Nonprofit organizations provide our communities with many useful and oftentimes life-saving services. Nonprofits tend to focus on their causes rather than their profit margins. However, this doesn’t mean that nonprofits focus less on their financial information than corporations. In fact, nonprofits must closely scrutinize their numbers to improve program efficiencies and meet various funding requirements and limitations.
Obtaining financial intelligence while also achieving their mission can be difficult, but it doesn’t have to be. Here are three reasons many nonprofits are outsourcing their bookkeeping and other financial processes.
#1-Relieve the Burden on In-House Staff
Many nonprofits operate under incredibly tight budgets. As a result, they tend to employ fewer staff members than a for-profit organization. More than not, the employees must juggle multiple roles to offset the limitation of staffing. For example, the Operations Director of a nonprofit may also be in charge of payroll, bookkeeping, human resources, facilities management, and even IT support.
Bookkeeping is a time-consuming process that cannot be pushed aside when dealing with multiple responsibilities. For this reason, a growing number of nonprofits are turning to outsourced bookkeeping as a way to better divide work among staff. Moving bookkeeping, payroll, and other organizational financial responsibilities to an outsourced service provider allows the staff to focus on other areas of the business. Once employee(s) are no longer distracted by having to manage the finances, they can devote their time to mission-focused tasks such as building engagement, attracting more donors through fundraising efforts, and improving program development and delivery – all of which work to better the financial position of the organization.
#2-Save on Labor Costs
When a nonprofit’s bookkeeping responsibilities grow enough to require the hiring of a part-time or full-time bookkeeper, many costs arise. Not only will the agency’s administration payroll increase, but the addition will also impact the hardware/software budget, the training budget, and let’s not forget the pinch on office space. Besides hourly wage or salary, these costs will also include:
- Recruiting, hiring, training, managing and retaining the employee
- Social Security, Medicare, and unemployment taxes
- Health insurance and other fringe benefits
- Sick time, vacation time, and other leave
By utilizing an outsourced bookkeeping service, a nonprofit removes the guesswork involved with determining their annual expenses. They start building a scheduled and recurring monthly payment for services improving their ability to plan the budget for the year. For the majority of organizations that work with limited and sometimes shrinking budgets, consistency in spending is very important.
Agencies that outsource their bookkeeping usually experience an overall reduction in costs vs. having in-house employees. These cost savings could allow the organization to hire more staff or improve the current staff’s salaries, which in turn can further reduce expenses associated with turnover.
#3-Keeping on Top of Their Tax Returns
While most nonprofits are tax-exempt, they still need to file tax returns each year for the IRS. Actually the tax return for nonprofits is one of the most complicated returns to file as there are many rules around reporting revenue and expenses for 501C3 organizations. Revenue can come from services the organization provides, admission (museums, theaters, and other arts organizations), fundraising or donations, and many other areas.
Whatever way the money enters the organization, it needs to be reflected appropriately on the organization’s tax forms. For example, some donors are sustainers, in that they donate a regular amount each month, other donations are one-time gifts or in-kind contributions. These donors may require receipts and other tax-related information in order to write off their contributions. Outsourced bookkeeping can provide the resources, knowledge, and experience required to handle all of these additional tasks while navigating the continually changing tax requirements and codes. This eliminates a difficult responsibility for a nonprofit that is already understaffed and under-budget.
Nonprofit organizations often can benefit from moving to an outsourced bookkeeping and accounting solution, by freeing up staff to focus on the mission, getting the expertise and guidance they need to reduce expenses and increase revenue while ensuring compliance and tax readiness.