Outsourcing Your Nonprofit’s Bookkeeping: Why or Why Not?

March 24, 2014

As with most of your non-profit’s business management decisions, there are both pros and cons. Here’s a look at some of them.

Financial AccountsAs a nonprofit organization, managing your financial accounts is a greater challenge than it is for many other types of small businesses. You have regulations and requirements that for-profit businesses don’t.

Further, there’s the whole stewardship issue. You’re not exchanging goods and services with the goal of enriching shareholders or the company itself. You have a more altruistic mission. People give you money because your cause is worthy of it, without expecting a furniture store truck to back up in their driveway. You have to spend those dollars as judiciously as possible.

Unless you happen to have a CPA offering you free services, you’ll need to weigh the advantages and disadvantages of outsourcing your organization’s accounting vs. handling it in-house. It’s not an all-or-nothing proposition: You may actually be able to do some of both.

First Steps

Your basic needs as a nonprofit are not so different than a typical for-profit business. You need to have your receivables and payables processed, as well as budgets and forecasts and reports. Your accounts must be reconciled regularly, your taxes prepared and filed, and your payroll managed.

But as you know, some things are done a little differently so you’ll remain in compliance and maintain your nonprofit status.

Before you decide, whether you’re launching a new nonprofit or you’re unhappy with your current accounting situation, ask yourself a few questions.

If you’re considering going it alone:

  • Do you have someone on the staff with enough accounting experience to master a not-for-profit accounting solution?
  • Will your hardware accommodate the software? Cloud or desktop?
  • What about backup for this individual? Can someone step in if there’s an emergency?
  • Will you still need to contract with an outside professional for the more complicated financial tasks?
  • What’s the total cost involved (software and hardware, staff time, etc.)

Enough Accounting ExperienceIf you’re thinking about outsourcing:

  • Will you need the equivalent of full- or part-time hours?
  • Do you need a CPA firm, or will a bookkeeper or other accounting professional work?
  • Will you still be able to deal with some transactions in the office?
  • Looking for someone local, or can you broaden your search?
  • How much can you afford?

Finding a Local Hero

Obviously, your decision will depend in large part on the answers to these questions. But here are some examples of the advantages and disadvantages of each option.

TaxesIf you do your accounting in-house, you’ll be able to make day-to-day decisions about your cash flow – and write checks, run reports, etc. — without contacting your outsourced partner. Your financial professional will be a part of the staff, so he or she will be able to interact easily with both management and staff. You may find that this route is less expensive.

On the other hand, employees are expensive when you consider benefits, taxes, etc., and it’s difficult to find someone who can handle all aspects of your finances. Can you find off-the-shelf software that will work, or will you need expensive modifications? What happens if you’re audited by the IRS? What if your taxes are too complex to prepare?

Remote Expertise

Outsourcing has its downsides, too. Bringing in an outside professional will take some time, since he or she will have to learn everything about your finances. And what about instant availability? How quickly can the outside firm respond in a crisis, and how open will the channels of communication be? Will you be able to access the data you need, when and where you need it?

On the other hand, you may find it more cost-effective since you’re buying a whole slate of services from someone who can perform faster and with a comprehensive base of knowledge. You will feel more confident knowing that your outsourced firm understands the special needs of nonprofits.

Your company can hire a firm outside of your geographical area, so you’ll have many more options. There’ll be no vacations or sick days, disability leaves or unexpected exits. And if you have unusual or complex financial needs, outsourcing will provide more flexibility and familiarity with complicated scenarios.

“Good” and “Bad” are Relative

There’s no “right” answer here. Your nonprofit organization’s needs, structure and culture are unique. The preferred scenario is the one that works for you.

Stock images courtesy of FreeDigitalPhotos.net

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