Leveraging Accounting for Nonprofit Success
By Dan H. Hart
Growing as a nonprofit opens you to a realm of decision-making, which will involve
leveraging your accounting practices and how to best execute them. Regardless of how you view
accounting, every organization is required to maintain good bookkeeping practices for tax
purposes, federal and state laws, and potential audits. As a nonprofit, the faith of your donors and
beneficiaries relies partly on the accuracy and reliability of your financial transparency. Nonprofit
leaders have a fiduciary duty to their donors, themselves, and the board of directors. How you
leverage your accounting and who or what you choose to perform your accounting will speak
volumes about your mission.
Some organizations may feel that accounting simply needs to get done and will hire
whoever is available to get the bookkeeping out of the way. A select few organizations will take
advantage of their accounting work and use it to project their business into the future, whether it be
by managing cash wisely or targeting growth opportunities. However an organization elects to
maintain finances is up to it, but it will impact the way the organization is perceived and its growth
potential. There are several ways that an organization can maintain its finances through accounting
and bookkeeping practices. There is no best way, though there are options that will better
synchronize with a nonprofit’s culture.
Accounting Options
The option you choose for accomplishing your accounting needs will depend on a few
different factors, including the size of your organization (number of employees), your annual
receipts/income, and your goals. Options for performing accounting needs are generally divided
into two categories: in-house accounting and outsourced accounting. In-house accounting would
involve hiring an accounting team that handles everything from bookkeeping to financial reporting
and budgeting. Outsourced accounting does involve full-service firms, but it can also involve
several different types of firms that only focus on a few types of accounting. Here is a list of
accounting options:
In-House Accounting
Outsourced Accounting
a. Full-Service Accounting Firm
b. Accounting Firm
c. Bookkeeping Firm
d. Tax Firm
e. Audit Firm
f. Business Advisory Firm
Mixed In-House and Outsourced
In-House Accounting
Finding and hiring accountants for your firm is an excellent option, but it can come at a
steep cost. If you need a single accounting specialist to cover 40 hours per week or less, finding
affordable talent that understands nonprofit accounting and your mission will be difficult. At a
minimum, you will need a bookkeeper to record and categorize your transactions; however, it is
always preferable to have an accountant who understands and performs more advanced functions
from capital management to budget planning. Finding part-time help is certainly an option; finding
experienced and committed part-time help is incredibly difficult.
According to Indeed, the average Bookkeeper's salary is around $46K per year, and the
average Accountant's salary is around $64K. Remember that these costs do not include benefits,
hiring and training costs, or turnover, which is estimated to be up to an additional $12+ per hour
($25K per year) based on data provided by the U.S. Bureau of Labor Statistics. This puts the cost of
your accountant at $90K+ per year. As a nonprofit, if your annual receipts are under $1 million per
year, this is not a very affordable cost. A single accountant will take up nearly 10% of your annual
budget.
Boost CPA and Conall Dunne & Company agree that organizations should allocate no more
than 4% of their annual budget to accounting. At $1 million per year, you shouldn’t be spending
more than $40K of your annual budget on accounting and related administrative costs. For $500K, it
would be $20K, and $100K would be $4K. This is not a very large amount. Finding part-time help is
an option, although finding experienced and committed part-time help is incredibly difficult.
Additionally, Nonprofits must complete 990 tax forms and may require an annual audit. If you are in
this bucket, I suggest you skip ahead to options for Outsourced Accounting, as it will be the most
efficient and economical option.
Having in-house accounting staff - and potentially a finance director or CFO - will not
become economical until you can allocate $200K of your budget ($5 million), meaning you can hire
two dedicated accounting/finance staff. Why is it important to have more than one accountant?
The answer is simple: training and expertise. If the worst-case scenario happens and an accountant
leaves without any notice (which is not uncommon among today’s workforce), then you will need a
current staff member to train a new accountant on the organization’s needs and processes.
Unfortunately, the scenario described above is still not ideal because it does not consider
an additional variable: time. Organizations need staff members (such as a finance director)
dedicated to sourcing funding, budgeting, managing cash flows, and projecting financial growth;
however, a single accountant dedicating 30 to 40 hours per week to a $5 million organization is
excessive. An experienced accounting team could do the work in a fraction of the time.
At this point, you may believe that we are trying to convince you not to use in-house
accounting staff. On the contrary, we believe that in-house accounting staff are the ideal. Still, they
are best implemented in larger organizations that can afford large accounting teams with staff
dedicated to multiple areas of the organization’s fiduciary needs, such as donations and grants,
billing, bookkeeping, capital management, financial growth, etc.
Outsourced Accounting
Regardless of whether you are a larger or smaller organization, it is important to consider
the economics, safety, and expertise that an outsourced accounting firm can bring, especially to
nonprofits. Few colleges offer bachelor-level courses dedicated to nonprofit accounting. Nonprofit
accounting is often a trade best learned in organizations dedicated to that practice. Outsourcing
your accounting to another firm is not as simple as choosing a firm dedicated to nonprofit
accounting. As noted in our list of options, several different types of firms dedicate themselves to
different aspects of the accounting process. Pricing and expertise will vary.
Full-Service Accounting Firms
Some firms will offer the full suite of services, including audits, but most nonprofits will still
be required to obtain audits from an independent third party. You will be able to obtain most of your
needs with these firms. To be a full-service firm that can be your tax representative, perform SOC-
level audits, and perform assurance services, it is required to have a resident CPA and for the firm
to be registered with the state’s board of accountancy. Many CPA firms fall into this category, but
not all. Some familiar firms that fall in this category are Price Waterhouse Cooper and Deloitte.
CPA firms are an excellent resource for your accounting needs, and they will address your
needs without question. However, their services frequently come at a steep price. CPA hourly rates
can range anywhere from $150 to $400 per hour. The rates can vary depending on the service. Some
will charge significantly less for bookkeeping services. Nonprofits under $500K in annual receipts
will likely need an average of 10 hours or less each month. 10 hours each month at an average of
$150 per hour will equate to $1,500 monthly and $18,000 annually. Remember, you may still need
to go to another CPA firm for a state or government required audit. This is a reliable road, but it does
not mean that it is the most efficient or economical.
Accounting and Bookkeeping Firms
Today, many firms offer combined bookkeeping and accounting services. There is a
difference between the two, as many accountants will gladly tell you. These types of services can
be performed by large firms or small independent bookkeepers. This is usually a more economical
cost than full-service CPA firms, while still being just as efficient. Prices vary greatly, but they can
still be expensive even if they are not a dedicated CPA firm. Bookkeeping alone can cost up to $100
per hour or more. Accounting services can cost significantly more.
These firms usually fall into two camps. One camp will charge you by the hour and the other
will charge a flat monthly rate based on your needs. Monthly rates often lead to nonprofit
organizations falling victim to emerging technologies rather than benefiting from them.
Accounting and Bookkeeping firms dedicated to nonprofits will be one of your best options
both for budget and efficiency needs. They will provide industry expertise and a standardized
system to accomplish your accounting needs.
Tax Firms
If you elect to use an accounting and bookkeeping firm, you will still need to go through
another firm or CPA to complete your taxes. CPAs are ideal because they can legally represent you
to the IRS, but many dedicated tax firms often have resident CPAs. Tax firms will usually charge
more than your average accounting and bookkeeping firm, but thankfully it is limited to a few hours
per year. Like all aspects of accounting, it depends on the size of your organization. It is common for
nonprofits that require audits to have the audit and taxes performed by the same organization.
Audit Firms
SOC-type audits and attestations can only be performed by CPAs and registered firms.
Audits will usually come at a high cost, and it is required annually for nonprofits in some states.
While the cost may not be ideal, audits will typically include a final report containing published
financials and associated information, which can be shared with board members and donors. Even
if a nonprofit is not required, audits with their associated reports are an excellent method to provide
transparency and evidence of proper fund management to stakeholders (donors, shareholders,
employees, volunteers, media, etc.)
Business Advisory Firm
All the previous services focus on ensuring proper data management and accurate financial
reporting. Business Advisory Firms are focused on leveraging that information and helping
organizations to make strategic decisions to enable financial growth and mission fulfillment. These
services can be included in full-service firms, but not always. Many firms advertise this as a CFO
support service. They provide experienced CFOs to be your advisors with prices competitive to
hiring a part-time CFO. These services are extremely beneficial to organizations that need direction
in developing their mission and creating financial growth. They can help you develop a stronger
network with your community, which will lead to more donations and grant opportunities.
Mixed
Now that you have an idea of the different options available to you to fulfill our accounting
and financial needs, you are not limited to any one option. Since many nonprofits require an audit
from a third-party, they will often go through at least two firms. Keep in mind that no matter what
option you choose, staff members will still need to be involved in the accounting process to provide
input and direction on financial data. Accounting for nonprofits is very much a social trade. It can’t
be completed without frequent communication.
Because accounting will always require input from organization staff, one of the best ways
for smaller organizations to leverage their accounting is to mix in-house and outsourced services
together. For example, a staff member that is able to focus on gathering donations, obtaining
grants, and managing community events in conjunction with an outsourced accounting team will
be a valuable step towards successfully managing your nonprofit finances.
Choosing
So how do you choose which is the most efficient for you? Take the time to look at your firm
and make a simple pros and cons list of each accounting option. Decide which option best
matches your nonprofit’s mission and vision. For firms that can afford it, I personally recommend
the mixed option. Bookkeepers are difficult enough to find, and it is often cheaper to go to third
parties. It is better to focus on hiring in-house talent that is adept in approaching challenges that
require more familiarity with a nonprofit’s daily operations. This might include hiring financial
professionals that focus entirely on generating donations for the nonprofit through fundraising,
grant writing, and nonprofit programs.
If there is one thing to take from this, it is the importance of accounting and finance in
nonprofits. It is not as simple as picking the cheapest or most convenient options. Taking the time
to thoroughly understand what your organization needs can make a huge difference in magnifying
your nonprofit vision no matter how big or small. The right option can save you money and enable
new opportunities from increasing contributions to expanding your programs.
If you need help, Carrack Accounting Services can help you find the right options for you. We offer a
two-hour free consultation, and we can help guide you in the right direction.
References
https://boostcpa.ca/how-much-should-my-accounting-
cost/#:~:text=But%20in%20general%20terms%2C%20the,%E2%80%93%204%25%20of%20gross
%20revenue.
https://www.care.com/business/employee-benefit-
costs/#:~:text=Based%20on%202023%20data%20from,cost%20of%20%2441.03%20per%20hour.
https://www.councilofnonprofits.org/running-nonprofit/nonprofit-audit-guidec/state-law-
nonprofit-audit-requirements
https://dunneaccountants.com/how-much-should-my-accountant-cost/
https://www.forbes.com/advisor/business/accountant-cost/
https://www.freshbooks.com/hub/bookkeeping/how-much-does-bookkeeping-
cost#:~:text=Part%20time%20bookkeepers%20will%20charge,month%20for%20basic%20bookke
eping%20tasks.
https://www.indeed.com/career/accountant/salaries
https://www.indeed.com/career/bookkeeper/salaries
https://www.indeed.com/hire/c/info/business-accountant-cost
https://www.remotebooksonline.com/blog/how-much-cpa-charges-per-
hour#:~:text=On%20average%2C%20CPA%20hourly%20rates,audit%20services%20commanding
%20higher%20rates.
https://tax.thomsonreuters.com/en/insights/articles/how-to-start-an-accounting-firm