Business banking relationships are a critical aspect of any company’s financial success. However, these relationships aren’t always as stable as they might seem, especially when changes happen behind the scenes, like a bank acquisition.
In this blog, we’ll discuss why it’s important to maintain an active relationship with your business bank, how a bank acquisition can impact your existing agreements, and what steps you should take to ensure your business continues to receive the financial support it needs.
Bank Acquisitions Can Change the Game
Imagine this: you’ve been working with the same bank for years, building a relationship with your banker, and then one day, your bank is acquired by a new institution. Suddenly, things that used to be simple are now uncertain. The new bank could have a completely different set of policies. Their credit requirements, fees, and even the services you’ve come to rely on might change. Your long-standing banker or relationship manager might leave, and you find yourself having to start from scratch with someone new.
It’s easy to overlook these potential shifts, especially if you’ve trusted the same institution for a long time. But when your bank is acquired, your relationship doesn’t carry the same weight as before. You’re now essentially a client of a new bank, and that trusted connection you’ve built might need to be rebuilt.
The Importance of Annual Check-Ins with Your Bank
Given how banking relationships can change, it’s a good idea to schedule regular check-ins with your business banker—especially if your bank has undergone any major changes. During these conversations, don’t hesitate to ask important questions like, “How do I rank within your portfolio?” and “Where do you see my relationship fitting within the bank?”
These questions allow you to get a sense of where your business stands and what the bank values about your relationship. It’s also a good time to assess if the relationship is still beneficial to both parties. After all, banking should be a win-win for both the business and the bank. Regular communication can help maintain that balance.
The Takeaway: Stay Proactive in Your Banking Relationships
Just because you’ve had a strong relationship with a bank in the past doesn’t mean it will automatically carry over, especially after a major change like an acquisition. Staying proactive and having open, transparent conversations with your bank is key to ensuring your business continues to receive the support it needs.
At Signature Analytics, we understand the importance of having a strong advocate when navigating these banking relationships. Whether it’s asking the right questions or providing accurate financial reports, our team can help ensure your business remains loan-ready and in good standing with your bank.
About Signature Analytics
Signature Analytics is the smart choice for business owners. With the support of our outsourced accounting and CFO Business Advisory services, your business can make smarter decisions based on accurate data.
We customize the right solution for your business to get you the Accurate, Relevant, and Timely (ART) financials you need to run your business successfully. Contact our team of experts for expert accounting and financial analysis.
https://signatureanalytics.com/wp-content/uploads/maxresdefault-5-1.jpg7201280supporthttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngsupport2024-10-07 16:53:012024-10-07 16:53:01Know Where You Stand with Your Business Banking Relationship
In the nonprofit sector, managing fluctuating revenue streams is a persistent challenge that demands strategic foresight and adaptability. Recent events, particularly the “generosity crisis” emerging in the wake of the Covid-19 pandemic, have underscored the critical importance of effective revenue management for organizations committed to serving their communities.
Understanding the Generosity Crisis Post-Covid
During the height of the pandemic, nonprofits experienced an unprecedented surge in donations, enabling them to expand their operations and meet heightened service demands. However, as the world gradually emerges from the crisis, the funding landscape has shifted significantly.
Many organizations now find themselves facing a decline in funding, leading to larger budgets, reduced revenue, and an unwavering commitment to addressing community needs.
The Budgeting Challenge in Times of Reduced Revenue
With the persistent high demand for services, nonprofits face the tough decision of aligning their operational capabilities with the available funding. Budgeting becomes a critical tool, especially when a significant portion of expenses is tied to staffing. Organizations must carefully evaluate their service offerings against their financial reality to ensure sustainability.
“Ensuring long-term sustainability in the face of fluctuating funding requires strategic leadership, robust budgeting, and proactive cash flow management, enabling nonprofits to continue their critical work in the community.”
Collaboration as a Strategy for Efficiency
In response to these challenges, some nonprofits are turning to collaborations with other service providers. This approach allows for a more efficient allocation of resources and enhances the ability to meet community needs, showcasing adaptability in a shifting funding landscape.
Successful Navigation Through Strategic Leadership
Key to navigating the generosity crisis is the engagement of an organization’s executive team and board. Successful nonprofits have demonstrated the importance of maintaining adequate reserves, embracing robust budgeting processes, and ensuring proactive cash flow management. These practices are foundational for long-term sustainability and effective response to community needs.
The Importance of Cash Flow Forecasting
Cash flow forecasting emerges as a crucial practice, enabling organizations to plan beyond the immediate budget constraints. This foresight allows for the strategic allocation of resources, ensuring that nonprofits can continue their vital work without depleting their reserves unnecessarily.
The post-Covid generosity crisis poses significant challenges for nonprofits. Through strategic budgeting, collaboration, and proactive financial management, organizations can navigate these turbulent times, continuing to deliver essential services to their communities.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Strategies-for-Navigating-Fluctuating-Revenue-for-Nonprofits.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-08-30 17:39:322024-10-01 23:09:21Strategies for Navigating Fluctuating Revenue for Nonprofits
In California, nonprofit organizations with as little as $2 million in revenue are mandated to undergo financial statement audits. This relatively low threshold presents a significant challenge for many nonprofits, highlighting a gap between the stringent audit requirements and the available internal financial management capacities of these organizations.
The Digital Audit Dilemma: Case Study
“Effective financial management and digital readiness are not just about compliance; they’re about ensuring your nonprofit can respond with agility and confidence when audit time comes.”
Transitioning to digital audits means moving away from traditional paper-based record-keeping systems to more modern, electronic methods. For many nonprofits, this shift can be challenging, especially if they haven’t adequately prepared for it.
Imagine a nonprofit organization that has been managing its financial records using paper documents for years. When it’s time for their audit, they realize they need to digitize these records to comply with the audit process. However, this transition isn’t as straightforward as they had hoped.
The nonprofit faces various obstacles during this digital transformation. They encounter difficulties in scanning and organizing their paper documents into digital formats. As a result, the audit process gets delayed, causing frustration and added stress for the organization.
Moreover, as they delve into the digital realm, they uncover inefficiencies in their document management system. They realize that their existing processes are not optimized for digital audits, leading to errors, confusion, and ultimately, a less effective audit process.
In essence, this case study illustrates the challenges nonprofits may encounter when transitioning to digital audits. It underscores the importance of being prepared for such changes and emphasizes that effective financial management and digital readiness are essential for nonprofits to navigate audits successfully.
Proactive Financial Management: Key to Audit Success
The cornerstone of a successful audit lies in robust and proactive financial management. Organizations that maintain diligent monthly financial closing and reconciliation practices find themselves better equipped to address the auditors’ requests efficiently. This preparedness can significantly reduce the audit’s impact on the organization’s operations.
Establishing Strong Financial Systems
A comprehensive approach to audit preparation goes beyond basic record-keeping. It requires a deep understanding of financial reconciliation and the ability to produce detailed, accurate financial schedules. Educating the accounting team on these practices is vital to building confidence in the organization’s financial statements.
Embracing Technological Solutions
To navigate the complexities of modern audits, nonprofits must leverage technology. This not only facilitates meeting the digital expectations of auditors but also enhances the organization’s overall financial management processes, making them more streamlined and efficient.
For nonprofits, particularly in California, navigating the audit process with a proactive and technologically adept financial strategy is crucial. By fortifying their financial systems and processes, nonprofits can ensure that they not only comply with audit requirements but also reinforce their financial integrity and operational effectiveness.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Streamlining-the-Audit-Process-Enhancing-Nonprofit-Financial-Systems.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-08-11 17:44:152024-10-01 23:09:22Streamlining the Audit Process: Enhancing Nonprofit Financial Systems
Adopting for-profit business strategies to ensure organizational resilience and effectiveness is a strategy many nonprofits overlook. This approach is particularly pertinent in times of financial uncertainty, where traditional funding sources may dwindle.
Critical Relationships and Strategic Management
At the cornerstone of a for profit financial management strategy is a robust relationship with the organization’s board and, specifically, its finance committee. These entities play a pivotal role in backing decisions and guiding the nonprofit through financial landscapes. Their recommendations are not just suggestions but vital components of a strategic approach to financial management.
Beyond the Net Zero Budget
A significant departure from traditional nonprofit budgeting is the move away from a net zero budget. The reality is that financial outcomes can often deviate from projections. Therefore, having a flexible budget that accommodates for unforeseen circumstances is crucial. This flexibility often hinges on the availability of reserves.
“A deeper level of reserves can be a game-changer in times of reduced funding,”
Planning for the Future
Looking ahead, nonprofits must strategically assess their funding sources. The aim should be to secure funding that aligns with the organization’s mission and operational needs, especially prioritizing unrestricted funds. While restricted funds can support specific projects, unrestricted funds provide the flexibility necessary to navigate uncertain financial waters.
Nonprofits would do well to adopt a more business-like approach to their financial and organizational management. By building strong board relationships, maintaining a strategic reserve, and carefully selecting funding opportunities, nonprofits can enhance their sustainability and continue to thrive in changing environments.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Managing-a-nonprofit-to-the-standards-of-a-for-profit.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-06-08 15:09:552024-10-01 23:09:23Adopting For-profit Strategies for Nonprofit Success
Audit challenges often signal deeper issues within a nonprofit’s financial management system. Organizations typically rely on internal accounting teams, which may consist of individuals who have grown within the organization. While these team members are invaluable, the complexity of audit processes necessitates a higher level of financial sophistication and oversight.
Here’s a closer look at how accurate reporting supports audit processes and fosters financial integrity within nonprofits:
Building Confidence Through Financial Oversight
The audit process is not merely a yearly compliance exercise; it’s a vital mechanism for ensuring the ongoing accuracy of an organization’s financial records. A successful audit confirms the effectiveness of the nonprofit’s financial practices, including regular reconciliations and adherence to robust accounting procedures.
“Behind each number in your financial statements should be a foundation of confidence, built through rigorous review and reconciliation, ensuring the financial health and integrity of your organization.”
The Role of Monthly Close Procedures
For stakeholders, from CEOs to board members, having confidence in financial statements is paramount. This confidence is built on comprehensive monthly close procedures that ensure the accuracy and reliability of financial data. These procedures are essential for producing timely, relevant financial statements that stakeholders can trust.
Beyond Bank Reconciliations: A Holistic View of Financial Health
A thorough financial audit examines more than just cash balances; it assesses the organization’s entire financial position. This includes investments, fixed assets, and other critical financial indicators, ensuring a comprehensive understanding of the nonprofit’s financial health.
Final Notes
An effective audit process is foundational to a nonprofit’s financial integrity. By emphasizing rigorous financial oversight and monthly close procedures, organizations can ensure their financial statements accurately reflect their fiscal health, fostering trust among all stakeholders.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-How-Accurate-Reporting-Supports-Audit-Processes-for-Nonprofits.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-06-05 17:53:102024-10-01 23:09:23How Accurate Reporting Supports Audit Processes for Nonprofits
Navigating technological challenges is a common hurdle for many nonprofits. To address these issues effectively, it’s crucial to adopt a tailored approach that aligns with the unique requirements of each organization.
Let’s explore a real-life example that demonstrates how a targeted assessment and customized technology strategy can significantly enhance operational efficiency within a nonprofit.
Case Study: Transitioning from QuickBooks Enterprise to Online
Consider a nonprofit using QuickBooks Enterprise, which lacks the functionality to allocate budgets by specific projects or grants. This limitation forces the organization to rely on cumbersome Excel spreadsheets, introducing inefficiencies and a higher potential for error. Transitioning to QuickBooks Online, which allows for granular budget tracking by grant, exemplifies a strategic shift to more suitable technology, enhancing accuracy and efficiency in financial management.
“Choosing the right technology for a nonprofit goes beyond software features; it’s about aligning with the organization’s mission, ensuring all departments’ needs are met, and preparing for future growth.”
The Importance of a Comprehensive Assessment
A thorough assessment within the initial 30 days of engagement is crucial to understand how technology is utilized and the quality of reporting it generates. This evaluation informs the recommendation for a more fitting system, like QuickBooks Online or other sophisticated solutions such as NetSuite or Sage Intacct, which offer enhanced capabilities for budgeting by grant.
Involving All Stakeholders in the Decision-Making Process
Choosing the right technology extends beyond the finance department. Engaging various organizational departments, such as programs and development, ensures that the selected system meets the diverse needs across the organization, facilitating reports that aid in donor communication or program success analysis.
The RFP Process: Ensuring the Right Fit
A rigorous Request for Proposal (RFP) process is recommended to delineate the organization’s specific needs across different functional areas. By inviting multiple systems to demonstrate their capabilities, nonprofits can ascertain that the chosen solution aligns with their operational requirements and is scalable for future growth.
Selecting the right technological tools is pivotal for nonprofits to streamline their processes and enhance their operational effectiveness. By conducting thorough assessments and involving all stakeholders in a detailed selection process, nonprofits can ensure they invest in technology that not only meets their current needs but also supports their future growth.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Tailoring-Technology-Solutions-to-Nonprofit-Needs.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-17 17:32:062024-10-01 23:09:24Tailoring Technology Solutions to Nonprofit Needs
In the nonprofit sector, especially during times of the generosity crisis, the role of technology and systems integration cannot be underestimated. As organizations navigate the complexities of increased donor engagement and expanding operational scopes, the necessity for cohesive technological solutions becomes paramount.
The Challenge of Disparate Systems
Many nonprofits face the hurdle of disjointed technological frameworks, where essential systems operate in silos, hindering efficiency and data coherence. This fragmentation often leads to the cumbersome task of manual data reconciliation, detracting from the core mission-focused activities.
“Embracing advanced technology and system integration in nonprofits isn’t just an operational upgrade; it’s a strategic move towards greater mission fulfillment and efficiency.”
Case Study: A Journey to Technological Cohesion
Let’s delve into a real-world scenario where a nonprofit grappled with such challenges. Initially plagued by uncommunicative systems, this organization struggled with data management inefficiencies, particularly in managing an expanded donor base during the COVID era.
The Role of CRM and ERP Systems
A robust Customer Relationship Management (CRM) system, integrated with an Enterprise Resource Planning (ERP) system, is crucial for streamlining operations. Such integration not only simplifies accounting and donor management but also eliminates the labor-intensive processes traditionally associated with disparate systems.
Moving Beyond Excel
While Excel has been a staple in organizational data management, its limitations become apparent with scaling. Our case study organization found that reliance on Excel for complex data operations was a bottleneck, signaling the need for more advanced, integrated solutions.
The Impact of Proper Training and Implementation
The transition to more sophisticated systems is not just about the technology itself but also about ensuring that staff are adequately trained. Without proper understanding and utilization, even the most advanced systems can revert users to their “old faithful” Excel spreadsheets, undermining the benefits of technological upgrades.
The journey from technological fragmentation to integration exemplifies a crucial pivot point for nonprofits. By embracing interconnected systems and ensuring comprehensive user training, organizations can significantly enhance their operational efficiency, allowing them to focus more on their mission-critical objectives.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Transforming-Nonprofit-Efficiency-Navigating-Technology-and-Systems-Integration.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-16 07:49:202024-10-01 23:09:24Transforming Nonprofit Efficiency: Navigating Technology and Systems Integration
Nonprofits often face unique challenges in managing their finances, particularly when it comes to budgeting and reserve planning. As our expert Laura points out, a common pitfall for many organizations is the simplistic allocation of annual budgets, spreading funding evenly across 12 months. This approach, however, can strain cash reserves, as operational expenses such as payroll occur regularly, regardless of funding fluctuations.
The Importance of Cash Flow Forecasting
Effective budgeting extends beyond just balancing numbers. It’s about anticipating cash flow dynamics over the fiscal year. Laura recommends a 12-month cash roll-forward approach, which provides a clearer picture of the organization’s financial trajectory, highlighting potential periods of financial stress where dipping into reserves might be necessary.
“Embracing a forward-thinking financial strategy in nonprofits is not merely about survival; it’s about maximizing every dollar’s impact towards the mission’s longevity and effectiveness.”
Adopting a For-Profit Mindset for Fiscal Management
Our discussion underscores the value of borrowing financial strategies from the for-profit sector. Managing a nonprofit shouldn’t always equate to aiming for a zero net budget. Such a strategy limits flexibility and hampers long-term planning. A more nuanced approach involves preparing multiple budget scenarios to accommodate various operational contingencies.
Leveraging Technology for Financial Planning
Looking ahead, the integration of technology in financial planning offers promising avenues for enhancing scenario planning and decision-making. Advanced tools can facilitate detailed analyses, from assessing the impact of cost-of-living adjustments to exploring different funding strategies, ensuring that nonprofits can adapt to changing financial landscapes.
Embracing a forward-thinking financial strategy is not just about sustaining an organization; it’s about ensuring that every dollar contributes to the mission’s longevity and impact. As we navigate the complexities of nonprofit management, it’s clear that a robust approach to budgeting and reserves is not just prudent—it’s essential.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Budget-and-Reserve-Level-Management-for-Nonprofits.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-15 17:20:152024-10-01 23:09:24Budget and Reserve Level Management for Nonprofits
Budgeting is a fundamental process for any nonprofit, crucial for guiding the organization’s financial strategy and operational planning. However, the approach to budgeting can vary significantly among organizations, with best practices often evolving from a blend of experience and strategic insight.
Let’s delve deeper into why accurate and actionable budgeting is crucial for nonprofit organizations:
Collaborative Budgeting: A Best Practice
“A well-crafted budget is not just a financial document; it’s a strategic tool that reflects the collective insights and goals of the entire organization, guiding its path forward.”
A key best practice in nonprofit budgeting is fostering a collaborative process. Engaging various departments, such as programs, development, and operations, in the budgeting process ensures a comprehensive and informed approach. This “bottoms up” strategy allows for a more accurate and strategic financial plan, incorporating insights from those directly involved in the organization’s core activities.
The Pitfalls of Isolated Budgeting
When the finance department operates in isolation, there’s a risk of basing the budget on incorrect assumptions or outdated data. This siloed approach can lead to discrepancies between the budget and actual financial performance, causing strategic misalignments and operational inefficiencies.
Strategic Objectives and Budget Formulation
Effective budgeting aligns with the organization’s strategic objectives, drawing from the goals and plans of different functional areas. This ensures that the budget is not just a series of numbers but a reflection of the organization’s forward-looking strategy and mission-driven activities.
The Impact of Accurate Budgeting
An accurate budget serves as a roadmap for the organization, guiding decision-making and resource allocation. It ensures that the nonprofit can adapt to changing circumstances while staying aligned with its strategic goals, ultimately enhancing its impact and sustainability.
Adopting a collaborative and strategic approach to budgeting is essential for nonprofits aiming to navigate the complexities of financial management while maximizing their impact on the community.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Accurate-Actionable-Budgeting-for-NonProfits.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-12 17:13:592024-10-01 23:09:24Accurate, Actionable Budgeting for Nonprofits
Nonprofits operate under a unique set of financial and regulatory pressures, particularly when it comes to audits and compliance. In regions like California, for instance, nonprofits with over $2 million in revenue are mandated to undergo financial statement audits.
This requirement, while essential for transparency and accountability, introduces a layer of complexity, especially for smaller organizations that may lack the necessary financial expertise.
In this blog, we will discuss the challenges of financial reporting, the importance of infrastructure investment for nonprofits, and strategies for navigating compliance requirements effectively.
The Challenges of Financial Reporting
Compliance is not just a checkbox; it’s an ongoing process that demands detailed attention to financial activities, donor restrictions, and grant requirements. The task is daunting for nonprofits, which often operate with limited staff and resources. The scarcity of accounting talent in the financial market further complicates the matter, making compliance a significant hurdle for many organizations.
“An effective nonprofit operates on a solid administrative foundation, enabling it to fulfill its mission sustainably and maximize its impact on the community.”
Infrastructure Investment: Balancing Programs and Administration
Investment in administrative infrastructure is crucial yet often overlooked in the nonprofit world. While donors and regulatory bodies expect a substantial portion of expenses to be channeled toward programmatic activities, the importance of a robust administrative foundation cannot be understated. Without adequate support structures, such as efficient accounting and finance systems, nonprofits risk undermining their program effectiveness and long-term sustainability.
The Path Forward
For nonprofits facing these challenges, the solution lies in striking a balance between program spending and infrastructure investment. An effective strategy encompasses not only compliance with audit requirements but also a commitment to building a solid administrative foundation, enabling organizations to fulfill their missions more effectively and sustainably.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Audits-Compliance-and-Financial-Reporting-for-Nonprofits.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-10 17:09:202024-10-01 23:09:24Audits, Compliance, and Financial Reporting for Nonprofits
In the wake of the COVID-19 pandemic, the nonprofit sector has encountered what Signature Analytics’ founder, Jason Kruger, and consulting CFO, Laura Bertagnolli, term the “generosity crisis.” This phenomenon describes the challenging scenario where nonprofits, having scaled up operations due to an influx of donations during the pandemic, now face reduced funding while the community’s needs remain high or even greater than before.
The Challenge at Hand
During the pandemic, many nonprofit organizations saw a significant increase in contributions, allowing them to expand services and impact. However, as the immediate crisis subsided, so did the surge in donations, leaving these organizations with expanded capacities but diminished resources. This disparity has forced many nonprofits to reassess their budgets, often relying on reserves to balance their finances.
Strategic Responses to the Crisis
One critical area of focus is budget management, especially given that staffing typically accounts for around 60% of a nonprofit’s budget. Organizations must scrutinize their service offerings against their operational capacity, a task that is as challenging as it is necessary.
“Nonprofits must examine whether they can sustain their current level of infrastructure in the face of reduced funding”
Successful nonprofits have navigated these turbulent waters by fostering strong executive teams and board engagement. Effective boards actively oversee reserve levels, ensuring the organization maintains a sustainable financial cushion. Additionally, a robust budgeting process that adopts a bottoms-up approach, coupled with diligent cash flow forecasting, is essential for organizations to avoid dipping into reserves for operational expenses.
Collaboration as a Path Forward
Another strategy that has emerged is collaboration. By partnering with other service providers, nonprofits can extend their reach and efficacy without overextending financially. This approach not only optimizes resources but also maximizes the impact on the community.
The generosity crisis presents a complex set of challenges for the nonprofit sector. However, with strategic financial management, active board involvement, and a willingness to collaborate, organizations can navigate these difficulties and continue to serve their communities effectively.
https://signatureanalytics.com/wp-content/uploads/Thumbnail-Staffing-and-Donations.png10801920Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2024-04-05 17:04:222024-10-01 23:09:24Nonprofit Staffing and Donations: How to Manage after the COVID Influx
For construction businesses, dealing with profitability that fluctuates year over year is part of the industry landscape. How you respond to these economic variances can significantly impact your tax burden, cash flow, and operational efficiency.
Cash Flow Management in Economic Downturns
During tougher economic times, Brandon Manning and Zak Krauss emphasize the importance of cash flow management. It’s not just about keeping projects funded; it’s about ensuring that the company can still operate smoothly—covering overhead and keeping the workforce paid. Manning advises that during these periods, maintaining a tight ship is critical to weathering the storm.
Cash Flow Management is Robust Economic Times
Conversely, in more prosperous times, opportunities arise to invest back into the business. Manning and Krauss suggest using the surplus to upgrade equipment, taking advantage of tax incentives like Section 179 deductions, which can lead to immediate and long-term benefits. By owning more efficient equipment, you’re not just saving on rental costs; you’re also preparing your company to operate more cost-effectively in the future.
Adopting the right strategy for the right time is key. When the market is down, it’s about survival and lean operation. When business is booming, it’s about strategic growth and tax-smart reinvesting. Understanding this cycle and planning accordingly is what helps construction firms stay robust, ensuring they’re not just surviving but thriving, no matter the economic climate.
https://signatureanalytics.com/wp-content/uploads/MANAGING-FLUCTUATING-PROFITABILITY-YEAR-OVER-YEAR.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-12-10 06:23:512024-10-01 23:09:25Managing Fluctuating Profitability Year Over Year in Construction
Understanding and managing labor costs is pivotal for winning bids and ensuring project profitability. Zak Krauss and Brandon Manning discuss the importance of labor cost analysis in construction estimating and how it can be the difference between a profitable project and a financial loss.
Labor Costs and Bids – A Dynamic Relationship
Labor costs form a crucial part of construction bids. As Manning explains, estimating labor costs accurately is vital—not just to stay competitive but also to avoid underbidding and suffering losses. This process includes not only calculating the direct costs but also considering potential overruns. “What if he really needs 150 hours?” Manning asks, highlighting the need for a buffer in estimates that accounts for the unexpected.
Krauss emphasizes the different implications of labor costs for general contractors versus subcontractors. For general contractors, it’s about planning and projecting the workforce needed. Subcontractors must delve deeper into the specifics—analyzing how much work a crew can accomplish daily and the cost implications. This detailed tracking ensures that bids are competitive and that they align closely with the crew’s actual performance capabilities.
Both stress the necessity of ongoing analysis and refinement of labor cost estimates. By routinely reviewing project outcomes, companies can fine-tune their estimates for future bids. It’s about collecting data on crew performance, dissecting the hours spent on specific tasks, and using this information to bid more intelligently.
In the video, “Using Labor Costs to Make Better Estimates,” Krauss and Manning share insights into leveraging labor cost data to make more informed bidding decisions. They reveal that the key to successful bidding lies in understanding your crew’s capabilities and costs and ensuring this knowledge informs every estimate. The goal is to bid within a competitive range while safeguarding profitability.
For construction businesses looking to sharpen their bidding strategies and financial foresight, Krauss and Manning’s expertise is invaluable. Reach out to them for guidance on how to incorporate labor costs into your bidding process effectively and use this data to secure profitable projects consistently.
https://signatureanalytics.com/wp-content/uploads/Using-labor-costs-to-inform-better-estimates.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-12-05 20:15:082024-10-01 23:09:25Using Labor Costs to Inform Better Estimates in Construction
Understanding the complexities of private and public construction jobs is crucial for contractors, as Zak Krauss and Brandon Manning explain in their insightful discussion. Public projects, in particular, bring a unique set of challenges and financial considerations, chiefly due to prevailing wage regulations and union interactions.
Prevailing Wage
Prevailing wages significantly impact the bidding and financial planning of public jobs. “You need to understand the prevailing wages for different roles to ensure profitability,” says Krauss. These wages, often set by unions or by law for public projects, can inflate labor costs considerably. Therefore, accurate cost forecasting during the bidding process is essential to absorb these additional expenses without compromising profit margins.
Subcontractor Compliance
For subcontractors, the meticulous tracking of labor costs and compliance with prevailing wage laws is non-negotiable. Manning emphasizes the importance of timely reporting: “If you’re not reporting on time, you’re not getting paid.” This can lead to a cascade of financial setbacks, from delayed payments to an inability to pay workers, culminating in a detrimental cash flow impact.
A Robust Strategy
Both general contractors and subcontractors must approach public projects with robust processes and compliance strategies in place. “Don’t start a prevailing wage job without advice or experience,” Manning cautions, highlighting the risk of trying to retroactively address compliance issues.
A Compliance Officer
Krauss and Manning also touch on the role of a compliance officer, whose importance rivals that of the financial team. A dedicated compliance professional ensures that all paperwork and project-specific requirements are in order, safeguarding the company from potential financial and legal pitfalls.
Their video, “Private vs. Public Construction Jobs: Mastering Prevailing Wage Compliance,” serves as an essential guide for construction professionals venturing into the realm of public works. It underscores the need for a proactive, informed approach to manage the financial intricacies of prevailing wages and union requirements effectively.
For more insights and strategies on prevailing wage compliance and financial management in construction, turn to the expertise of Zak Krauss and Brandon Manning. Their advice could be the difference between a profitable project and a financial misstep.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Compliance-and-private-vs-public-construction.png7881988Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-12-01 20:34:042024-10-01 23:09:26Compliance and Private vs Public Construction Jobs
Join Zak Krauss and Brandon Manning as they explore the intricacies of estimating costs for construction businesses. Their main focus is the importance of work-in-progress (WIP) reporting.
Any seasoned construction business owner will tell you that understanding project budgets and estimated cost of completion is crucial. It’s more than just numbers; it determines the success of a construction project. When managing the process of estimating, a business owner has to address costs, contingencies, and change orders which can shift at a moment’s notice. It is imperative for construction businesses to be both agile and informed.
This is where WIP reporting comes into play.
WIP reporting provides a comprehensive understanding of what the final cost of a project will be. This includes all the change orders, the gains or shortfalls in estimating, and the remaining contingencies as the project moves closer to the finish line. WIP reporting is not just a tool for retrospective analysis. It’s forward-looking. With the insights drawn from this reporting method, businesses can make strategic adjustments, refining their estimating processes. It’s about learning from past projects and making informed decisions for the future. After all, every construction project is an opportunity to improve efficiency, and accuracy, and create better forecasting.
For construction businesses to thrive, they need more than just skilled labor and quality materials. They need the power of data and insights from tools like WIP reporting. As Krauss and Manning highlight, understanding your numbers today will set the stage for improved estimating and project management tomorrow.
Reach out to Zak and Brandon to see how the team at Signature Analytics can help your construction business to improve profitability and streamline operations through outsourced accounting and CFO business advisory services.
https://signatureanalytics.com/wp-content/uploads/Estimating-Costs-Knowledge-is-Power.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-26 19:59:152024-10-01 23:09:26Estimating Costs for Construction Businesses: Knowledge is Power
When it comes to construction businesses, precision in understanding your financials is not just helpful – it’s critical for survival and growth. This truth is vividly illustrated in a case story that Zak Krauss and Brandon Manning explore, demonstrating the powerful impact of knowing your margins.
The Backstory – Bidding Everything
A particular client, engaged in construction, took the approach of bidding on projects of all sizes, from the minuscule $5,000 jobs to the massive $3 million endeavors. However, a deep dive into the company’s financials revealed a startling pattern: the company was consistently losing money on projects below a specific financial threshold. Brandon Manning shares, “He wasn’t set up for efficiency in the smaller jobs, so every time he took on projects under a hundred thousand dollars, he was destined to lose.”
This was a revelation that shifted the entire strategy of the business. The larger projects had enough buffer to incorporate a higher profit margin, giving the company the wiggle room it needed to cover for inefficiencies and unexpected costs. On the contrary, the smaller projects were a drain, eroding the company’s profits.
The A-Ha Moment and a Shift in Strategy
Brandon Manning reflects on the turning point: “Once we pinpointed the profitability tipping point, we advised the client to adjust their bidding strategy accordingly.” This strategic shift led to the client moving from a perilous financial position to a state of robust profitability.
The lesson here is clear: understanding which projects to pursue and which to pass can make all the difference. It’s not just about winning bids; it’s about winning the right bids that will add to your bottom line.
If you’re in the construction business, taking a closer look at your project margins might just reveal similar opportunities for a financial turnaround. It’s not about the volume of work; it’s about the value of work. Knowing where you make money and where you don’t is essential to making strategic decisions that will lead to sustainable growth and success.
Taking These Lessons and Applying Them to Your Own Company
This case story is a testament to how essential financial insights and analysis are in steering a construction company toward profitability. It’s a lesson many in the industry could stand to benefit from, and it underscores the importance of not just knowing your numbers, but understanding what they mean for your business’s future.
To get the full scope of how this client transformed their financial trajectory by understanding their margins, watch our discussion in the embedded video. It’s more than just a story; it’s a potential roadmap to your company’s success.
https://signatureanalytics.com/wp-content/uploads/case-story_-how-knowing-your-margins-can-transform-your-business.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-21 06:46:352024-10-01 23:09:26Case Story: How Knowing Your Margins Can Transform Your Business
In nonprofit financial management, ensuring long-term stability and resilience is crucial. It’s not just about crunching numbers; it’s about understanding the intricate dynamics of cash flow and incorporating that understanding into your financial planning.
In the video below, Laura Bertagnolli, CPA, discusses why cash flow management is essential for nonprofit organizations.
Why Managing Cash Flow is Important for Nonprofit Organizations
Nonprofit organizations have a unique set of financial challenges compared to their for-profit counterparts. While their primary mission is to serve their communities and further their charitable objectives, they must also ensure financial sustainability. One of the fundamental pillars of financial sustainability for nonprofits is effective cash flow management.
Sustainability and Mission Continuity: The lifeblood of any nonprofit organization is its ability to carry out its mission effectively. A steady cash flow is essential to cover operational costs, pay staff, and fund essential programs and services. Without proper cash flow management, nonprofits risk interruptions in their operations, which can impede their ability to make a positive impact in their communities.
Budget Variability: Nonprofit funding often comes from a mix of sources, including grants, donations, and program fees. These funding sources can vary in timing and amount. Effective cash flow management helps nonprofits align their budgets with the actual cash they expect to receive, reducing the risk of budget shortfalls and financial strain.
Financial Planning and Forecasting: By incorporating cash flow management into their financial practices, nonprofits gain a clearer understanding of their financial health. This knowledge empowers them to plan for the future more effectively, anticipate challenges, and seize opportunities.
Contingency Planning: Nonprofits face external factors, such as economic downturns or unforeseen emergencies, that can affect their financial stability. Managing cash flow allows organizations to establish contingency plans and build financial reserves to weather unexpected challenges.
Credibility and Stakeholder Trust: Nonprofits are accountable to their donors, grantors, and the communities they serve. Demonstrating strong cash flow management and financial transparency enhances credibility and fosters trust among stakeholders. It reassures them that their contributions are being used effectively and sustainably.
Leveraging Opportunities: Cash flow management enables nonprofits to seize strategic opportunities as they arise. Whether it’s scaling successful programs, embarking on new initiatives, or making strategic investments, having a clear picture of available funds is essential for growth.
Strategic Decision-Making: Nonprofits that effectively manage cash flow are better positioned to make strategic decisions. They can allocate resources strategically, prioritize projects, and navigate financial challenges more effectively, ultimately advancing their mission.
“Nonprofits need to include a 12-month cash roll-forward to incorporate capital expenditures [and] any assumptions within the budget that give a different picture of the organization’s financial stability…. In fact, if you get to the point where you’re concerned really about what your cash flow is going to be, even over the next quarter, you’d want to institute a 13-week cash flow forecast, which is more in-depth.”
The Value of a 13-Week Cash Flow Forecast
A 13-week cash flow forecast is like a detailed financial map for nonprofit organizations. It offers several benefits:
Detailed Insights: Instead of a big picture, it provides a close-up view of finances over a quarter (13 weeks). This helps organizations see when money comes in and goes out in detail.
Early Problem-Solving: By looking ahead for 13 weeks, nonprofits can spot money problems early. This means they can fix things before they become big issues.
Cash Planning: The forecast helps nonprofits plan how they spend their money. It ensures they have enough for important things like salaries and bills.
Prepare for Emergencies: Nonprofits can use this forecast to make backup plans for unexpected money troubles. It’s like having an emergency fund for their budget.
Grant and Project Management: For nonprofits getting money from grants or events, the forecast helps them match when they get the money to when they need it for specific projects.
Smart Decisions: With a 13-week forecast, nonprofit leaders can make wise choices about starting new projects, expanding, or making other decisions that need money.
Cash Flow and Development Planning
Cash flow management plays a pivotal role in shaping the strategies of nonprofit organizations.
Here’s how cash flow relates to development planning and why it’s a crucial aspect for nonprofit success:
Strategic Alignment: Nonprofits often set goals for program development, fundraising campaigns, and community outreach. Effective development planning relies on knowing when funds will be available. Cash flow management ensures financial resources are in sync with these strategic plans.
Program Expansion: For nonprofits looking to expand or launch new initiatives, understanding cash flow is essential. It helps identify periods when funds might be tight or abundant, allowing organizations to time their expansions effectively.
Fundraising Timing: Nonprofits frequently rely on fundraising efforts to support their programs. Cash flow insights help in choosing the right times for fundraising campaigns, ensuring that funds are available for immediate use when the donations come in.
Budget Adjustments: As the fiscal year progresses, cash flow analysis reveals whether an organization is on track with its budget or if adjustments are needed. This adaptability is key for making informed decisions and preventing financial shortfalls.
Mitigating Constraints: By closely monitoring cash flow, nonprofits can identify potential constraints in advance and take steps to address them. This proactive approach minimizes disruptions in program delivery.
Optimizing Giving Times: Nonprofits can strategically plan their fundraising campaigns during periods when giving tends to be higher. This approach fills in cash flow gaps and ensures stable funding.
In summary, cash flow management isn’t just about tracking dollars in and out; it’s a tool that empowers nonprofits to align their development plans with their financial capabilities. By utilizing cash flow insights, organizations can make strategic decisions, adjust their budgets, and ensure that they have the financial capacity to achieve their mission and expand their impact in the community.
Common Mistakes in Nonprofit Financial Management
Nonprofit financial management is a delicate balancing act, and while adopting best practices is crucial, it’s equally important to avoid common pitfalls that can hinder an organization’s financial health. Here, we’ll explore some of the prevalent mistakes in nonprofit financial management that nonprofits should be aware of.
“Mistakes made when nonprofits only look at the statement of activities, the 12 months that you planned on the budget, and not really doing the hard work to project out cash.”
Overlooking Cash Flow: One of the most common mistakes is focusing solely on the statement of activities and the annual budget while neglecting detailed cash flow management. Failure to project cash flow accurately can lead to unexpected shortfalls and financial stress.
Budget Rigidity: Nonprofits that adhere too strictly to their annual budget may find it challenging to adapt to changing circumstances. Budgets should be flexible enough to accommodate unforeseen expenses or revenue fluctuations.
Ignoring Reserves: Some nonprofits fail to establish and maintain adequate reserves. Without a financial safety net, organizations may struggle to navigate financial crises, resulting in compromised program delivery.
Insufficient Planning: Inadequate financial planning and forecasting can leave nonprofits ill-prepared to meet their obligations, pay staff, or seize strategic opportunities. Accurate and proactive financial planning is essential for sustainable operations.
Lack of Transparency: Failing to maintain financial transparency can erode stakeholder trust. Nonprofits must provide clear and comprehensive financial reporting to donors, grantors, and the community to maintain their credibility.
Misaligned Fundraising Efforts: Timing is crucial in fundraising. Not coordinating fundraising campaigns with the organization’s cash flow needs can lead to temporary imbalances and funding gaps.
Failure to Monitor Key Performance Indicators: Without effective key performance indicators (KPIs) and regular monitoring, nonprofits may miss early warning signs of financial challenges. It’s essential to have KPIs in place to track the organization’s financial health and performance.
Inadequate Financial Oversight: Nonprofits may lack the necessary financial expertise within their leadership or board. Proper financial oversight and governance are vital to ensure that financial management is effective and compliant with regulations.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Mastering-Nonprofit-Financial-Management_-A-Guide-to-Cash-Flow-and-Resilience.png6831723Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-18 09:37:042024-10-01 23:09:26Mastering Nonprofit Financial Management: A Guide to Cash Flow and Resilience
In the construction business, the phrase “keeping the lights on” takes on a literal and figurative significance. Cash flow management extends beyond the individual project budgets—it’s the lifeblood of your entire operation. As Zak Krauss and Brandon Manning outline, it’s not just about ensuring there’s enough money to cover project costs; it’s about the overall financial health of your business, which includes the crucial overhead costs.
Overhead Costs and Retainage’s Impact on Cash Flow
Overhead costs encompass all the necessary expenses required to run your company, such as office rent, utility bills, administrative staff salaries, and their benefits. These costs don’t pause or fluctuate based on project success; they’re constant, demanding a steady cash flow to keep the business functional.
One aspect that’s often overlooked is the impact of retainers or retainage on cash flow. Contractors typically don’t receive the final 10% of a project’s payment until after completion, sometimes longer. Can your business sustain its overhead and continue to finance project costs while waiting for this final payment?
Robbing Peter to Pay Paul
Mismanagement of cash flow can lead a business into a perilous cycle. Utilizing profits or cash from ongoing projects to fund the completion of others, often referred to as “robbing Peter to pay Paul,” can create a snowball effect of financial stress. This is a precarious situation where a business finds itself constantly trying to catch up, a cycle that can rapidly escalate into a crisis if not managed correctly.
Proactive Cash Flow Planning
Effective overhead cost management in construction requires a robust understanding of your business’s financial landscape and proactive planning. It’s about having a clear view of your cash flow to cover both the project expenses and the ongoing costs of operating your business. This ensures that you’re not caught off guard by retainers or delayed payments, maintaining financial stability.
Understanding the nuances of cash flow, from project funding to overhead expenses, is vital. It allows for strategic decision-making that can keep your company from falling into risky financial patterns. By prioritizing cash flow management, construction business owners can secure their operations’ foundation, keeping those lights on and doors open for continued success and growth.
https://signatureanalytics.com/wp-content/uploads/keeping-the-lights-on_-construction-overhead-costs.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-15 20:47:102024-10-01 23:09:26Keeping the Lights on: Construction Overhead Cost Management
For project managers in the construction industry, making informed decisions is crucial, particularly when it involves financials and maintaining healthy subcontractor relationships. Brandon Manning and Zak Krauss dive into the nuances of managing project contingencies and the delicate balance of handling change orders.
Managing for the Long Game
Understanding the current financial standing of a project, including the remaining contingency, is essential for project managers. It can dictate whether it’s time to tighten up on subcontractors or if there’s wiggle room for flexibility. While the goal is to control change orders and match them with the owner’s approvals, there are times when maintaining a good relationship with a subcontractor may take precedence. “It’s about the long game,” Manning says, emphasizing the importance of relationships in construction projects.
Profitability Impacts
Change orders have a deep impact on a project’s profitability. Granting concessions to a subcontractor might mean digging into the projected profit margins. For example, a seemingly small change order can reduce a projected 30% margin down to 25%. This is why understanding the financial implications of every decision on-site is critical.
The Balance with Subcontractors
Striking the right balance between financial prudence and strategic relationship management is essential to both profitability and relationship building in the industry. Project managers must be well-versed in the project’s financial standing at every stage to make decisions that benefit both the current project and future collaborations.
For construction businesses seeking to optimize their project management strategies and maintain profitability, managing contingencies and navigating the complexities of change orders helps to preserve crucial subcontractor relationships and your bottom line.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Managing-Contingencies-and-Change-Orders-in-Construction.png7881988Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-13 20:31:232024-10-01 23:09:26Managing Contingencies and Change Orders in Construction
Nonprofits share something truly special – a powerful mission that unites people. The attraction to nonprofit organizations is deeply rooted in the love for their purpose and mission. This shared purpose not only shapes a great culture but is also a compelling reason why many of us are drawn to this space.
Check out the video below for insight on how nonprofits can create a strong foundation of people, process and technology to drive success:
Navigating the Family-Like Atmosphere
Nonprofit organizations are unique in their ability to foster a familial atmosphere among their team members. This sense of unity and purpose is a beautiful aspect of working in the nonprofit space. People are drawn to these organizations not just for a job but because they deeply resonate with the mission and vision. This shared purpose creates a culture of passion and dedication that’s hard to replicate in other sectors.
However, this family-like culture, while a tremendous asset, can also present challenges. It’s not uncommon to find individuals within nonprofits who bring unwavering dedication and enthusiasm to their roles but may lack the necessary expertise or skills required for their positions. Their commitment to the mission is commendable, but the absence of expertise can hinder the organization’s ability to fulfill its mission effectively.
“The beautiful thing about working in the nonprofit space is there’s a mission that ties people together.”
It’s essential to strike a balance between passion and expertise. To achieve success, nonprofits must ensure that their team members have the right skills and knowledge to carry out their roles effectively. This involves identifying areas where additional expertise is needed and providing opportunities for ongoing training and development.
The Cracked Foundation Dilemma
The foundation of a nonprofit organization is its financial stability and operational efficiency. Just as a building with a weak foundation is at risk of crumbling, nonprofits with financial instability can struggle to deliver on their programmatic commitments. This represents a significant dilemma for nonprofit leaders, as the success of the organization’s mission is at stake.
To address the “Cracked Foundation Dilemma,” nonprofits should:
Set Realistic Financial Goals: Establish clear financial goals that align with the organization’s mission. Ensure that these goals are realistic and achievable.
Monitor Financial Health: Regularly monitor the financial health of the organization by analyzing financial statements, budgets, and performance metrics. Identify areas of weakness that need attention.
Allocate Resources Wisely: Ensure that financial resources are allocated in a manner that supports the organization’s mission. Prioritize programmatic initiatives and allocate funds accordingly.
Rigorous Financial Management: Implement rigorous financial management practices, including accurate reporting, compliance with accounting standards, and efficient use of resources.
Foster a Culture of Financial Responsibility: Instill a culture of financial responsibility throughout the organization, emphasizing the importance of each team member’s role in maintaining financial stability.
By recognizing the significance of a strong financial foundation and taking these steps to address financial challenges, nonprofits can ensure that they are well-equipped to fulfill their missions and make a meaningful impact on the communities they serve.
The Importance of Expertise and Passion
Ensuring that the right expertise is in place is paramount. Nonprofits thrive when passionate individuals with the required expertise are in the right roles. Signature Analytics conducts comprehensive people assessments when partnering with organizations to identify areas where expertise and tools are needed to make a meaningful impact.
Documenting Processes for Continuity
Turnover situations can create confusion when departing staff leave behind little or no process documentation. To address this, it’s essential to create formal Standard Operating Procedures (SOPs) to ensure that processes are well-documented and can be smoothly replicated even in the absence of a particular team member.
The Password Management Challenge
Password management is a critical aspect that deserves attention. Secure systems for managing passwords are vital to maintain operational continuity during staff transitions. Having accessible and well-organized passwords safeguards the organization’s stability and minimizes risks associated with staff turnover.
In the nonprofit sector, the powerful culture of shared purpose is a driving force. It fuels dedication and passion, but it must be balanced with the right expertise and documentation to ensure a strong foundation. By placing the right people in the right roles, documenting essential processes, and managing passwords effectively, nonprofits can safeguard their missions and ensure they continue to make a meaningful impact.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Building-a-Strong-Foundation-for-Nonprofits_-The-Power-of-People-Process-and-Technology.png6831723Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-10 07:06:522024-10-01 23:09:26Building a Strong Foundation for Nonprofits: The Power of People, Process and Technology
For construction companies, efficient operations, and accurate financial reporting are vital to success. In this video, Zak Krauss and Brandon Manning, construction specialists at Signature Analytics, discuss how to choose the right ERP, what to look for, and what to expect. Step one is to assess company processes and technological needs.
A top-notch construction ERP should be tailored primarily for construction operations, not just accounting. The ideal ERP is about what works best for the construction team, ensuring smooth data flow from the field to finance.
“You really want to see what is the best thing for that operations team and what fits their processes best so that information flows to accounting in a good way. But you want to look for a construction ERP that does accounting well rather than an accounting system that does construction well.”
While accounting is crucial, the primary goal is to select an ERP that aligns with the construction team’s needs. The right ERP system can streamline operations, enhance financial reporting, and ultimately drive business success.
Want to see how an outsourced accounting team from Signature Analytics can help you improve profitability and make smarter business decisions? Reach out to Zak and Brandon and start the conversation.
https://signatureanalytics.com/wp-content/uploads/Choosing-the-Right-Accounting-Technology-for-Construction-Companies.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-07 03:28:142024-10-01 23:09:26Choosing the Right Accounting Technology for Construction Companies
Laura Bertagnolli, an invaluable member of the Signature team, brings a wealth of experience and passion for the nonprofit sector. With nearly three years at Signature and a remarkable 11 years of nonprofit expertise, Laura’s commitment to strengthening nonprofits and building a solid foundation shines brightly.
Learn more about Laura in the video below:
A Background Rooted in Nonprofit Commitment
“I’ve been with Signature for three years, and I just feel very thankful to be able to work in the non-profit space at Signature.”
Laura’s journey is a testament to her dedication. She spent eight years working full-time within nonprofit organizations before joining Signature. This background provides her with a deep understanding of the unique challenges and opportunities that nonprofits face. It’s this experience that allows Laura to bring her talents and gifts to the table effectively.
A CPA Making a Difference
As a Certified Public Accountant (CPA), Laura leverages her financial expertise to help nonprofits thrive. Serving as the CFO for two large nonprofits and collaborating with several others, she plays a pivotal role in ensuring their financial health. Sometimes, she steps into the CFO role, while at other times, she provides advisory support to existing CFOs.
A Team Leader and Advocate
Laura is not only an accomplished CFO but also a leader. She guides internal teams within nonprofits and plays a crucial role in the Signature team, offering unwavering support to their nonprofit clients. Her comprehensive approach ensures that nonprofits receive the assistance they need, whether in the form of advisory services or direct financial leadership.
Laura Bertagnolli’s work within the nonprofit space epitomizes the power of individuals who are committed to making a difference. Her blend of financial expertise, nonprofit experience, and leadership skills empowers nonprofits to achieve their missions and create a lasting impact in their communities. We are grateful to have Laura as an advocate for the nonprofit sector and a valued member of the Signature team.
Learn More About the Signature Analytics Team
We believe that smart business decisions start with excellent day-to-day financial management. To run your business well and make the best decisions possible, you need reliable financial insights. Whether your company is growing or pivoting or if you’re simply looking at the landscape and engaged in scenario planning, we can help ensure your decisions are being made based on real numbers.
With an outsourced accounting team from Signature Analytics, you get accurate, relevant, and timely reporting and financial insights to help you make smart business decisions.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Meet-Laura-Bertagnolli-CPA.png6831723Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-11-01 10:22:192024-10-01 23:09:26Meet Laura Bertagnolli: A Dedicated Advocate for Nonprofits
In the world of construction accounting, managing the sprawl of information can be a daunting task. Zak Krauss and Brandon Manning are familiar with the scenario: all the pieces of financial and operational management are scattered, timecard systems are isolated, project management lives on an island, while purchase orders and job estimates are completely siloed. This fragmented landscape of data and processes can feel overwhelming, making it challenging to grasp the complete financial picture of your construction projects.
The Value of an ERP
The introduction of Construction ERPs (Enterprise Resource Planning systems) has been a game-changer in addressing information sprawl. Yet, as Krauss and Manning highlight, the value of an ERP system is directly tied to the effort and information you invest into it. Implementing an ERP system is more than an accounting upgrade—it’s a full-scale operational commitment requiring the engagement of the entire team, from accounting and administration to project managers and senior leadership.
Adopting an ERP system is not merely for the convenience of the accounting department; it’s a strategic move for the on-site teams. It empowers project managers and field staff with real-time insights, granting them a higher degree of control and ownership over their projects.
The success of integrating such a system lies in the details of process definition and the rigor of process mapping. Communicating these processes is crucial—not just to project managers, but all the way down the chain to the foremen and crew on the ground. Each team member’s buy-in is essential. They need to understand that accurate and efficient data input at the source is foundational for the entire system’s efficacy.
Good Data in Equals Good Reporting Out
Krauss and Manning stress the importance of accuracy from the get-go. Inaccuracies at the data entry point can ripple throughout the system, making it more challenging for project managers to manage their responsibilities effectively. Subsequently, this leads to the finance team grappling with unreliable data, complicating the analysis needed to build out crucial financial reports and job cost analyses.
Bringing Data Sources Together
To master information sprawl, Krauss and Manning suggest a holistic approach where every individual understands their role in the data ecosystem. From the moment information is captured in the field, through the various levels of review by project managers, all the way to the final financial analysis—each step must be meticulously planned and executed.
This concerted effort to streamline information flows and processes is not just about keeping numbers in check. It’s about enhancing the operational efficiency of the entire business, which in turn, drives better decision-making and, ultimately, the profitability of the business.
For construction companies ready to tackle information sprawl head-on, the message is clear: it takes a village, or in this case, the entire company, to realize the full benefits of an ERP system. With commitment and clear communication, construction businesses can leverage these powerful tools to gain a competitive edge through superior project management and financial insight.
https://signatureanalytics.com/wp-content/uploads/How-to-master-Construction-information-sprawl.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-10-07 14:29:142024-10-01 23:09:27How to Master Information Sprawl in Construction Accounting
Nonprofit organizations play a vital role in our communities by addressing various social issues and causes. However, many of these organizations tend to focus on their audits, budgets, and compliance items, often neglecting the strategic aspect of their operations.
In this blog post, we’ll explore the importance of Key Performance Indicators (KPIs) for nonprofits, shedding light on both financial and non-financial metrics that can guide their success and impact.
The Diversity of Key Performance Indicators
Nonprofit organizations come in all shapes and sizes, each with its unique mission and goals. Consequently, the KPIs they should track can vary widely. It’s important to understand that KPIs can be divided into two broad categories: financial and non-financial.
Financial KPIs
Financial KPIs are essential for every nonprofit. These metrics are often standardized and can be applied across both for-profit and nonprofit organizations. They provide a clear picture of an organization’s financial health. Some of the key financial KPIs include:
Program Expenses: This metric looks at the percentage of expenses dedicated to your core mission and programs. It’s a critical indicator that demonstrates your commitment to your cause.
Administrative Expenses: Administrative expenses as a percentage of total expenses help donors assess how efficiently your organization is managed. Lower administrative expenses indicate more resources directed towards your mission.
Fundraising Expenses: Similar to administrative expenses, this metric measures how efficiently you raise funds. Donors want to see that a substantial portion of their donations directly supports your programs.
Debt and Liabilities: Monitoring your debt and liabilities in relation to total assets is crucial. This is a metric often measured by organizations like Charity Navigator and GuideStar, which donors use to evaluate your financial stability.
Fundraising Efficiency: This ratio shows how much money you spend to raise each dollar. It’s a vital measure of your fundraising efforts’ effectiveness.
Non-Financial KPIs
Non-financial KPIs are more specific to the sector or field in which a nonprofit operates. For instance, a nonprofit focused on higher education will have different KPIs than one working in healthcare or social services. These non-financial metrics help you evaluate your organization’s performance in your specific domain and compare it to others in your space.
Donor Expectations
Charity Navigator and GuideStar are two prominent platforms that donors often consult before deciding to fund a nonprofit. Understanding what these platforms measure is crucial. They typically look at the financial KPIs mentioned above, so it’s essential to have a firm grasp of your organization’s performance in these areas.
The Importance of Liquid Unrestricted Net Assets (LUNA)
Liquid Unrestricted Net Assets (LUNA) is a metric that often goes unnoticed by nonprofits. It is vital to understand the availability of funds that can be used for operational purposes. Donations from well-meaning supporters may come with restrictions, meaning they cannot be freely used to cover operating expenses. To ensure the sustainability of your organization, you must have a clear understanding of your LUNA.
Final Notes
Nonprofit organizations are driven by their commitment to making a positive impact on society. To fulfill their missions effectively, they must pay attention to more than just audits and budgets. Key Performance Indicators, both financial and non-financial, are essential tools for nonprofits to measure their success and make informed decisions.
By understanding these metrics and staying on top of their performance, nonprofits can not only thrive but also attract the support of donors who want to make a meaningful difference in the world. So, take a moment to assess your organization’s KPIs and ensure you are on the right track to achieving your goals.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
Effective cash flow management is the backbone of a thriving construction company. Brandon Manning and Zak Krauss emphasize this in their discussion on navigating the complexities of financial planning in construction. With a myriad of costs from materials, subcontractors, and labor, to unexpected expenses, the ability to anticipate and manage these outflows is crucial.
Under vs Over-Billing
In an ideal scenario, billing ahead of work completion provides a buffer—an over-billing situation that makes cash flow easier to handle. However, this isn’t always possible. The agility to handle under-billing scenarios without compromising relationships with subcontractors and vendors is a skill that requires a deep understanding of cash flow tracking and management.
The Power of Cost Reporting Meetings
Establishing regular cost report meetings is a strategic approach to stay on top of every expense and phase of a project. Manning suggests monthly meetings involving project managers, senior project managers, and project accountants to discuss details down to specific phase codes—ranging from payroll to materials and potential change orders that aren’t yet documented. These gatherings are essential to understand the financial health of each project and to prevent cash flow surprises.
However, these meetings can be daunting. To mitigate the pain points, it’s important to maintain a rhythm—holding these meetings monthly to avoid playing catch-up with a backlog of data. Preparation is key. Ensuring that project management teams receive pertinent information ahead of time enables them to come prepared with insights and questions, fostering a more efficient and focused discussion.
Building a Culture of Consistent Financial Management
The goal is to cultivate a culture where project budgets are tracked consistently throughout the month, not just reviewed periodically. This vigilance allows for better control over the project numbers and the overall bottom line, safeguarding against any unpleasant financial surprises. Delay in this process equates to diminished control over your financials, leading to those surprises that, as Krauss notes, are “never in a good way.”
Through meticulous and regular financial oversight, construction companies can manage their cash flow effectively, making sure each project contributes positively to the company’s profitability, rather than becoming a liability. This disciplined approach is essential in managing the ebb and flow of cash and avoiding the pitfalls that can catch a business off guard.
https://signatureanalytics.com/wp-content/uploads/MANAGING-CASH-FLOW-AVOIDING-SURPRISES.png7351855Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-09-07 08:08:572024-10-01 23:09:27Managing Cash Flow and Avoiding Surprises in Construction Projects
For many nonprofit organizations, the effective management of cash flow is a common concern that often leads to the question, “How can I accurately track and manage cash flow to avoid financial issues?”
Our solution: a 12-month cash roll forward.
In the video below, Laura Bertagnolli, CPA VP of Finance at Signature Analytics, discusses how nonprofit organizations can effectively manage cash flow using the 12-month cash roll forward.
In this blog, we delve into the 12-month cash roll forward and how this tool can help nonprofits manage cash flow and drive success.
“We strongly advise including a 12-month cash roll forward in your financial presentation to the board of directors. This document lets you review and approve capital expenditures, helping you understand how your finances will look over the next year. It ensures that your available funds won’t fall below a limit set by your board.”
The 12-Month Cash Roll Forward: What It Is and How It Works
For nonprofit organizations, the 12-month cash roll forward is a powerful tool that merits a closer look. It plays a crucial role in addressing the complex issue of cash flow management while ensuring long-term financial stability. But what exactly is a 12-month cash roll forward, and how does it work? Let’s dive in.
Defining the 12-Month Cash Roll Forward
The 12-month cash roll forward is more than just another financial document; it’s a linchpin that connects budgetary forecasting and cash flow management. This tool provides nonprofit organizations with a comprehensive view of their financial health over an extended period.
How It Works
The 12-month cash roll forward operates by:
Offering Full-Spectrum Financial Insight
Unlike traditional budgeting methods that primarily focus on revenue and expenses, the 12-month cash roll forward takes a more comprehensive approach. It considers all financial elements, including capital expenditures, which are typically excluded from surplus and deficit budgets. By including capital expenditures, nonprofits gain a holistic understanding of their financial position, empowering them to make more informed decisions.
Projecting Cash Flow
This tool extends financial projections for an entire year, allowing nonprofits to anticipate and navigate potential cash flow challenges. It provides a detailed week-by-week breakdown, giving organizations a deep understanding of when funds are expected to come in and when expenses need to be met. This level of granularity is instrumental in preventing cash flow crises.
Aligning with Reserves and Board Oversight
By incorporating capital expenditures and projecting cash flow, nonprofits can ensure that they do not dip below a financial “floor” set by their board. This means maintaining a financial cushion that safeguards against unforeseen challenges. The 12-month cash roll forward enables nonprofits to maintain this financial safety net and gain the confidence of their board members.
Facilitating Proactive Decision-Making
Armed with a 12-month cash roll forward, nonprofit leaders can make strategic decisions with clarity. They can allocate resources more effectively, embark on new initiatives with confidence, and tackle financial hurdles head-on. Whether it’s launching new programs, expanding services, or making critical investments, this financial tool provides nonprofits with the insight they need to make well-informed choices.
Addressing Common Nonprofit Financial Challenges
Nonprofits often face a myriad of financial challenges in their mission to create a positive impact. These challenges can include:
Inconsistent Cash Flow: Many nonprofits experience fluctuating income streams, making it challenging to meet regular financial obligations. The 12-month cash roll forward plays a pivotal role in addressing this issue by providing a comprehensive overview of expected cash flow. Nonprofits can anticipate periods of reduced income and take proactive measures to maintain financial stability.
Budget Shortfalls: Unexpected expenses, delays in funding, or changes in the economic landscape can lead to budget shortfalls that disrupt essential programs. By extending financial projections over an entire year, the 12-month cash roll forward acts as an early warning system, allowing nonprofits to identify potential budget shortfalls well in advance and make necessary adjustments.
Board Confidence and Transparency: Maintaining the trust and confidence of board members is crucial for nonprofit governance. Utilizing the 12-month cash roll forward demonstrates a commitment to sound financial management and transparency. It offers a clear picture of the organization’s financial position, instilling confidence in board members and ensuring collaborative, informed decision-making.
Strategic Planning for Impact: Nonprofits need to strategically allocate their resources to maximize their impact. With the insights provided by the 12-month cash roll forward, organizations can make well-informed decisions regarding resource allocation, timing of fundraising campaigns, and the launch of new initiatives. This tool empowers nonprofits to align their strategies with their mission effectively.
Long-Term Financial Resilience: The ability to project cash flow over an extended period is vital for building and maintaining financial reserves. These reserves provide a safety net that nonprofits can rely on during challenging times, ensuring the organization remains resilient even in the face of financial uncertainties.
Uninterrupted Mission Fulfillment: Ultimately, the 12-month cash roll forward safeguards an organization’s ability to deliver on its mission consistently. By ensuring reliable cash flow management, nonprofits can continue making a positive impact in their communities without disruptions or financial stress.
By addressing these common financial challenges, the 12-month cash roll forward is a versatile tool that empowers nonprofits to navigate the complexities of financial management and sustain their vital work.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Taking-Control-of-Your-Nonprofits-Financial-Health_-The-Crucial-Role-of-the-12-Month-Cash-Roll-Forward.png6831723Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-08-30 08:03:362024-10-01 23:09:28Taking Control of Your Nonprofit’s Financial Health: The Crucial Role of the 12-Month Cash Roll Forward
Audits are a common aspect of nonprofit organizations, but they often feel like a never-ending cycle that drains both time and resources. In the nonprofit sector, where staff often wear multiple hats, the additional workload can be particularly challenging. However, there are steps you can take to make the audit process less painful and more efficient.
In the video below, Laura Bertagnolli, CPA, of Finance at Signature Analytics, dives into some strategies nonprofits can utilize to make audits more efficient.
Embrace Digital Documentation
“It’s all about having the information readily at your fingertips.”
One of the most significant advancements in audit preparation is the shift from paper documentation to digital records. Many modern ERP systems now allow you to attach supporting documents, such as vendor bills, directly to your financial transactions.
This digital trail not only saves time but also allows auditors to access the necessary documents remotely. No more digging through file cabinets or scanning endless pages of paperwork. Going digital simplifies the audit process significantly.
Leverage Monthly Financial Statements
Producing monthly financial statements is an excellent practice for nonprofits. When auditors request your latest financial statements, you won’t find yourself scrambling. Instead, you can access them easily and share them with your audit team. This not only demonstrates your commitment to financial transparency but also makes you feel more prepared and in control.
Strengthen Fiscal Year Controls
In some nonprofits, there’s a problem with having the right rules and checks in place throughout the year. This can be a problem when it’s time for an audit. People might worry that there were mistakes made in the past, especially if the financial records aren’t being closed correctly and on time.
Also, it’s important to have clear rules about who does what in the organization. When these rules break down, it can create a risk of fraud, which could become a problem during an audit. So, you should always make sure that different people have control over different parts of the financial process.
For example, you wouldn’t want one person to be able to do everything from creating a new vendor, making a bill, paying it, and then balancing the bank account. If this were allowed, they could potentially set themselves up as a vendor, pay themselves, and no one would know because they’re also balancing the bank account. This is a big problem, and it’s an example of duties not being properly separated.
Even if your nonprofit is small, there are ways to make sure these duties are separated and that everything is in order. You can find resources online, such as information about “two-person segregation of duties,” to help you understand how to do it, no matter the size of your nonprofit.
Segregation of Duties and Internal Controls
Maintaining a clear separation of duties within your finance team is essential. No single individual should have too much authority over financial transactions. Proper segregation of duties reduces the risk of fraud, a significant concern for nonprofits. For example, you should never allow one person to create a new vendor, generate a bill, make a payment, and reconcile the bank account, as this setup creates opportunities for potential misuse. Even in small nonprofits, there are ways to implement two-person segregation of duties effectively.
Challenges Faced by Nonprofits in Audit Processes and Solutions
While audits are a necessary part of nonprofit operations, they often present several challenges. Understanding these challenges and having solutions at your disposal can help streamline the audit process and make it more efficient:
1. Limited Resources:
Challenge: Nonprofits frequently face resource constraints, both in terms of finances and personnel. This can make it challenging to allocate the necessary time and resources to prepare for audits adequately.
Solution: Start the audit preparation process well in advance. Allocate dedicated time and resources for audit-related tasks throughout the year to prevent last-minute rushes. Consider seeking pro bono audit services or financial support from grantmakers to alleviate financial constraints.
2. Complex Funding Sources:
Challenge: Many nonprofits receive funding from various sources, including government grants, private donations, and foundations. Keeping track of these diverse revenue streams and complying with their respective reporting requirements can be overwhelming.
Solution: Maintain meticulous records of funding sources and their specific reporting guidelines. Use accounting software that can help you categorize and track different revenue streams efficiently. Regularly review grant agreements and contracts to ensure compliance. Seek advice from experts who understand the unique challenges posed by diverse funding sources.
3. Rapid Growth and Expansion:
Challenge: Nonprofits experiencing rapid growth or expanding their programs may find it challenging to adapt their financial processes and controls accordingly. This growth can outpace the organization’s internal capacity to handle audits effectively.
Solution: Regularly assess your financial and internal control processes to ensure they scale with your organization’s growth. As your nonprofit expands, invest in financial software that can handle increased complexity. Consider engaging external financial experts to provide guidance and support during periods of rapid growth.
4. Compliance and Reporting Complexity:
Challenge: Navigating the intricate web of compliance requirements, especially when dealing with government grants, can be overwhelming. Ensuring that financial reports align with each grantor’s unique standards can be time-consuming and error-prone.
Solution: Stay informed about the specific reporting requirements of each funding source or grantor. Use accounting software that can generate tailored financial reports to meet individual compliance needs. Consider hiring a compliance expert or consultant to assist with reporting complexities.
5. Data Security and Privacy Concerns:
Challenge: Nonprofits often handle sensitive donor information and personal data, making data security and privacy a significant concern during audits. Ensuring that confidential information is protected is vital.
Solution: Implement robust data security protocols and encryption to safeguard sensitive data. Train your staff on data security best practices and maintain compliance with data protection regulations. Engage with IT security experts to conduct regular audits of your data security measures.
By understanding and addressing these common challenges, nonprofits can enhance their audit processes, making them more efficient and less burdensome. These solutions provide a starting point for nonprofit leaders looking to ensure their financial transparency and compliance while minimizing audit-related stress.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
https://signatureanalytics.com/wp-content/uploads/Featured-Image-Simplifying-Nonprofit-Audits_-Key-Strategies-for-Efficiency-and-Success.png6831723Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-08-23 07:46:192024-10-01 23:09:28Simplifying Nonprofit Audits: Key Strategies for Efficiency and Success
Annual budgeting can often feel like a recurring whirlwind that leaves nonprofit teams feeling overwhelmed. The process seems to come around faster than expected, and it’s not uncommon to hear collective sighs of “Here we go again.”
However, the key to successful budgeting lies in getting the right people involved and embracing a “bottoms-up” approach.
Watch the video below to learn more:
Empowering Stakeholders with “Bottoms-Up” Budgeting
The success of your nonprofit’s annual budgeting process depends on active involvement from those who possess the most accurate and detailed information. This is where the concept of “bottoms-up” budgeting comes into play. Rather than crafting the budget in isolation within the finance department, the strategy begins by engaging program managers, development teams, and operations staff.
“The bottoms up approach with budgeting provides the most accurate information…Your plan is only as good as the information that you’ve put into it.”
The success of your nonprofit’s annual budgeting process depends on active involvement from those who possess the most accurate and detailed information. This is where the concept of “bottoms-up” budgeting comes into play. Rather than crafting the budget in isolation within the finance department, the strategy begins by engaging program managers, development teams, and operations staff.
“The bottoms up approach with budgeting provides the most accurate information…Your plan is only as good as the information that you’ve put into it.”
Ownership and Accuracy Go Hand in Hand
When key stakeholders actively participate in the budgeting process, they take ownership of the budget. They understand the intricacies of their departments and can provide insights that lead to a more accurate representation of future expenses. This ownership ensures that the budget genuinely reflects the needs and expectations of each department, enhancing its overall accuracy.
The Training Component
However, involving stakeholders isn’t just about assigning them budgeting tasks and expecting them to deliver. It’s essential to provide training and support to help them understand how to translate their departmental knowledge into financial formats. Sitting down with budget managers one-on-one to guide them through the process can help unlock the valuable knowledge they possess.
Creating a Structured Timeline
To streamline the annual budgeting process, it’s crucial to establish a well-defined schedule. This timeline should span approximately four months, allowing for comprehensive planning and collaboration. It’s during this period that various check-ins and events occur to ensure that all budget components align seamlessly.
Culminating in Board Approval
The journey towards creating an accurate and effective budget culminates in the presentation of a financial package to the board of directors. The goal is to obtain their approval before the start of the fiscal year, giving your nonprofit a solid foundation for the year ahead.
Zero-Based Budgeting vs. Flexibility
In the nonprofit world, there’s often a desire for budgets to align perfectly, where revenues and expenses meet at zero. This approach is known as zero-based budgeting. However, it’s essential to understand that this ideal scenario doesn’t always reflect the complexities of nonprofit finances.
Surpluses and Deficits: Part of the Plan
In reality, having a surplus doesn’t mean you’ve over-budgeted, but rather that you’re reinvesting in your organization’s mission. Surpluses can be used to bolster reserves, which can come in handy during challenging years. Conversely, a deficit in one year doesn’t equate to financial mismanagement if there are reserves in place to cover it.
The Unpredictable Nature of Giving
Nonprofit finances are affected by fluctuations in donor contributions. Some years may see surges in support, such as during the peak of the COVID-19 pandemic, while others might require drawing from reserves. The key lies in maintaining healthy reserve balances and having a financial runway that safeguards your organization’s sustainability.
In conclusion, nonprofit budgeting doesn’t have to be a stressful and unpredictable process. By embracing the “bottoms-up” approach and acknowledging the nuances of nonprofit finances, you can develop a more accurate, resilient, and adaptable budget that positions your organization for long-term success.
How Signature Analytics Can Help Your Nonprofit
Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.
For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analyticstoday.
Understanding margins is the cornerstone of any successful business strategy. Signature Analytics’ CEO, Pete Heald, and President, Jason Kruger, recently emphasized the importance of deep comprehension of your business’s margins, the influences that shape them, and the opportunities they present for improvement.
Why Knowing Your Margins is Essential
Margins, the difference between the selling price of a product or service and its cost, are a primary indicator of a business’s profitability. It’s not enough to understand the overall margin; businesses must also grasp the margins for individual product or service lines. As CEO, Pete Heald points out, having this understanding allows for effective measurement and goal setting.
Increasing the gross margin – the profitability after subtracting cost of goods sold (COGS) – even by a single percentage point can lead to significant improvements in a business’s bottom line. In a $10 million revenue business, for example, a 1% improvement in margin equals an additional $100,000 in net income. That much additional cash on the bottom line can make a huge difference in how a business makes decisions about inventory purchasing, hiring and workforce planning, real estate costs and many other operational choices.
Understanding Your Trends
Margins, much like other financial parameters, can trend upwards or downwards over time. Businesses need to mine these trends for the valuable insights they provide. A decreasing margin might signal a need for proactive adjustments, while an improving margin could indicate the effectiveness of certain strategies.
For example, if a $10M business can increase the price of a product by 2% while COGS remain the same, they will see an additional $200,000 bump to the bottom line. Understanding the details that drive these dynamics allows a business owner and leadership team to make strategic decisions to improve gross margin and profitability.
Beyond Gross Margin
Improving gross margin is only part of the puzzle. Businesses must also focus on managing their Selling, General & Administrative (SG&A) expenses to improve their net income margin. CEO, Pete Heald emphasized that the key to managing SG&A costs lies in understanding your numbers, trends, and what constitutes your margins by service or product line.
Once businesses have a firm grip on their margins, they can explore various strategies to enhance them. This could include sales strategies, purchasing strategies, or re-evaluating shipping agreements to name just a few. For businesses that manufacture or buy products, these elements can significantly impact margins.
Ultimately, the importance of margins cannot be overstated. They’re an essential part of the financial health of any business. As President, Jason Kruger stresses in the video above, small improvements of even 1-3% can make a substantial difference to a business’s bottom line, reinforcing the importance of not just understanding your margins, but also continually striving to improve them.
https://signatureanalytics.com/wp-content/uploads/KNOW-YOUR-MARGINS-2.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-08-05 20:04:222024-10-01 23:09:28Know Your Margins [VIDEO]
In a recent conversation, Signature Analytics’ CEO, Pete Heald, and President, Jason Kruger, shed light on a critical issue faced by businesses in the current economic environment – managing inventory while carrying debt. They highlight how companies can rethink their processes and operations to improve profitability, by addressing excess inventory and thinking strategically about mounting interest rates associated with debt.
Inventory Surplus and Cash Shortage
The COVID-19 pandemic and ensuing supply chain disruptions led many companies to accumulate excess inventory. Many resorted to leveraging credit lines or financing to procure stockpiles of inventory to offset supply chain disruptions. However, with the rise in interest rates, some companies now find themselves cash-strapped, which hampers their ability to manage and run their businesses effectively.
Understanding the Cost of Inventory
To navigate these challenges, business leaders need a deep understanding of the current cost structure of both existing inventory and new incoming stock. While holding additional inventory made sense during the disruptions of the pandemic, it is now time to examine price structure, inventory, and margins more strategically. The decision to liquidate stock, even at a lower profit margin, could be more beneficial than retaining it while paying higher interest rates on the underlying loans that afforded the initial purchase. Converting inventory into cash allows businesses to pay off their debt and reduce interest payments, freeing up capital to run operations more strategically and with less fear of cash shortages in other areas.
Streamlining Inventory Management
Looking ahead, President, Jason Kruger, advises businesses to reevaluate how quickly they’re turning their inventory. The buying pace of 3 years ago can now give way to leaner inventory management with the supply chain opened back up and delivery times more reliable.
Depending on your unique situation, you may find that reducing or even liquidating a portion of your inventory can improve cash flow, lower storage costs, and reduce the risk of being left holding the proverbial bag as it relates to obsolete stock.
Coupled with the right strategic support, businesses can optimize their inventory management processes to better align with changing market dynamics and the current economic climate. This proactive approach to inventory management, as recommended by Pete Heald and Jason Kruger, can be instrumental in improving a company’s profitability in these challenging times.
Reach out to learn more about how Signature Analytics helps business owners make smart business decisions based on accurate, relevant, and timely data and excellent accounting and financial management.
https://signatureanalytics.com/wp-content/uploads/Managing-inventory-Debt.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-07-27 06:05:532024-10-01 23:09:28Rethinking Inventory & Debt in the Current Economy [VIDEO]
One of the things we looked at as we were going through the end of Covid and into this year was growth. We were fortunate to experience a lot of growth and opportunity during the pandemic, and we had increased the size of our team to meet that demand. As we got into 2023 it became clear that the slowdown was going to affect us all and we had to make some tough decisions to right-size our people costs. We know we’re not alone. We’re hearing the same story from a lot of our clients and prospects as well. So here are the elements we feel are most important to address as you manage your business and prepare to weather this slowdown in the economy.
Questions to ask yourself and your leadership
What were the investments we made in our growth?
What do we see that actual growth being?
Are the size of your team and the growth projections aligned?
If not, where can you make strategic cuts and still provide the level of service/ support/ delivery that your customers are accustomed to?
Businesses grappling with their growth and cost strategies need a thorough understanding of financials, coupled with the ability to critically assess assumptions. When it comes to making decisions about people, it’s always – well – personal. But with a clear eye and good data decisions about hiring or reducing the size of your staff can be made knowing that it is the right choice for your business going forward.
For businesses that are asset-heavy or equipment-heavy, or a combination thereof, the right-sizing discussion will be multi-layered. Really, as you look at ways to prepare for a slower economy the key is to understand your numbers and your trends and clearly define your goals based on that data. A strategic partnership with Signature Analytics provides that kind of guidance. We make sure our clients know their budget, forecast, cash flow projections and can right-size their companies based on those numbers.
Making Hard Decisions Easier
As a business owner, it’s not that hard to identify excess costs or call out underperforming team members. But having the data to support those assessments ensures that you’re making smart cuts, not just those that are most obvious. For us, At Signature, we took a hard look at our people costs, real estate costs, technology costs, and other costs within our organization to determine which costs make sense, which are adding value to our company now, and which roles and activities we see adding value in the future.
Because we did a comprehensive cost assessment, in some cases, we didn’t cut costs, we increased them because we uncovered opportunities to take advantage of trends in the market that didn’t exist a year ago.
It’s not just about slashing roles and reducing people costs, there are nuances that go along with knowing your numbers. Understanding what your historical trends are, understanding the impact of expenses and investments and what they’ve made to your business is critical.
Accountability in Decision Making
At Signature Analytics, we know the value of having an accountability partner – someone who can challenge your assumptions. We act as a strategic partner for our clients to add a collaborative approach to decision-making. With an expert at your side, it’s easier to ensure the organization continually aligns with the changing market realities and doesn’t just rely on past successes.
Having an accountability partner or a person, either as a consultant or within your company who helps you challenge those assumptions is a vital role. The assumptions we made a year and a half ago, needed to be challenged. When we took the time ourselves to address our human capital costs and many other costs holistically, we decided some areas need to be cut, some teams, streamlined, some costs reduced and others increased.
Our CFO Business Advisory services help our clients have access to the kind of expertise you get from a full time CFO but at a fraction of the cost – and for a fraction of the time. Making smart and well thought out decisions that don’t have to be rolled back saves everyone time, money, and lost revenue.
https://signatureanalytics.com/wp-content/uploads/Managing-human-capital-costs.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-07-01 21:47:002024-10-01 23:09:29Managing Human Capital Costs in a Slowing Economy
In the ever-shifting business landscape, one of the significant overheads that organizations grapple with is real estate costs. The lingering impacts of the COVID-19 pandemic have redefined the traditional workspace model, prompting companies to reevaluate their real estate strategies. Here’s how businesses can optimize their approach to real estate to remain resilient in a slowing economy.
The Post-COVID Workspace Conundrum
Three prominent workspace models have emerged in the aftermath of the pandemic:
Full-time in-office: A model many companies have adhered to for decades, but one that’s now being received with apprehension by employees post-pandemic.
Hybrid: This model offers flexibility, with employees spending a few days in the office and the rest working remotely. It appears to be the middle-ground many are leaning towards.
Completely Remote: With the entire workforce operating remotely, this model completely eliminates the need for physical office space.
Our company, along with many others, found that a full-time return to the office post-pandemic wasn’t feasible if we intended to retain top talent. The hybrid model, while attractive, poses its own set of challenges. How does one justify the complete cost of real estate if it’s being used only a fraction of the time?
The Remote Advantage
Choosing a fully remote operational model allowed us significant savings on real estate costs. Not only did this free up cash, but it also provided us the flexibility to redirect those funds towards enhancing company culture, a component that can sometimes be diluted in a fully remote setting.
However, going fully remote isn’t without its challenges. Maintaining a unique company culture, ensuring adequate training and development for new entrants, and fostering team cohesion are all areas that require careful consideration.
Evaluating Real Estate as a Business Expense
Every cost in business should be measured against the value it brings. From a cash flow perspective, the savings from eliminating or reducing real estate costs can be significant. Additionally, going remote or adopting a hybrid model can open up doors to a wider talent pool, no longer restricted by geographical boundaries.
However, the decision shouldn’t be solely based on cash flow. It’s crucial to ask, “What value is this expense adding to my business?” If an expense, like real estate, isn’t adding the desired value, it might be time to reconsider.
The slow pace of the economy demands agility and adaptability from businesses. In such times, rethinking fixed costs like real estate and aligning them with the evolving needs of the workforce can not only result in cost savings but also lead to a more dynamic, resilient, and future-ready organization. As we sail into uncharted economic waters, businesses that periodically evaluate the value derived from each expense will be best positioned to thrive.
https://signatureanalytics.com/wp-content/uploads/rethinking-real-estate-costs.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-06-12 05:38:302024-10-01 23:09:29Rethinking Real Estate Costs in a Slowing Economy
Technology costs can be the secret drain of cash in any business. The slow incremental (or sometimes rapid) rise of technology costs can occur under the radar of even the most vigilant CEO. At Signature Analytics, we recently conducted a technology audit and discovered so opportunities to cut costs and improve efficiency all in one swift change of vendor.
The Ever-Evolving Tech Landscape
There are so many options when it comes to software and technological tools. From Software as a Service (SaaS) solutions to the burgeoning field of Artificial Intelligence (AI), there is an ever-growing list of options. However, these services often come with incentives that make them appear more affordable in the first year or initial agreement, leading to costs that can quickly escalate as time goes on.
When we looked at our own technology expenses, we discovered that we had areas that were easy to trim back such as maintaining more ‘seats’ than needed, and areas where our contracts had jumped in cost upon renewal. We know we’re not alone. This happens to our clients all the time.
Research and Negotiation
An essential step we took was a comprehensive review of our technological assets: which technologies were in use, who was using them, and what value they brought to the company. This process illuminated areas of over-payment and under-utilization, paving the way for cost-cutting measures.
Take some time to research the current market, you may find new platforms that offer greater functionality at a more cost-effective rate than your existing systems. Yes, switching takes time and effort. But it also focuses your teams on their internal processes and for soem software requires a deep dive into data that may have become muddled over time.
Can’t find a better solution? Research offers a benchmark to bring to your current provider to start a renegotiation. By understanding the competitive landscape, you can approach current vendors and negotiate better pricing to get the best value for your investment.
Strategic Cost Evaluation
The key to reducing expenses is strategic trimming not across-the-board cost-cutting. When you understand your numbers, analyze cost trends, and determine the value driven by those expenses it becomes very clear where you’re overpaying and what services you can reduce or eliminate entirely.
When you reduce costs in one area it can officer an opportunity to invest in areas you may have been constrained in. Reduced software costs and better systems might leave room for leadership coaching for middle management or an increased spend in marketing. Or even that outsourced accounting team you always wanted to support your in-house accounting staff!
It’s all about finding ways to increase efficiencies in cost structure and manage your business more effectively.
Technology is an essential aspect of any business, so it is critical to ensure it is providing value proportional to its cost. Regular review, market research, and strategic cost evaluation are vital to keep these expenses in check, ensuring they are both necessary operational costs and strategic investments driving your company forward.
The health of any manufacturing or distribution enterprise is determined not just by the number of products it sells or the revenue it generates, but also by its efficiency in managing assets. Chief among these assets is inventory. Yet, despite its importance, inventory management often remains an under-optimized function, especially in fluctuating economic scenarios. Here’s why understanding and streamlining inventory processes can be a game-changer for businesses.
Cash on the Shelf: The Hidden Cost of Inventory
It’s a simple equation. Every product that sits on a shelf represents cash that’s tied up. For manufacturers or distributors, inventory can be visualized as money frozen into a tangible form, waiting to be liquidated upon a sale.
Inventory might be an essential buffer against unexpected demand or supply chain disruptions, but there’s a caveat. When it’s mishandled, inventory transforms from an asset into a liability. The logic is straightforward: the longer products sit unused or unsold, the longer the capital is tied up without generating any return. Moreover, if businesses are resorting to lines of credit to purchase more inventory, they end up bearing the added weight of interest costs on unsold goods.
Navigating Post-COVID Inventory Challenges
The pandemic brought with it an array of supply chain challenges. Many businesses, in response to uncertain product availability, increased their inventory holdings to navigate potential disruptions. While this might have been a prudent strategy in the thick of the pandemic, clinging to it post-COVID can be financially draining.
With the most acute supply chain disruptions largely behind us, businesses must reevaluate their inventory needs. Holding onto larger stocks might have made sense when the future availability of materials was in question, but as we move towards economic normalization, such practices might be more of a burden than a boon.
The Metrics Matter
Understanding the duration inventory sits on the shelf, often referred to by metrics like Days Sales Outstanding (DSO), is crucial. These metrics provide insights into inventory turnover rates and can help businesses pinpoint inefficiencies in their ordering and sales processes.
Adapting to a Changing Economic Landscape
As whispers of economic downturns get louder, businesses need to recalibrate their strategies. Lessons learned during the pandemic are invaluable, but they must be applied judiciously, given the evolving economic context.
In conclusion, for those in the manufacturing or distribution sectors, it’s not just about having inventory—it’s about having the right amount of inventory. Proper inventory management practices can free up cash, reduce unnecessary interest payments, and ensure smoother operations. As we transition into a new economic era, businesses that proactively manage their inventory, understanding it as cash on the shelf, will be better poised to weather challenges and seize opportunities.
https://signatureanalytics.com/wp-content/uploads/Inventory-as-a-non-cash-asset.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-05-13 05:33:282024-10-01 23:09:29Manufacturing and Distribution Inventory as a Non-Cash Asset [VIDEO]
How utilized are your employees? What percent of their time is being spent working on projects that are not billable to the client? How much is that costing your company in productive capacity? If you do not know the answer to these questions, you could be missing out on potential revenue benefits.
Properly assess how much to invoice clients accounts
Decide what to pay their employees
Determine if they are over or understaffed
The Importance of tracking Utilization Rates and Billable Hours
Professional services companies spend a lot of time and effort around managing people. However, with many professional services companies, the crucial metrics of utilization rates and billable hours go overlooked or, at best under valued. Signature Analytics’ CEO Pete Heald and President Jason Kruger discuss best practices for all kinds of professional services companies who want to set pricing, hire staff and manage scope using accurate financial data.
Setting the Right Goals
For a professional services firm, setting accurate billable hour goals is foundational. However, as both Pete and Jason highlight, these goals can differ depending on the role. While lower-level employees might spend the bulk of their time billing hours to clients, senior-level personnel could be more involved in initiatives like sales, demanding a different metric for them.
Setting the right goals for the members of your team and then communicating them effectively and setting accountability around goal achievement are essential steps to managing using the data from your financials as opposed to being reactive to client demands or employee inspiration.
Checking in with leadership to assess each employee’s value to the company is important when setting these goals for billable vs non-billable hours. If someone isn’t billing hours, what are they contributing to the organization? Being clear on expectations and understanding where your people are ringing the most value is a crucial step to improving productivity and profitability.
What about fixed-fee Professional Services?
Even if a company operates on fixed fees, understanding the time and efficiency involved in each engagement is crucial. This ensures profitability remains on point, and businesses can set realistic and competitive fixed fees. Setting those fees should result directly from a granular understanding of the utilization rate and billable/ non billable horse of the team. IF the margins don’t add up, this data allows an owner to address pricing or bring in support to assess team efficacy.
Price setting is a little bit of a science and a little bit of an art. Even if a firm uses a fixed fee structure, determining an hourly rate is vital as it forms the basis for those fees. To determine this rate, Pete suggests starting with desired gross margins. For instance, if a firm targets a 40% gross margin and has clarity on the hours each team member works, they can backward calculate potential hourly rates.
Regular Tracking
Regularly monitoring billable hours – be it daily, weekly, or monthly – is crucial. Choosing the right project management software streamlines the process of tracking hours and managing staff. For most companies: even those with under a million in revenue, Excel spreadsheets just won’t cut it. Good project management and tracking software not only provides actionable insights into utilization but also assists in setting goals and managing to those goals Moreover, incorporating incentives for employees who meet or exceed their targets can bolster productivity and enhance value.
Hiring Decisions & Capacity Understanding
With accurate data in hand, a company can better predict when to hire the next individuals. This preemptive workforce planning approach ensures businesses aren’t scrambling to keep up with contracts after the fact but are strategically prepared for growth. Understanding current capacity helps in determining when to onboard new clients and when to expand the team.
Balancing Rates, Compensation, and Margins
Jason concludes by highlighting a trinity in professional services – the rate billed to clients, the compensation offered to employees, and the resultant margins. The market often determines billing rates, but they can also be a reflection of the unique value a firm offers vis-a-vis competitors. These rates, in turn, play a pivotal role in deciding employee compensation and the margins a firm can achieve.
In sum, while utilization and billable hours might seem like mere metrics, they lie at the heart of a professional service firm’s operational and strategic decisions. Firms that master these dynamics position themselves for both profitability and growth.
Calculating Employee Utilization Rates
The resource utilization rate is a balanced relationship between billable hours and working hours available and is a key metric of employee productivity.
For example, if there are 168 eligible working hours in the month of May and Penny spends 100.80 hours on billable client projects then Penny’s utilization rate is 60%.
Billable Hours / Eligible Working Hours = Utilization Rate
Now let’s say that Penny’s annual salary is $50,000, or $4,167 per month. In the month of May, she spends the remaining 40% of her productivity time on business development efforts (10%) and general and administrative (G&A) tasks (30%). That would mean the company is paying Penny $1,250 in May to work on non-revenue generating processes.
Monthly Salary x Time Spent on G&A (%) = Employee Cost
If this general and administrative time is benefiting the company then it may be worthwhile. Otherwise, this time could be used for other work, clients, or spent attending networking and other events to help grow the productive capacity of the business.
If Penny were to increase her utilization from 60% to 80%, her general and administrative employee costs would decrease to $417 per month – increasing efficiencies AND generating additional revenue.
From a revenue perspective, let’s assume that clients are billed at an hourly rate of $150. At 60% utilization, the company is making $15,120 in May; however, 80% utilization would bring in $20,160, or $5,040 of additional revenue. Furthermore, if you have 5 employees who can each increase their employee utilization rate from 60% to 80%, you could generate an additional $25,020 of revenue per month.
Higher Utilization = Increased Profitability
Using Utilization Rates to Guide Business Decisions, A Case Study
Earlier this year, Signature Analytics was hired by a professional services firm in San Diego to provide outsourced accounting services. In addition to performing monthly accounting maintenance and bookkeeping services (preparing financial statements, balance sheets, income statements, cash flow statements, etc.), we put together a Utilization Summary Report so the client would have visibility into their employee utilization rates month over month.
The metrics report revealed that in the month of January, the company’s average utilization rate for billable employees was 60% resulting in a $95k loss for the month. In February, average utilization was 63% indicating a consistently low utilization rate for the company. To show how utilization rates impacted the bottom line, we also compiled an “if-then” summary report which revealed that increasing average utilization to 75% would generate a profit of $130k for the month.
Using this utilization percentage information, the company decided to make personnel changes in the month of March that would increase its profitability. This included letting go of an underperforming non-billable sales associate. They also replaced a billable-time employee with consistently low utilization with a new billable employee whose skills and capacity could be better utilized by the company. Additionally, the firm set personal billable utilization goals for every employee to help encourage the staff to improve productivity and maximize billable projects and hours.
Following the changes, average employee utilization increased to 76%, resulting in a profit increase of $230k for the month of March.
At Signature Analytics, we help several professional services firms use utilization rates to make key strategic decisions that drive profitability. Preparing utilization summary reports and “if-then” analyses are one way we enable our clients to visualize the effect of increased utilization rates. We are also able to show the company key metrics for unbilled general & administrative time by applying utilization rates to salaries and separating these wages on the financial statements. Furthermore, we have helped clients implement time tracking systems – which is the first step in determining utilization rates – and assisted with the development of company policies to ensure time is accurately entered by employees.
https://signatureanalytics.com/wp-content/uploads/UTILIZATION-RATES-BILLABLE-HOURS.png4201060Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-05-03 07:16:162024-10-01 23:09:30Analyzing Employee Utilization Rates to Drive Profitability for Professional Services Firms
The economic downturn is here, and with it comes the possibility of a recession. While it’s impossible to predict exactly what the future holds, it’s important for businesses to take steps to weather-proof their operations in order to prepare for the worst. While there’s no one-size-fits-all approach, there are certain steps that business owners can take to ensure their business is resilient should a recession occur. In this article, we’ll explore some of the most important steps that businesses can take to weather-proof their operations and processes to have a stronger base to support their success in the face of economic uncertainty.
“It all has to tie back to a budget and then to the cash flows of your business. When you are clear on that, it gives you the confidence to operate effectively, and understand the impact of different scenarios.”
-Jason Kruger, Founder Signature Analytics
The Signature Analytics team tackles the possibility of a recession
As business owners ourselves, we sat down to talk through some strategies and tactics that business owners can take to reduce costs, make smart and strategic moves, and, weather-proof their businesses in these times of economic fluctuations. Here are some excerpts from our conversation (edited for fluidity and context).
For many businesses the ill effects of COVID have receded, freight costs are coming back down to a manageable level, and the costs of raw materials are also coming back down. With these reductions in costs, there are choices to be made. You can keep those increased margins knowing that times may get leaner in the fairly near future, or you can pass those cost-cuts on to your customers in hopes of driving more business and increasing revenues. Each of these strategies has its merits, you really have to dig into your numbers to make the call that’s right for your business and your industry.
To make that call and many others we dig into here you’ll have to have accurate financial reporting – it’s what we do best so it’s where we think all smart business decisions start.
“Business owners need to really invest in scenario planning, what happens if revenue is 10% below what we think? It can happen. You have to understand your variable versus your fixed cost. I suggest you take a long look at ways to reduce some of your fixed costs.”
-Pete Heald, CEO Signature Analytics
Compensation costs are holding steady
There’s one area where costs are not coming down, nor will they anytime soon, and those are compensation costs. The minimum wage keeps rising and the unemployment rate is still at historic lows despite the flurry of cuts at the largest tech giants. No one is taking a pay cut just because the world has opened back up and supply chains are moving again. If your business is hiring new people right now and you’ve adopted a hybrid or remote work model, there are some interesting decisions to be made in terms of where you source your people and how you compensate them.
Here in Southern CA, the unemployment rate is 2.5% and if you’re hiring a brand new college grad, you’re paying a premium in many industries. If however, you are open to remote employees, it opens things up quite a bit. It means you can hire anywhere which can bring big changes to comp structures and benefits structures.
As you’re looking at your margins and spending across the board, don’t forget to take the time to audit those employee benefits. You want to be sure that the benefits you offer are doing the job they’re meant to do: attract and retain great people.
When we audited our work environment and employee benefits we discovered that the majority of our staff preferred to work remotely. That opened up the option of reducing our real estate costs while providing a hybrid remote-first work environment that works for us, for our margins, for our culture, and for our clients.
Re-examine your debt and get a good banker
Another area in which business owners can take action to reduce costs and prepare for the possibility of interest rates continuing to go up is by re-examining their loans. If you don’t have a good relationship with your banker, build one. A banker should be your ally. If you do have challenging quarters (or years) having a banker on your side is beyond helpful.
Take a look at any variable-rate loans your business has and see if you can refinance at a fixed rate. Some SBA loans which started with very low-interest rates (around 5.75%) are already up to 10.5% and could go as high as 12% in 2023. Consider the term of that fixed rate however, ask “where do I think rates will be in 2 or 3 years?”
The key to a good banking relationship for your business is communication. A good banker will be a resource throughout the life of your business if you are transparent with them and share your financial reporting. The truth is: they’re going to find out if you’re having financial troubles. It is better to share your financial statements with them early and help them be an advocate for you. Your banker will have resources and insights to share. If you keep your banker in the dark it creates concern about what else might be going on that you aren’t sharing with the bank. That concern could create an adversarial relationship that neither of you wants.
I care about every one of our clients and I hope they think of me as a resource and an ally. When business owners come to me with financial challenges I’m eager to help. Depending on the issue they are facing, I can provide introductions to trusted connections for a wide variety of business challenges too. I have introduced organizational change consultants, HR, legal services, or, in the case of Signature Analytics, great financial management, and outsourced accounting. I want all our banking clients to do well. It’s why I do what I do.
Most loans have financial statement reporting requirements as well as metrics and behaviors built into the loan covenants. Those requirements are very important to your banking relationship. Always know what metrics and behaviors need to be met, reporting any violations as soon as possible will help ease the concerns of your bank that you are on top of it. Bring a partner like Signature Analytics in so your accounting department isn’t racing against the clock and get those financial statements and compliance data to the bank on time.
How can nonprofits prepare for a recession?
We’ve been working with the Trevor Project and a number of larger nonprofits for years. When NFPs are doingfinancial scenario planning in a down economy, they have to plan for the likelihood that fundraising may decrease. 2023 fundraising may not be at the same levels as 2022.
The challenge for many nonprofits is that just when people are tightening their belts and less likely to give, that’s when their services are needed the most. Saving money on operational costs is essential. Outsourcing non-core functions – HR, Accounting, and Marketing can be a way to reduce those operational costs. Outsourcing can provide on-demand expertise and increase efficiencies at a flexible cost that will be able to scale up and down.
Risks that outsourcing can address (mini-case stories)
Scaling up (or down) based on immediate needs:
We just started working with a company that had a part-time controller for years. That one person couldn’t scale up when they had a huge influx of business and that was just the time they didn’t have time to onboard new employees. Outsourcing with a reputable partner means they can scale up (and down) quickly based on immediate needs. For this client: we came in and got all the systems and processes in place, set up theirday-to-day accountingand provided those services, and stepped in in that controller role to keep the finances running at full speed even as their business grew at a rapid pace.
Losing a key person:
With unemployment so low, recruiters are pulling staff from one company to another with regularity. Having an outsourced solution protects you if you lose a key person. Without someone to fill in and without clearly documented SOPs you can find yourself running blind. That person that left might have been doing invoicing and processing payroll, key functions that take time to teach. It’s easy to put too much reliance on one person especially if you are running lean. The loss of a key accounting person can mean that a business can’t collect its invoices in a timely manner which puts real stress on a business.
We’ve recently stepped in and filled a leadership role in a prominent NFP while also providing accounting help in the day-to-day side of their financial operations.
Our Partner Satpal Nagpal atGHJ shared some insights with us about the value of reliable financials for both nonprofits and for-profit companies.
These are excerpts from our conversation:
These are uncertain economic times. There are conflicting signals of a recession, will it be mild, or deep? When we see external uncertainties like this we feel it is even more important to control those things that are controllable. You don’t want to layer on an element of uncertainty in your decision-making because of unreliable financials. Making sure you have a solid foundation you can trust with accurate reporting, reliable bookkeeping, and accounting services will provide you with the right data to make predictions you can trust.
Because of the level of uncertainty out there in the financial landscape, businesses should be engaging in scenario planning for whatever comes their way. What will you adjust if the recession is mild vs deep, where will you cut back or what levels will you manipulate? These scenarios must be built on the backbone of good financials. And an audit of your financial statements can set you up to make better business decisions.
The fact is, in a tight fiscal environment, lenders and other financial institutions look at businesses’ financials with a sharper eye, and you don’t want to be caught off guard. For example: Nonprofits received funding from a lot of sources over the last 3 years [due to the pandemic and other factors]. As that money came in, the criteria for how it was to be spent and what oversight was going to be put in place was unclear. In my opinion, that’s about to change. And when it does, having a good process of internal financial controls and compliance will make the process of audits and compliance much more straightforward.
Making sure your business records are up to date and working with a strong team like GHJ to provide audits ensures that everything is in order when the regulators request information.
What business owners and nonprofits may not realize is that you can’t go into an audit unprepared. Audit preparation is a process that takes time and collaboration.
At GHJ, we build collaborative relationships to provide information to our clients, whether it’s benchmarking or best practices, or critical information on internal controls. That’s where our collaboration with Signature Analytics makes us very successful. That relationship provides business owners with a strong and reliable financial foundation and the audits to prove that their accounting andn finance departments are being managed with impeccable accuracy.
Maybe the most important piece of advice is to challenge your assumptions.
All the cost-controls and auditing we’ve been talking about has to tie back to yourstrategic budget for it to be implemented in a smart way. To weather-proof your business for a recession the number one step is to make sure you have really solid financials. Start with scenario planning, look at your debt, analyze what is variable vs fixed, and think about that business banking relationship. If you’re in a good place, take out a Line of Credit now. If you have one, extend it. If you wait until times are tough you may no longer qualify for the level of funding you qualify for now. Don’t assume your SBA rates are the only good rates out there, different lenders have different risk profiles.
Challenge your own rates and prices. Have you increased your rates to keep up? The narrative right now is that we all have to accept the rising cost of goods & services. But with a potential recession, the opportunity to increase prices may be coming to an end – if a recession hits, that opportunity to raise prices will be lost. So get clear on your margins, overhead, utilization rates, and cost controls and increase your prices now.
Places you may be inefficient and can make smarter business decisions:
Look at your tech stack and make sure the technology you contracted to use years ago is still the best. Maybe you can move to a new system for less – you know you’re not getting those deals from year one anymore.
Audit your real estate needs. We did. We realized our staff wanted to be remote – or hybrid and we chose to meet that need for our staff and at the same time reduce major overhead costs in our real estate expenditure.
Challenge your assumptions about compensation and benefits. The right comp structures will attract the best people who align with your company culture.
Audit your income statements
Clean up your aging AR
Examine those loans, and make sure you’ve got the best rates.
Look at the various investments you are making in your business – re-allocating certain funds in down economies can be a wise move (just don’t get reactive!)
Check employee utilization rates and org structures for inefficiencies.
All of these discussions have to come back to your strategic budget, andgood financials. For us, that’s at the heart of good business decisions. It’s why we do what we do. We help business owners make smart business decisions.
If you have a topic you’d like us to do a deep dive on: send us a message, we’d love to hear from you.
https://signatureanalytics.com/wp-content/uploads/How-to-weather-proof-your-business-for-a-possible-recession.jpg13582048Signature Analyticshttps://signatureanalytics.com/wp-content/uploads/SA-is-now-CC-3.pngSignature Analytics2023-03-10 01:30:112024-10-01 23:09:30How to weather-proof your business for a possible recession
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visit to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Google reCaptcha Settings:
Vimeo and Youtube video embeds:
Other cookies
The following cookies are also needed - You can choose if you want to allow them:
