Easy Office Blog

Of the 1.1 million non-profits in the US, 90+% have an annual budget of under $1M.  A very high percentage of those have an annual budget of under $100,000.  There is frequent talk of the need for non-profits to merge.  The conventional wisdom goes that there are too many small non-profits, performing uncoordinated redundant tasks.  Conventional wisdom also states that because they are small, they can never attain the scale to run efficiently, i.e. the small folks spend too much on administrative costs.

While much of this is true, I have a different philosophy.  I feel that one of the key roles that non-profits play in society is as niche-fillers.  Societies major institutions are governments, educational institutions, corporations, and religious institutions.  I believe that non-profits, in part, exist to fill the cracks between these major building blocks.  In essence, non-profits pick up where others fail.  If you agree that this is a primary role of non-profits, then small is beautiful.  A smaller, more nimble, organization can more readily fill those cracks in society.

As to mergers or shared cooperatives, the primary issue tends to be around people.  Who is going to lead the merger?  What is the new name going to be?  Who will be the Executive Director and who will be the Assistant?  As to cooperatives, like the hen baking bread, everyone wants the benefits but no one wants to organize them.  This is part of the reason why we created Easy Office.  We can deliver the scale, access to technology, and expertise that no single organization can reasonably afford on their own.  We enable the non-profit sector to stay relatively small and nimble.  And our shared service approach allows the service to be affordable and accessible for even the smallest of non-profits. 

Good article put out by Blue Avocado nonprofit magazine (http://www.blueavocado.org/content/our-executive-director-embezzling) on an issue that is all too prevalent in the nonprofit sector.  In our experience with hundreds of nonprofits throughout the country, we estimate that at least 5% have experience with some level of fraud or embezzlement.  We see everything from fraud in how expenses have been disclosed to outright missing funds.  There are simple steps that any sized nonprofit can and should take to help prevent this.

In almost all cases of fraud, the following things exist:  perceived need, justification, and opportunity.  Folks who are struggling to pay bills, or Bernie Madoff who wants a million dollar home, both have perceived need.  Folks who feel mistreated at work, underpaid, or overworked can all justify fraud in their minds.  "I'm just getting what I should be being paid anyway."  There are things that can be done in employee and volunteer screening - like credit checks - that can help identify risk associated with need.  There are things that can be done in leadership and morale related to justification.  But the biggest area where small and mid-sized nonprofits can improve is around "opportunity."  Simple checks-and-balances should be employed in even the smallest nonprofit to limit the opportunity for fraud.  If people know no one is looking and no one ever looks, the door of opportunity is opened.  Once need and justification enters someone's head, fraud can follow.

Simple checks-and-balances include things like segregating duties and enforcing simple policies.  For example, the person handling donations shouldn't be the person cutting checks.  Also, have a separate person or company process the bank reconciliations.  This provides a very simple - few hours a month - way to discover if what happened in the bank is what is recorded in your accounting system.

Fraud can't be eliminated, but it can be reduced.  Be prepared and smart out there!  We serve a great variety of needs, the more we can focus and channel to productive activities and to our missions, the better.

There are a lot of accounting software options out there for non-profits.  When picking an accounting solution, there is always a trade-off between cost and quality. 

Cost can be thought of relatively straight-forward : what does it cost to buy this thing, configure this thing, and run this thing.  Most smaller packages such as Quickbooks require very little configuration.  It is what it is.  Larger software packages such as NetSuite, MIP Fund by Sage, Financial Edge by Blackbaud can require extensive time and energy (and $$) for consultants to turn on and off the hundreds of features to fit your exact needs. It costs more, but it'll fit perfectly.  We often say that QuickBooks does 95% of what needs to be done for 90% of small and mid-sized non-profits (<$2M annual budget).

Quality can be broken out into the application itself, and ecosystem that exists to support it.  Certain larger software has better audit trails, management is able to place tighter controls on who sees what data, etc.  But on another quality dimension, such as Ease of Use, QuickBooks has very high quality.  But that same ease of use can give you too much flexiblity at times - enough freedom to hurt yourself.  The big difference in quality is the ecosystem that QuickBooks has to support it.  Thousands of bookkeepers across the country - of varying quality! - know and use Quickbooks.  And if you want to convert to / from Quickbooks, almost every accounting software that exists makes it very easy to do so.  Quickbooks dominates in terms of market share and this creates a vast ecosystem of trainers, users, and technology support that helps everyone.

In summary, picking an accounting solution can be complex for larger organizations.  We have helped many groups walk through that process.  And Easy Office currently helps a variety of groups using a variety of accounting software packages.  But for most small non-profits (<$2M annual budget), we generally recommend Quickbooks because of the cost and flexiblity.  That said, we know that there are a lot of horror stories out there about Quickbooks falling apart, but we've found in almost every case it could have been avoided by improving the set-up of QuickBooks and proper training on the procedures to use within QuickBooks.

Lastly, for another opinion on the topic, here is a nice article written a few years back by the good people at Tech Soup.
http://www.techsoup.org/learningcenter/software/page5144.cfm?cg=fundraising&sg=wk3

We find ourselves often talking with clients about the benefits of outsourcing and using a solution like Easy Office.  One thing that we frequently talk about is the idea that you are getting a team, not just an individual.  An accounting department requires a variety of skills - someone who knows the ins and outs of the system - be it Quickbooks or otherwise, someone who can perform financial analysis, someone who can read and interpret financial statements, someone who knows the intricate IRS rules on grant allocations, etc. 

Often non-profits can struggle to find all of that in a single person.  If you get someone overly qualified, they get bored doing the day to day bookkeeping.  If you get somoene who is great at data entry and bookkeeping, you may sacrifice quality in the higher level, more complex tasks.  Outsourcing to a team-based service provider, instead of outsourcing to an individual freelancer or consultant, can be a really good cost-effective way to get access to a whole variety of skills.

As our collective eyes turn towards 2010, it isn’t too early – or too late – to get your budget prepared for the New Year.  Most organizations focus their time and energy budgeting expenses.  But remember to take the time to also budget your income and cash flow.  It can also be very helpful to break the budget out on a quarterly or monthly basis, not just on an annual basis.  This will help you prevent cash flow shortages from sneaking up on you as expenses tend to be smoother than donations.  Lastly, Easy Office does prepare budgets for many of our clients, large and small, so if there is any way we can help, please contact us.