Life Cycle of a Nonprofit (the reality not the storybook)

Transcript

SPEAKER_00 0:03

Welcome to Navigating Nonprofits with Lightboat Accounting. My name is Amity, and I'll be your captain today as we discuss hot topics around accounting for nonprofits. Lifeboat Accounting is an accounting firm that works exclusively with helping nonprofits stay afloat. We cover everything from accounting to tech stacks to strategic planning, 990s, grants, board development, and staff training. When I speak at conferences or board meetings, folks have always suggested to me that I needed my own podcast to tell all my stories and share my experience. So I'm excited to dive right in and to get to some of my favorite topics and share some special guests with you. With that being said, let's start at the very beginning on the different life cycles that you may experience with a not-for-profit organization and what challenges you may experience in those different life cycles. So in the infancy years, you know, you find a founder that is really passionate about a specific mission vision. And the founder sets the organizational tone, selects their board members, commonly their friends or people that they already know. And young not-for-profits, they tend to have kind of an active in the weeds working board. And by that I mean they're doing all the work, they're doing all the fundraising, they're doing the management functions as well. And then what happens is that the original founder retires or moves on. The board members rotate because the bylaws said that they had to, and a new set of board members come in with a fresh set of eyes, they may provide new skills, new insight, and kind of have a different expectation or tone for the organization. And then the organization starts to become a growing organization. And as the not-for-profit grows and has access to additional resources, the board may move from a working board to what we call an oversight board. And at this point, the board may acknowledge that they no longer can do all the things. They need staff. So they'll either hire staff or engage consultants or outside assistants to kind of get the organization up and rolling. They may start to apply for more complicated funding that requires additional time and resources, such as grants or restricted gifts. And they realize that they may need more policies and procedures in place. They may transition the board's workload to an executive director or a similar role as their first hire. And that first executive director is wearing all of the hats. And this is probably one of the more painful stages of not-for-profit organizations because you're going through the growing pains at the same exact time of the board kind of holding back and letting the reins go and becoming that oversight board and giving the information to the executive director to kind of begin to managing the organization. And sometimes there's can be hard feelings around that. It's hard, it's like someone's baby that they're they're letting go while off to college. And so there's not there's no hard and steady rule, but often a lot of organizations at this stage experience different types of growing pains. Um, this is a great time also to create onboarding and training packets for future board members so that they understand their kind of needs and commitment levels. Um, because every board is so different, and each organization has different needs from their boards. And then over time, the not-for-profit becomes a mature organization. They may have their own marketing, fundraising, development plans, they may have tools in place, they may have adopted uh operational management policies and procedures that are kind of best practice at this point. They're adopting strategic planning or strategic compasses, and they may even have key performance indicators and annual goals for programming. Um, they're also being reported out to the board, the stakeholders, to funders. And at this point, a lot of not-for-profits are kind of seen as a resource in their local communities, and their impact can be quantified more than uh a smaller organization. And what this all means commonly is that from the accounting standpoint, you probably started with a volunteer treasurer. And that volunteer treasurer may have come from the for-profit world, or if you got really lucky, they had nonprofit experience before their board service, and they set up the books in one certain way. They may have used um QuickBooks Desktop, they may have used an Excel spreadsheet, then they migrated to QuickBooks Online. And along with that um comes years of difference of how to use the accounting system. And what I mean by that is that when I go into a small nonprofit that is growing, I commonly see that the chart of accounts all of a sudden has 150 different expenses, for example. And it may be that some of the expenses uh are the paperclip expense, the post-it note expense, and the pencil expense. And that's because someone who originally created the financial system when they were smaller were using it to create a budget at a very uh granular level. But as the organization has grown, no one has taken the chance to step back and say, does this chart of accounts still fit us? Do we really need to keep the paperclip expense away from the pencil expense, away from the post-it note expense, or can it really just be called office expenses? And do we really need to continue budgeting at the pencil level? So as the organization grows, your systems and your processes and your tech stack also has to grow with the organization. One of the things that we commonly see, and we get this feedback from funders too, because we have a lot of local funders that reach out to us. They're like, hey, we really want to fund this organization. However, we got their books and they're kind of messy and they're not in the proper format. Would you be willing to help them get to the next level and then we'll give them additional funding? Um, or in our area, there's also lots of capacity building grants where we can go in and a funder will actually pay for us to come in and help the organization get to the next level. All of this to say is that your chart of accounts and the way that your accounting system manages transactions has to grow with the organization too. So once you've adopted more challenging funding sources or more particular funding sources, your accounting system has to change too. And this is where we spend a lot of our time meeting with our clients and educating folks through our training programs, if they're going to do it themselves, is really look at your financial statements or look at your 990 and look at the line items on there. There's really only 20 to 25 expense line items most commonly used for nonprofits. So if you have 200 expense lines on your accounting system, you're burning out your staff, you're working too hard, and you're just making it more complicated. On the donor and the funder side, they don't want to read 200 lines either. They want to see a professional-looking financial statement that looks like the not-for-profit has their act together. And I'm just saying that kind of frankly, because that's the reality that's going to make you more competitive in the funding space. So your accounting system has to grow with the organization and it has to change and morph and start to look more like uh official financial statements, even if you're just using QuickBooks or another uh accounting software. So, with that being said, um figure out which stage of the life cycle you're in, figure out what your pain points are, look at your chart of accounts, look at what your current tech stack is, and just kind of do an analysis of is this working for us or is this something that we need to invest a little bit more time into to kind of get us to the next level to look like a mature organization. And the the fun thing is, is especially right now, there's so much new technology coming out there that can simplify and streamline a lot of things for not-for-profit organizations. Um I've probably done at least 300 desktop to online conversions, and folks are always shocked, even just the transition from QuickBooks desktop to online, it's very common that the accounting time is cut between at least 30 to 50 percent. And that 30-50% upgrade in your tech stack can go back towards your mission rather than spending it on accounting. So there's some really neat things coming out. Um, a lot of the development softwares are now connecting to QuickBooks and other software so that no one has to hand type in donations anymore. And they'll even break out the credit card processing fees. Um there's just so much cool stuff going out right now, and I'm really excited about a lot of it and the impact it's going to have on nonprofits. I'm a big fan of also Write Tool. If you've never heard of Write Tool, I'll do a podcast someday with them. Um, but it's one of my favorite add-ons for nonprofit organizations because it allows you to reclassify transactions really quickly among your different classes and programs. Um, but also there's allocation opportunities in there. So if you have an organization where your time is split based on a percentage, uh you can do it at a click of a button. You can copy and paste journal entries rather than hand typing it in. So there's just like all this really cool technology that's coming out that a lot of small organizations don't think is available to them, but it absolutely is. And it's just learning how to use the the new technology to streamline your accounting system and kind of make you look like a big kid. So if you need help, feel free to reach out at any time. Um we also run do-it-yourself programming in regards to we do like a 10-week QuickBooks course, we do uh a half day on how to account for grants and functional expenses, how to read 990s, board training, staff training. Uh we run conferences and roundtables that anyone's welcome to attend at any time. So I always think of it as are you the do-it-yourself track, or do you want someone to do it for you because you don't have capacity? Um, but I also want to print out or point out on our website uh lifeboataccounting.com. There is also a free do-it-yourself self-assessment toolkit. It does take about an hour to get through, but at the end it'll give you an opportunity to save a PDF with the results to help you prioritize any items that you may feel that you're missing at whatever life cycle that you're at, um, or things that you could use uh a bigger boat, a little bit more attention on. So let us know how to support you. And then the next podcast series, we'll get into the budgeting process for nonprofits, which is personally one of my favorite times of the year. Um, it's so exciting because I usually have it at least four different times a year because all of our nonprofits are on different fiscal year ends. But I look forward to um supporting you all, and I hope you find all of this information helpful.