Wednesday, February 17, 2016

Financial tools help board and management decisions

Nonprofits, like some for-profit companies, have two sets of leaders. The organization’s executive director and its staff have the responsibility for ensuring that the nonprofit operates effectively on a day-to-day basis. At the same time, the organization’s board of directors must ensure that the nonprofit remains relevant and financially sustainable.

Two components that are critical to maintaining healthy relationships between the two factions are shared expectations and the board understanding the organization’s business model, specifically where revenue comes from and how the money is used.
The problem with financial health and sustainability indicators is that many leaders, staff and boards, do not have strong financial management skills. In our work with nonprofits, we have found that providing leadership with visual information, through charts and graphs, is most useful.

One way to share the organization’s financial picture is using a dashboard. Much like a car’s dashboard, it provides decision-makers information quickly and identifies problem areas. Areas to review regularly might include: program impact and outcomes, financial health and sustainability, operational excellence, staff and board development and development of external relationships.

Another tool to use is a mission and matrix map ( This map or a similar illustration explains how each program is funded. It also shows whether programs are self-supporting or draw funds from other programs or fundraising activities. The map equips board members with the financial knowledge and understanding needed.
The matrix exercise can be transformational in helping board members really understand how an organization works. First developed in 1968 by Boston Consulting Group’s Growth-Share Matrix, in “Nonprofit Sustainability: Making Strategic Decisions for Financial Viability,” the authors develop a framework to help integrate financial and social impact considerations into strategic decision-making. 

(Review: reviews/entry/nonprofit sustainability jeanne bell jan masaoka steve zi  mmerman )
Contact Jim Simpson at Financial Technologies Management Group in Indianapolis for assistance in developing your organization’s key performance and financial indicators.
Jim Simpson, CPA and president of Financial Technologies & Management, is a financial leader and trainer, CFO advisor, and forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, Controller and software advisor for over 20 years.

What’s your nonprofit tax IQ?

By Jim Simpson, CPA and president of Financial Technologies & Management

Aren't nonprofit organizations exempt from nonprofit tax issues except employment related taxes?    

The answer is no, but many organization's make this assumption.  With limited accounting and finance staff, there is a tendency to rely too much on other professionals for this knowledge.   It is also important to develop internal capacity to deal with nonprofit tax issues as the board and management are ultimately responsible.  If these nonprofit tax issues aren't dealt with proactively, they can take significant effort and resources to resolve later, reducing your ability to serve others.

The following is some basic nonprofit tax knowledge:

  •  Form 990 - The Internal Revenue Service has updated the Form 990 for 2012 after the major over haul in 2008. 
  •  Health Care Tax Credit - There has been a health care tax credit available for smaller nonprofits with 25 or fewer employees starting in 2010. 
  • Property and Utility Taxes - If your organization owns a building,  Are you sure you are exempt from property and utility taxes? 
  •  Sales and Innkeeper Taxes - If your organization purchases items, are you sure you are exempt from sales and innkeeper taxes.
  • Unemployment Taxes - In Indiana, an nonprofit employer of 3 employees are less should be exempt from State Unemployment and most are exempt from Federal Unemployment taxes. 
  • Other - For Charitable Gaming, do you follow these laws and have systems to be in compliance.  For fundraising events, what steps are you taking to minimize facility fees?  For merchandise or publication sales, what are you doing to minimize any fees or taxes?
More Information - At the end of the article will go into more detail about how to stay in compliance and avoid taxes and penalties.  What are you doing to make sure you are paying no penalties and taxes and staying in compliance.   If this nonprofit tax issues aren't dealt with proactively, they can take significant effort to resolve with significant resources allocated to compliance.  Additionally, these taxes and penalties increase your cost and ability to serve others.

The Internal Revenue Service 2012 Form 990 major updates include the following:  A reminder to not include SS#'s as the IRS and filing organization are required to publicly disclose return upon request.  Schedule F instructions are clarified to let an organization know when they are required to disclose grants and assistance for foreign organizations or individuals.  Part XI, Reconciliation of Net Assets includes new lines for unrealized gains and losses, donated services and use of facilities, investment expenses, and prior period adjustments  that were previously included on Schedule D.  Part IV, List of Officers and Directors no longer requires addresses.  Schedule G, Fundraising Activities is revised to clarify that all contributions, not just charitable contributions, should be reported with the fundraising event.  Schedule L, Transactions with Interested Persons requires the reporting relationship between disqualified person and filing organization.  Schedule O, Supplemental Information requires a filer to list the type and amount of each other expense when it exceeds 10% of the total functional expenses.  Keep in mind the different filing thresholds which include Form 990-N Electronic Notice (e-Postcard) for organization's with gross receipts of $50,000 or less.  Form 990-EZ threshold is gross receipts of $200,000 or less and Total Assets at the end of the tax year less than $500,000.  Form 8868 (extension) may be filed electronically or in paper form.  The IRS Annual Report noted the following common issues:  private benefit and inurement, no filers, political activities, employment tax issues, and organization's not operating as required by exempt status.

The health care tax credit is a great contribution to smaller nonprofit to offset increasing health insurance costs.  It maybe difficult to qualify if the employer contributions to health insurance are not enough or the average salary of your employees exceeds $50,000.

For property, utility, innkeeper, and sales tax exemptions, you need to make sure that you meet the proper filing requirements.     A nonprofit organization must register for a sales tax exemption by filing Form NP-20A, available online at  Form ST-105 is used by nonprofits for sales tax exemptions including the 10 digit state tax ID.   The Sales Tax Information Bulletin #10 lists out the nonprofit sales tax exemption.  Form ST-200 is used for each account to exempt sales taxes from utilities.  GA-110L can be filed to claim a sales tax refund relating to utilities for the current and prior 3 years.  For property exemptions, you need to file Form 136 on the even years along with Form 103 and Form 104.

For IN state unemployment, You are no longer exempt once you employ four or more individuals for a day for 20 weeks during the calendar year. There is no minimum dollar amount associated with this qualification.  You may opt to become a reimbursable employer, as opposed to an employer paying premiums.

Since 1999, Financial Technologies & Management (FTM) is a full service CPA firm providing financial and accounting management and software technology solutions exclusively to over 350 nonprofit and religious organizations.  We work with our clients to provide them with this nonprofit tax expertise along with other financial and accounting management solutions along with software technology solutions.  We have extensive nonprofit experience to meet our clients needs regardless of size.  Our Controller and CFO services insure we provide a full and comprehensive services approach to meet our clients needs.   Contact us today to see how our firm's approach, philosophy, and benefits can help your nonprofit organization.

Characteristics of financially healthy nonprofits

By Jim Simpson, CPA and president of Financial Technologies & Management

Finances are what keep nonprofit leaders up at night. Will they be awarded a grant for the new programming? Will the upcoming fundraising event be successful?

And while most realize that sound financial management is linked to every function of the nonprofit and is essential for organizational success, many leaders have less experience in finance and accounting areas. 

Just as personal health depends on our behaviors, so the financial health of a nonprofit depends on board and management behavior and actions.

As public charities, nonprofits have an obligation to act as responsible stewards, ensure fiscal responsibility and build public trust in managing its financial resources.

Nonprofit should adhere to sound accounting principles to produce timely and reliable financial information.  By establishing clear financial practices and policies, resources will be used and monitored efficiently and effectively.

The following are signs that your nonprofit will be financially healthy over the long term.

Board and management hold themselves accountable and responsible for the long-term stability of financial and program performance.  Leaders need to focus on long-term sustainability of the nonprofit


Board and management understand their roles and responsibilities in financial matters, which are not just limited to the treasurer and director. Regular and consistent communication about fiscal matters is critical. Financial literacy helps to encourage board participation and understanding, including asking donors to give to the organization.


Professional development and financial management training classes are encouraged to increased knowledge and communication and ensure that fiscal matters remain a priority.


Budgets need to be realistic and well-considered during the preparation and approval process.  If last year revenues were down 25 percent, a budget that increases those projected dollars by 10 percent is probably not realistic.

Budgets need to be prepared in tandem with the operating and program needs.  Financially healthy nonprofits engage in income- or revenue-based rather than budget-based spending.  An income- or revenue-based budget will include realistic income projections and realistic cost projections.

Nonprofits need to review the historical and future trends of ensure budges are as accurate as possible and anticipate revenue shortfalls before they exist.


Board and management are committed to having a surplus each year.  These financial reserves are important to finance program growth, capital replacement and cash shortfalls.  If a deficit does occur, a financially healthy organization maintains an operating surplus and positive cash balances.  The operating surplus needs to be readily accessible in times of shortfall or deficits. Separating cash, investment accounts or loans can ensure that reserves are easily accessible. However, a reserve policy should specify the approval process and reserve usage.


Board and management must ensure that they have adequate capacity and qualified financial staff.

Consistent, accurate and timely financial reports are prepared and analyzed by qualified individuals. Financial reports need to be accurate and timely. Establish firm financial reporting expectations and deadlines that are met without excuses. This is an indication of lack of organizational capacity or qualifications of finance and accounting staff.


Board and management monitor financial results compared to budget and continue to modify programs and operations in response to these variances.   It is important to know when to modify programs and operations to ensure stable program and operations performance. Nonprofits should review program financial performance quarterly to ensure that financial results are on track.

Board and management monitor cash flow and realistically plan to be able to meet obligations and ensure stable program and operations performance.  It is important that organization has the ability and knows when to perform cash flow projections and ratio analysis.

Nonprofits need to develop these financial reporting and analysis tools and anticipate when cash flow may become an issue by reviewing upcoming liabilities and debt payments. Cash flow and budget projects should be ongoing tools to help plan and manage cash flow.

Board and management practices and policies establish adequate and appropriate internal controls and segregation of duties to ensure fiscal stewardship, responsibility and ensure public trust. 

These practices and policies should include operating reserve and other major financial decisions.  Financial policies and procedures help to define clear expectations, promote operating efficiencies and help with training and professional development. Developing a financial policies and procedures manual software training can ensure ongoing compliance.

Leadership is committed to comply with all required legal and funder reporting. This includes application of prompt payment standards and familiarization and compliance with contract and grant requirements. It is important that contract and grant management are being performed to ensure stable program and operations performance.

Board and staff leadership regularly review plans and develop goals and strategies for the future. Regular communication regarding financial matters should include financial reporting, budgeting, taxes, auditing and financial compliance. It is important that financial reporting and analysis tools are customized to the nonprofit’s specific needs and purposes.

Resources used to prepare this article include:
  • Stevens Group at LarsonAllen, St. Paul, MN. Seven characteristics of financially healthy nonprofits.

Jim Simpson, CPA and president of Financial Technologies & Management, is a financial leader and trainer, CFO advisor, and forensic accountant to nonprofit organizations since 1999, serving over 350 nonprofit clients. He has worked as a CFO, controller and software advisor for over 20 years.

Contact Financial Technologies &Management to see how we can help your nonprofit become a financially healthier nonprofit.