3 Common Accounting Challenges for Nonprofits

Accounting for nonprofits presents unique challenges, and the way your organizations faces these is critical to your long-term success. In the nonprofit world, you’re always working to do as much as possible with as few resources as you can manage. In addition to the need for efficiency, nonprofits also face the added scrutiny of funders and board members, who want to be confident they’re investing their time and money in the right place.  The good news is that overcoming these challenges can transform your accounting from a troublesome necessity into a vital advantage that helps you achieve long-term success.

 

Here are the 3 most common challenges we see in nonprofit accounting:

 

1. Lack of real-time financial visibility

It’s common for nonprofits to enter transactions in batches either once or twice a month. Unfortunately, this lag between the actual transaction date and its entry into your books makes it difficult to be proactive in managing cash flow versus budget. Modern accounting methods automate transaction entry and emphasize real-time data tracking, which enables nonprofits to stay on top of their cash flow and achieve greater financial efficacy.

The wrong accounting software can also reduce your financial visibility by failing to provide proper user security and controls. For example, one of the major issues with basic accounting software you don’t have the ability to restrict user access. Not being able to control security on a user-by-user basis gives you only two options: either allow too many people to access everything (poor security) or give very few people access to anything (poor financial visibility). With more suitable accounting solutions, it’s possible to avoid this problem by setting access levels for each user.

 

2. Lack of management reporting

Sure, financial statements each month are helpful, but do they help you be the best steward of funds to make the most impact? In order to make the best decisions on a daily basis, you need more timely access to data. To help you reach your maximum potential, nonprofit management reporting should include great donor reporting, cash balances by fund and restriction, plus expenses versus budget by mission, department, or event. This kind of functionality helps you make better day-to-day decisions, inspire more confidence in potential funding sources, and feel confident about your organization’s financial health.

 

3. Paper-based processes

Handing off a pile of credit card receipts to a bookkeeper or passing around a bill from desk to desk to get approved is certainly not the most efficient and secure way of handling those processes. With modern tools such as specialized nonprofit financial solutions, expense tracking applications, and customized workflows, it’s easy to develop automated processes that increase your accuracy while saving time and frustration for everyone involved in a project.

 

What’s Next?

It’s easy to talk about the issues most common to nonprofit finances, but we know it can be a lot more difficult to overcome those challenges. Here’s the tricky thing about improving accounting systems and processes as a nonprofit – you’re probably operating under a tight budget and you need to spend as little money as possible on your accounting. Spending too much money hiring a full-time bookkeeper or buying overly expensive financial software could put a real dent in your organization’s budget without paying itself off.

In light of this, the flexibility provided by outsourced accounting for nonprofits can be highly effective. Outsourcing is typically much more affordable than you think, and it provides a solid return on investment by strengthening trust and transparency, as well as giving you the insight and analytics needed to make better decisions. This allows you to utilize budgets more effectively, as well as provide better reports to constituents, members, donors, and boards.

If you’d like to find out how outsourcing your accounting might work for your organization, we hope you will contact us to talk through how we can help.