Outsourcing your nonprofit’s accounting functions is an important decision and is one NFP Partners can provide guidance on. In this article, we will discuss questions to ask both your organization and any prospective outsourcing provider.
Q1. What is our nonprofit we good at?
Accounting functions can encompass a wide range of jobs and duties including bookkeeping, payroll, and financial analysis. Similarly, accounting functions also cover budgeting, strategic planning, auditing and grant management, and compliance. Some of these jobs require a small amount of training and can be handled with minimal support. However, as nonprofits grow and finances become more complex, it may become time to bring in outside assistance.
Your nonprofit can either hiring a consultant to assist in reviewing current processes and implementing new ones or outsource those duties. On the other hand, perhaps an organization employs a highly skilled accountant that would prefer to do higher level job duties, but they can’t focus on these tasks because of the daily bookkeeper managing that requires immediate attention. Either way, take a deep look at the performance of the accounting functions and identify the strengths and challenges.
Q2. How will our nonprofit organization pay for outsourced nonprofit accounting services?
All support functions, including accounting, human resources, and IT, are a cost of doing business. They do not directly create revenue; however, they can have a huge impact on reducing expenditures. When the decision comes to outsourcing accounting services, it’s not always about the hard cost.
Other items to consider is the value of time and effort a controller spends doing bookkeeping tasks. Is the controller’s time being wasted by doing bookkeeper work? Is the controller doing the work they were hired to do? Often times, the benefits far outweigh the cost to outsource the bookkeeping function. When doing so, the controller can narrow their focus on more strategic solutions to reduce costs. This includes negotiating contracts for cheaper rates, monitoring cash flow to reduce waste, and staying abreast of regulations and tax filings.
Q3. When is a good time to start outsourcing my nonprofit’s accounting?
Most accounting departments have a set month-end close, quarter-end close, and year-end close. For some organizations, it may make sense to start the financial transfer prior to year-end close so the “go live” date could be on the first day of the new fiscal year. However, the department may have urgent matters such as employee turn-over or capacity issues, new software implementation, or major grant-end dates. There is no “good” time to transfer services. Although, by being mindful of all of the moving parts in the department and reflecting on the annual goals, planning a transition can have minimal disruption.
Q1. What accounting services are provided?
Accounting services come in different sizes. Some companies offer complete outsourced nonprofit accounting services from bookkeeping to CFO. Others offer a menu approach to which an organization can pick-and-choose what services to purchase based on the gaps in its organization. Whatever services the accounting firm provides, it’s important for any organization researching this option to understand what it needs.
Q2. Which accounting software are you proficient in?
Obviously, software plays a big role in every accounting department. Choosing the correct software is a vital choice that will have a long-term impact. Furthermore, choosing an outsourced accounting provider that has a working knowledge of the organization’s software will help decrease the level of disruption and onboarding time. In addition, outsourcing accounting services often capture efficiencies through automation and increased productivity.
Q3. Which pricing model is used for outsourced accounting services?
The three most common pricing models in outsourced accounting services are hourly, flat, and retainer. Hourly is the simplest but also the hardest to control costs. Some nonprofits may prefer this model because there are times during the year when more effort is needed, such as for fundraising or program events. These organizations also have a high level of cash flow at that time, so it can meet the higher hourly cost. Conversely, during times of no, or little, activity, the need for effort will be low so a lower hourly rate can be beneficial.
Some prefer a flat rate defined by a specific scope of work and the option to add work as needed for an additional hourly rate. Lastly, retainer fee may work for some when it has a seemingly routine level of work and cash flow and the assurance that the work, whatever the needs may be, will be completed without any additional costs.
Q4. Is there a contract term?
Many outsourced nonprofit accounting service companies are moving toward a month-to-month model to attract new customers who may not be willing (or able) to commit long-term. For those that require a term limit, be sure to carefully review the contract with a legal professional. The organization’s books are confidential, and information contained within them can be used to compete or destroy it in the wrong hands. At the very least, a confidentiality or non-compete clause should be implemented to protect the organization.
Q5. Why should our nonprofit organization pick your company?
This may seem like an elementary school question but it could make or break whether your organization chooses that provider. An organization should be looking for a partner that is an expert in nonprofit accounting. The provider should also be proficient in the accounting software and knowledgeable of rules and regulations. Another point that is equally important to consider is how easily the provider could assimilate into the organization. Do the consultants empathize with the mission and does the provider understand the unique needs of the organization?