doing tax planning. Or maybe you've got a grant cycle that you've got to follow. And so just making sure that you can manage through a shortage or that slower period of the year is really important, and that's what those metrics will help you do. The next would be your fundraising efficiency. So you're out there trying to raise dollars. It's costing you something, right? It's not free to go out and raise money. You gotta spend money to make money. We all hear that. And so what is the cost to do that, and how effective is your fundraising in that regard? So, you know, if you could say, hey, for every for every dollar we spend on fundraising, we raise $5. You know, something like that is— it can go a long way. Next there, you've got program versus administration spending. So again, this program expense ratio showing the commitment to your mission versus your overhead and making sure that a majority is going to your mission. These are the things that we talk about, those state agencies, the watchdogs, a couple minutes ago. They're going to key in on that number. And they say, well, hey, you know, your nonprofit's only putting 25% of every dollar to the program rather than everything else. You know, you're paying your executive over here a ridiculous amount, whatever it might be, that's going to reflect negatively. One of my favorites is outcome measurement. And so that is focusing more on, again, the impact, the outcome of your programs, not just the financial inputs. So I'll share, you know, personally I serve on the Transitions Homeless Shelter Board here in Columbia, and a lot of time you'll hear us refer to the number of homeless people we have transitioned to permanent housing. So that's a really impactful number when you can see, you know, 3,000, 4,000+ people over a 10-year period that have been moved into permanent housing. And sometimes that's more impactful than seeing a number or seeing a ratio that's financially related. Last few here: donor retention. Your donors are coming in the door. You've got to make sure that you're stewarding them and that you are retaining them. So making sure, obviously, that you thank them, you give them access, and help them understand the story so they feel a connection to what you're doing, and that you renew them then every year, and that'll be key to long-term sustainability. Your reserve ratio— personally, right, I think we all should be making sure we have an emergency fund for ourselves, and that's no different for an organization. You want to make sure you've got a certain number of months of operating expenses saved up, again, to help you through some of those slower periods. Things are gonna happen unexpected, rainy days, right? Hits to your budget. Something unexpected is gonna happen, and having a reserve is really crucial. And the last one I've got listed here, we talked a little bit about earlier, the expense-to-revenue ratio. So taking your total expenses and dividing by revenue. And this is a good one because it can move with your organization. Again, you know, things can happen during the year, good things, bad things. And so to be able to look at this ratio and say, you know, okay, based on where we are for the year, we want to maintain, say, expense-to-revenue ratio of 95%, you know, depending on where your funding is coming in, you can throttle spending up or down to keep that ratio intact and maintain solvency. So how do you do all that? You've got to make sure, you know, that you've got a strategic plan in place. You've got to sit down and talk to people that are in the organization. What are you trying to achieve, and how can you create those financial goals and the metrics that will support that? And I really recommend taking it in small chunks. Getting down to that grant level or that service area level and gathering the stakeholders to really understand that, be able to break it down so that you're creating metrics that make sense, that you want them to be achievable. Maybe you want some stretch goals too, but you want everyone to have buy-in, right? And so that's an important piece of breaking that down and involving your other stakeholders. We often hear, right, that the executives, they have all the authority but none of the information, and everyone on the front lines, the people that are really executing the mission, they've got all the information and none of the authority. So marrying up these two parties to really make that a holistic plan will help really drive success. The last thing I would highlight here, you know, I've shared the example of transitions and the number of people we've transitioned to permanent housing. Creating some kind of handout, you know, with just a few impactful metrics, giving that to your board members, to your management, to your staff, so that they've got something easy to carry with them to remind them, and as they're out in public and they're talking about your organization, they can keep those things top of mind. Something that can be really helpful.

Hey Nick, real quick, between this slide and the previous slide, when you guys start an engagement with a nonprofit, where— what are the biggest misses? Where do they tend to not be hitting the mark on these things you've gone through so far?

That's a great, great question. I feel like a lot of times when we're getting into them, they probably haven't gone through that, that second slide. They really haven't spent the time to understand what metrics should we be tracking? In some cases that's a whole new concept to them is tracking some of these metrics and creating clear reports that can tell that story. I don't know if Robin, if you have any other thoughts on that.

Yeah, I would add that too. I think to be honest about, you know, when we get a lot of nonprofits that come to us, a lot of times we're, we're kind of doing some cleanup to get that chart of accounts to look good, to make sure they're tracking everything correctly. And then once we, once we get that, it's really, I think the, The number one thing is getting that cash reserve and having like kind of a cash floor that organizations should be watching and just making sure that, you know, even putting it in a separate bank account. We have a lot of organizations that have different bank accounts and really solely set up to have that reserve fund kind of in there. So I think that's really the first step that you wanna do to protect your organization. And then it really depends on what their goal is. As far as mission, what their mission is and that final out product is, which ratios kind of come back into that. I always do think the expense-to-revenue ratio is one of the best ones to track because of the revenue can be so volatile. It can go up and down a lot, right? So I think if you can track your expenses to match that and maintain those ratios, it really can safeguard your organization.

We use the word transformation a lot, and those could be small. It could be small transformations like just editing the chart of accounts so it's more readable, or they could be major transformations. But that's a lot of the ways that we think about our work is making incremental improvements, making these transformations, whether big or small, to push, push an organization along.

Awesome.

Thank you. All right. So next we're going to move on into the budgeting strategies section. And this is a fun area to talk about. I know a lot of organizations spend a lot of time on their budgets, as I mentioned earlier. So I wanted to kind of start with, okay, well, how do you, how do you even start if you don't have a budget? Where do you start? What do you, what should you look at first? And I think a lot of nonprofit organizations, one of their biggest expenditures is payroll. And so I think payroll is a really good place to start. So one thing that is great to do at nonprofits is to do a salary study. I think just historically, the nonprofit industry can tend to be a little bit underpaid because they are working, You know, you do want most of your money to go to the mission, which is understandable, but unless you have people, qualified people doing the job, that's not gonna happen. So it's nice to see when an organization does a salary study to make sure that their organization is getting paid a fair wage. And then do you have any open positions? You know, is there a new position that you might need? Is somebody working an unreasonable amount of hours or have way too much on their plate? And could really benefit from adding a new position. Is there a position that needs to be cut? You know, that going the other way, there might, there might be a position that you might not be serving that area as much, or something's changed to where that position may no longer be needed. Nobody likes those conversations, but you know, to be a good steward of your organization's finances, sometimes you have to have those. So just taking, taking a look at your payroll and really starting out budgeting there. And then after that, I kind of move into the program expenses, because that's kind of the lifeblood of your organization, you know. So a lot of times organizations have grants that cover the program expenses. So a lot of times you want to kind of focus on budgeting all those expenses based on what grant income you might have coming in, and then kind of backfilling with the expenses that are not going to be covered by a grant. So that's kind of the next area, then you would move into the management and general area. And that's, um, that's the area where, you know, like accounting is going to be in, in management in general. And then different areas are going to include— management general will have admin fees, postage fees, things like that that can go into that bucket. Then lastly, you would have fundraising, and this is mainly going to be Things of course that you do to raise money, but also events that you have. Most organizations have one big event every year, maybe a couple small events every year, but basically what events are you having to raise money for your organization and get with the development team, you know, touch base with them. What budget do they have to raise money for the organization? So that's really important to think about too. And if you look at this also, you'll see it really is broken out how your 990 is broken out as well. So you, you know, your 990 is broken out by program expenses, management and general, and fundraising. So if you budget that way and then you have your expenses follow that way, when it comes time to do your 990, it's going to make things a lot easier.

Looks like we've got a question in the chat over here.

Yeah, question is, I was advised to allocate a percentage of staff and other overhead costs to program expenses on our 990 because our staff spend time on programs. Do you agree with this? I think it's something that experienced nonprofits do and new ones do not, but I'd love to hear your expert opinion.

Sure, yeah. So I think that this can actually be done a couple different ways. If in a perfect— I'll tell you what I think in a perfect world it would be. In a perfect world, you would have each member of your staff that is spending any time on program services keep a timesheet that says exactly how much time they're spending on their program services. So basically, you know, say I'm working on the— say I'm— I work in accounting, but I work on several grants that directly have an impact program services. I would put, I would just go through and say, okay, you know, I spent 1 hour on this grant today doing this program service on my time card, and I would submit that to accounting. Or ideally, the payroll company would be able to split it out for you. So that's where, that's what I would say in a perfect world would happen. That rarely happens, that a payroll software is really, I mean, you guys probably know a lot about this, Matt, but we run into issues with people not being able to do that or track that. It's really tricky. So I think there are ways that you can do it on the back end with accounting to break out by a percentage. And that's kind of what you're talking about is being able to, to do a mathematical equation, have a spreadsheet that says how much money, how much time this person normally spends and then break it out. If that's how you want to do it, I would recommend doing a salary study. So have somebody track their time for a month, see how much time they spend on that grant, then give on the back end, give that to accounting, and then they would allocate that percentage of time to the program services. So that's one of the things that you can kind of do on the back end if your payroll is not tracking it by detail, because that, I mean, that's very detailed for the person. To do as well, just to take the time to do that. All right. Next bucket we're gonna go into here is approach to budgeting. So there is several different ways that we can approach budgeting. So you can— these are kind of the 3 areas and ways that I think about it. You can have a break-even approach. That means you get all your expenses— all your expenses— I can't talk. Excuse me, all of your expenses budgeted. There we go. And then you go back and you plan out the revenue you know you will receive. And then there's kind of this plug number that you say, okay, development, you need to go raise this amount of money so that we have zero net income, right? So that's kind of the first approach I see, and it does give development a good fundraising goal to have, right? The next approach is going to be when you have a deficit. And sometimes organizations do purposely budget for a deficit. That's gonna be the case whenever you have an instance like I talked about earlier where you have a huge fundraising year. Say you have like a capital campaign or some sort of initial campaign that, you know, you raise 5 years worth of money in 1 year. Well, of course you were gonna have a lot of net income that first year, and then the next 3 to 4 years you might have a deficit. So it's okay to see that. You just wanna make sure that you have planned for that and your cash. If you're gonna be in that situation, it's good to really have some sort of report that will monitor your cash to make sure you don't dip below any, you know, any reserve goals that you have or any cash floors that you have. And then kind of the last area is gonna be a surplus. And so this is whenever you budget what your revenue's gonna be and your expenses, and you actually are gonna have a little bit of money left over. So that seems like it's a good thing, but if you give a budget with a big surplus to an organization, you're asking for money, they might be like, well, they have money. We don't want to donate to an organization that has money. A lot of times organizations are particular about that and don't want to do that because they're afraid it's gonna hinder their ability to get money in the future. Whenever that happens, a lot of times what we'll see is we'll see like, you know, the budget and they'll have a surplus and it'll say what that surplus is gonna be used for. If you have a year of a surplus, moving that money to a cash reserve like Nick talked about, that's a great year to plan to do that. Additionally, you could do some sort of capital infrastructure purchase. So say, okay, we've got, you know, $500,000 at the end of the year. Our building really needs a lot of work. Okay, well have that be your capital budget for the next year to be all the, you know, and you use that money to work on your building and kind of reinvesting in the organization. So those are some ideas and kind of one of the approaches, 3 approaches you can kind of take to budgeting.

I'd say with the surplus, you kind of have the double-edged sword there, right? You mentioned they might not want to give if there's too much cash on hand, right? At the same time, you don't want to give if it looks like the entity might be closing down soon, right? So going back to kind of what's the right amount to keep on hand.

All right, a few other things to consider, and we've kind of touched on this a little bit, but most nonprofits are not evenly spread over 12 months. Like they're not, Every month is not going to be the same, like in some manufacturing industries and things like that. So it's important to look at that and say, okay, do we need to look at a monthly budget that is going to take into account what's actually going to be happening in the year? So I have an organization and we actually go through kind of each line and say, okay, what's the timing of this revenue line item going to be? What's the timing of this one? And we kind of look at the grants and and say, okay, when historically has this been awarded? When do we normally spend a lot? And we really look at it in great detail because I think a lot of questions come from board members. We've probably all been in a meeting where a board member asks a question and the answer is, oh, it's timing. The reason it's off-budget is because of timing. So if you can align that up as much as possible, it just helps to eliminate questions. And then here we go back to the cash versus accrual basis for accounting. That can just get really tricky. So making— a lot of times boards will want to see, you know, you have to do a budget. That's a an accrual basis, but then they might wanna also see kind of more of a cash flow budget to know what the cash is actually looking like for the year. So just having that supplemental report to show that is, is never a bad idea either. And we kind of have several different, you know, when we're doing reporting for organizations, we always talk to the board and, and see, Nick is actually a board treasurer on an organization that we serve. So we talk a lot about what we want that those financials to look like. And I think it's important anytime you have a new board treasurer come on, Sit down with them, take the time to see what they really want to see, because each one is going to see things a little bit differently and honestly have some great ideas. You know, I think anytime you have a fresh set of eyes, take advantage of that because they might see something that you haven't.

Yeah, I've had that experience in serving nonprofits. Each time that nonprofit has gotten a new treasurer, we sit down and have that meeting. Something really substantially changes in the monthly management reporting that we create. We're getting to the end of the presentation, so if you got any remaining questions, definitely drop them in the chat box so we can help answer those today. But one to highlight what's on this slide, you know, as you're pursuing this kind of transparency and excellence in reporting, the underpinning of that, the foundation, is obviously having a solid accounting department. Over the course of the last 4 or 5 years, as we experienced COVID, we lost 300,000 accountants. Okay, and the colleges are not filling the pipeline as much as we'd like to see. Starting to get a little bit better, but we're still short. And you may have experienced that in your own nonprofit going out and trying to find some kind of accounting and finance talent. One, they're hard to find, and two, if you do find them, you maybe— you should probably expect to pay more than maybe you're budgeting. And so one way that we've been able to help and that we see organizations, especially on the small to medium size, is looking to an outsourced accounting service to help them. So if you've got— here's a few duties that you can see on the page that an outsourced service might help you with. So accounts payable, they'll help you with your board reporting, grant accounting, tracking the GAAP, right? We've all made jokes today about how fun GAAP is and how, you know, most people that are on the board don't understand it, right? So having some expertise in there that helps you do that correctly so you can get through the audit, so you can properly report your grant activity. It's important to find someone that can help you with that. And a team, an outsourced accounting team can help you rather than a single internal hire, oftentimes for maybe even less than what that single person might cost. But that team is going to know best practices. They're going to— you want to find someone that's in the niche, in nonprofit in this case, that's going to be able to help you through this. And they're going to know, you know, they see many organizations. And so they can help you through a lot of the common struggles and keep you from stubbing your toe on those kinds of things.

I actually saw a note in like an engagement letter for an audit of one of my clients this year that said our fees have gone up, you know, XYZ because there are not many accountants. I mean, it didn't say that exactly, but literally they had like a disclaimer in there that was saying how few accountants are entering the workforce versus how many are retiring.

That's right. And you've seen, I think at least in the case of governments, municipalities having trouble meeting audit requirements because they literally cannot prepare the accounting and the reporting needed to do the audit. And then the other side of that, we've seen accounting firms having to make strategic decisions based on the talent they have. Okay, maybe we're not serving nonprofit audit or we're not going to serve this other industry over here. And so that's probably another topic to hit on. Like if you, if you've got a good relationship with your CPA firm now, definitely keep that going and nurture that because not as easy as it used to be maybe to walk down the street and get 2 more bids.

All right. And here is our contact information. Yeah. If you guys have any questions or or want to reach out to Nick or myself about anything, we're happy to assist.

Yeah. And please chime in with any questions in the chat while we wrap up here. But I also have a quick question, just hopefully will help everybody on the call for y'all is when people come to you, we talked about some of the things that you guys are working on with them when they initially come to you. But what is usually the driver? What is the problem? What is the pain point? What are they experiencing where they say, all right, enough is enough. I've got to talk to Elliott Davis. I've got to talk to Robin and Nick and figure out how to get my my books and my finances in order?

I'll say that a lot of times it's that they're not getting things timely. Mm-hmm. Whoever they're with now is just taking a really long time to get them financials. So they want timely financials. And then another, another area I would say is that they, they've had a really rough audit. So they've been through an audit and they found out that things are really bad. And so then I joke, but like, I feel like half of my job is translating between auditors and organizations. And so I would say those are two of the main kind of things that we see.

That's it. You know, going off the first thing you said, Robin, if you're on this call and you know, you're a board member, certainly. But if you're in management, you've got control over this. You should be seeing financial statements every month within 30 days of the month close. And if that's— not happening until 60, 90+ days afterwards, there's a problem to be addressed. And it's not something that you want to let snowball into a big, big problem. So yeah, I think that's one we see a lot.

Yeah. And I'll also add turnover in there. I think that, you know, turnover in the accounting industry is pretty high based on the things that we just talked about. And so a lot of times they're just tired of trying to find somebody, you know, trying to tired of trying to hire that position again and again and again.

And I've talked to Nick and I have talked in the past. I mean, you guys have a model where you can basically come in and bring like a whole financial team to the table, right? Tell us more about that.

Yeah, I think one of the things we typically see is, you know, not just the timing and lack of financials or messy financials, but then we also see that maybe there's been a single point of failure in the organization. Right. And the organization has felt some kind of pain because of that. And so we bring in that team of people, 3 to 5 people depending on the size of the organization, everywhere from kind of that staff accountant level up through the virtual CFO. And again, really scaling depending on the need of the organization. But I mean, that's table stakes that you have a team that comes and serves you.

Yeah. And I think, I think that's a good point to make is that we, you know, a lot of times nonprofit staffing is really small. We know how many hats nonprofit employees wear. You're wearing a million different hats to try and make— do what you need to, to get the things done at the organization. And hiring, you know, a staff of, you know, 6 accountants is not an easy feat to do if you're a smaller organization. So I think that that's another reason people come to us too.

Well, and I know that pain of owning a small business myself of just, hey, you know, we need a bookkeeper, we need an accountant, we need a controller, we need a CFO, right? But we can't pay all those people, uh, we don't have the budget for that. And so how do we get that fractional talent from one team ideally, right? It's kind of like, you know, what you don't want to do is go and get a bookkeeper over here and accountant over there and a CFO over there.

Yeah, that's right.

No, that's, that's awesome. And, and yeah, I certainly understand those pains that you're describing, especially. And if, if you're waiting that long for your financials, A, I don't know how the heck you're getting by, but B, you definitely need to go find another team to work with, that's for sure.

Well, I'd say the other value too, when you've got, say, your accounting team and your tax prep, whether that's a for-profit tax return or a 990, but when those two teams are sitting together, they can share information and that takes a lot of load off the executive team, right? You know, a lot of the questions that might normally come to the executive director or the COO or something, but a lot of times that accounting team can be the first line of defense and knock out a lot of those.

Absolutely. I love it. And we develop good relationships with auditing firms too. Like the, the auditors that we work with on our clients every year, like we know them. You develop this relationship and you kind of learn what they are wanting to see and can kind of preemptively think of a couple things that will help make that process go smoother too. Because you know, you can't have the same firm do your audit that's doing your accounting. So that, that's a key thing that you have to make sure is separate.

A good point, but you can become homies with the auditors. Oh, that's wonderful. Any other proactive questions that you guys can think of? You know, what are the most common questions you get in those first couple meetings when you're bringing on a new client or concerns or things that they're coming to you for that would help the audience here today?

I would say using softwares to help you where it's, um, cheaper and easy to do. I don't know if, um, TechSoup TechSoup is a, a website that supports nonprofits. So if you're not familiar with that, go to TechSoup and they will give like discounted rates on softwares like Microsoft Office, QuickBooks, lots of different softwares. Using softwares to help take something off of your plate and trying to get as much efficiencies as you can. I think a lot of the times when people come to us, that's what we're doing initially. You know, we move them to Bill, which is a, you know, helps to pay your bills, making sure that's automated, making sure payroll is automated as much as possible, which is all those things can help free up your people to be able to do more to serve the mission. And it might— I would say think about the, the break-even cost of how much it costs the people you have to do this work versus how much you're going to be paying a software to do it, because there's so much out there that can help.

Well, the software too can create not only efficiencies on the front end when you're actually processing or recording a transaction, but then on the back end when it comes time for the audit and the auditor is going to give you a list of here's 25 invoices I want to see. You just give them access to that system that's storing all the documents and they can just click and pull up that transaction. Right. A lot of times we'll hear from folks, you know, I think, I think we need to go out and hire somebody. We're short-staffed. We're really busy. We got to go hire somebody. We use that a lot of times as a red flag, kind of a pause. Blow the whistle and say, well, let's, let's just make sure, to Robin's point, the systems, the processes, are you doing anything extraneous that do you really need somebody like, do you want to go out and try to incur that cost? Or is it just something that can be solved, you know, through the use of technology?

Like, whenever I was at Goodwill, we, we were doing our credit card manually. And, you know, it was, you know, a lot of money spent every month. I mean, the reconciliation would be this thick by the time we put all the receipts and everything together.. And we moved it to like a P-card system and it saved one of our employees like almost a week of their time. A week of their time.

I'm sure they really missed doing that reconciliation.

I know.

Think of all the paper you were printing then too.

I know, right?

Yeah, yeah.

There's so many benefits.

Yeah, lots of benefits.

Well, that's awesome. And the TechSoup recommendation, this is a great one. I've never heard of TechSoup. This is beautiful.

Yeah, it's awesome. I love it. And I would say as many— there's a lot of free stuff out there for nonprofits. You just have to kind of find it. Even donor softwares and stuff. Like, I know, not that I'm endorsing any, anything, but, but like GiveButter is free. There's several different free platforms like Track Donor Management. And then you can still integrate those with your accounting software, which can be a bit of a pain. I'm not going to lie. It can be hard to get it to work exactly as you need to. But if you can find things like that to do, you know, that takes a lot off your development plate and your accounting plate because everybody's doing it. You know, you're duplicating work if accounting is logging all of your donations and development is developing all of your donations. So if you can find a way to kind of bridge that to where one is just checking the other against what's actually hitting the bank, that can bring some efficiencies as well.

I was going to say, in this, in this age of technology efficiency, double entry of information should be a red flag to you, right? If you're having to enter it more than, uh, one place. Really, at this, I think it's expectation of folks going forward. APIs are out there, uh, in the time of no-code at this point, like the expectation for things to connect and talk is there. Um, and so there's, there's plenty of those systems out there that'll help make that all simpler.

Love it. Awesome. Well, thank you all so much. I couldn't, uh, be more grateful than to have you come and share this wisdom with us. And I know that the The audience appreciates you as well. And we will, again, to those in the chat asking, we'll send out an email with the video on our YouTube channel here in the next couple days. But also make sure you go ahead there and subscribe as this will be part of our ongoing series of nonprofit educational webinars and other short-form videos as well. Thank you again, Nick and Robyn. We couldn't appreciate you anymore. Have a wonderful day, everybody.

Thank you. See y'all.