In Search for Balance & Purpose, Part II

So your books are balanced.  In fact, you have supported the major balances in your balance sheet and have traced the activity in your statement of revenues and expenses.  The reports are ready to be published.  Now what?  What is the purpose of these historical reports?

In my first article, I presented my opinion on balance and argued that it is simply a part of a larger process that leads to well-presented reports and financial statements.  In this article, I discuss the purpose and objective of these financial statements.

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In Search for Balance & Purpose, Part I

We are constantly looking for balance in our lives.  Balancing work and family is a popular concern, as is balancing our investments or even balancing our diets.  Can anyone ever claim to have successfully achieved balance in these areas of their lives?  Once we achieve it, can we maintain it? And then, how do we use it?

What about purpose?  Is there a purpose to everything we do, and can we successfully argue that our true purpose is ever-changing?  In this first article of a two-part series, I will give you my opinion on the value of balance in accounting, and in the second article, I will explore the higher purpose of accounting.

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Dashboard Reports Rotation

Only ten minutes into my call with the board’s treasurer and we had already brought up six different financial reports we could prepare and present at the next board meeting.  Each presented the organization’s achievements and shortfalls from a different perspective, and all presented information important for the board’s awareness and discussion.  But honestly, six reports, in addition to the regular financial statements presented at each meeting is, in my opinion, number saturation.  Particularly because many board members do not enjoy hearing about metrics, financial results, and other numerical values.

In my previous article “4 Fiscally-Responsible Changes You Can Make as a Board Treasurer,” I proposed that at each board meeting the treasurer should present a full set of financial statements and no more than two dashboard reports.  In this article, I propose that the organization prepare five different dashboards and a treasurer’s three-point report and rotate the dashboards at each meeting.  Here are the dashboard reports I have recently recommended to my clients:

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Bill.com- More Pros & Cons of Part 2 – Specifics

Bill.com is a cloud-based accounting application our firm has been using for several years. In Part 1, I covered some general pros and cons of bill.com. This blog post will delve into some of the specifics, especially with regards to the accounts payable (AP) and accounts receivable (AR) functionality of Bill.com. Like the first, keep an eye out for the insider notes! 

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Bill.com Pros & Cons – Part 1 – General Overview

What is Bill.com? – Bill.com is a cloud-based financial solution that helps manage your payables (APs) and receivables (ARs). Our firm has been using it for the past few years and has consistently found it to be an asset to our clients. Read on for an insider’s list of pros and cons (with a few tips scattered along the way)! We’ve split this article into two parts—the first is regarding Bill.com in general while the second will delve into more specifics, especially regarding the APs and ARs.

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Interpreting Results of Operations for Non-Profit Entities

For obvious reasons, executives and board members of non-profit organizations prefer to see that revenues exceed expenses.  This difference would normally be described as net income, but for non-profits, it’s referred to as the change in net assets.  Since non-profit organizations have a special type of revenue recognition, this bottom line on the financials can be misleading.

Non-profit organizations recognize revenue when received or based on the date of the promise, grant or contribution document.  Revenue is not recognized when it is actually earned as is the case with for-profit entities.  There may be some deferred revenue grants or contracts, but most grants are restricted money that will be used for a program that could run for a couple of years.  For example, a $750,000 three-year restricted grant received one month before year-end will be recorded as $750,000 revenue in the current year, but most, if not all, of the matching expenses will be incurred in the following 2 years and 11 months.  This looks great for the income statement, but does not give a true picture of the operations of the organization as gross and net income will be inflated.

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Aren’t Nonprofits Penalized for Having a Reserve?

This is a question, and many times, a forceful statement I hear at least once a month.  My clients and members of nonprofit boards I belong to have a deep misconception that nonprofits are not allowed to accumulate savings (aka reserves).  Several years ago, I did an extensive search and asked various experts in the field, only to arrive at the same conclusion – nonprofits are not penalized for having savings.  Most importantly, there is no reserve level at which the elusive penalty kicks in.  So why do people hold so firmly to this misconception?   If you’ve ever had a conversation with an inquisitive 6-year-old (the “but why?” loop), you will understand the conversations I have when trying to explain this conundrum.

“But aren’t we supposed to operate at breakeven?”  The term “nonprofit” refers to a legal entity type (corporation), defined by state law, that prohibits the entity from operating at a profit that will benefit an individual or another entity.  Nonprofit corporations do not have owners to which profits can be distributed.  There are also controls at the state and federal level (through IRS regulations) to limit excessive salaries, which could be a form of personal benefit.    The main point is that there is no legal prohibition from operating at a surplus and keeping that surplus within the organization for use in future programs or as a reserve to create financial stability.

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“Is It Too Early to Start Saving for Retirement?”

I was a teenager when Congress created the Individual Retirement Account, and as soon as I had my first summer job, my father advised me to open an IRA.  You can imagine my reaction; I didn’t yet have a full-time job, and my father was talking about retirement!  However, my father managed to persuade me by teaching me the Rule of 72 (72 ÷interest rate = number of years in which an investment will double).  At a time of double-digit interest rates, I imagined I would retire with more than enough in savings if I continued to maximize my IRA contributions.

Circumstances changed.  Interest rates fell; they’ve been below 10% for almost 30 years and hovering slightly above zero since 2009. In addition, the annual maximum IRA contribution did not keep up with inflation (in the first 25 years of the IRA’s existence, the maximum contribution was increased only once, in 1982, from $1,500 to $2,000).  Yet, despite my increasing reliance on employer-sponsored retirement plans to help me meet my retirement goals, investing in my IRAs has remained an integral part of my retirement planning, particularly now that I have added a Roth IRA to the mix.

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4 Fiscally-Responsible Changes You Can Make as a Board Treasurer

It is an honor being asked to be treasurer of the Board of a not-for-profit organization.  What seems like a time-consuming task is truly an opportunity to make a fiscal difference for the organization you are invested in.  As a CPA with an understanding of nonprofit experience, I have been lucky enough to serve on several Boards.

I served as a member of the Board for a particular nonprofit for about a year, allowing me to study the dynamics at the Board level and identify areas where, as a treasurer, I could make a difference.  When the new slate of officers was elected, I immediately discussed my ideas with the president. These are a few of the changes we immediately implemented:

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Creating a 5 Point CFO Report

Providing monthly financial statements to the president or executive director of a non-profit organization is essential to help them guide their organization to meet their strategic objectives, but the financial statements should be geared towards board members, too.  Unfortunately, many executives and board members may not understand what they are looking at.  To help these decision makers, the CFO can provide some pointers in a brief narrative report.

I call this a Board Summary CFO Report, which includes up to 5 points highlighting critical items on the recently provided financial statements.  Examples of areas I’ve recently covered are as follows:

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