Nonprofit vs For Profit Accounting Structure

How to Map Your Accounting Team to Your Nonprofit vs For Profit Business Structure

Aligning the accounting team involves identifying the key accounting activities necessary to support your business model and then allocating resources to those areas. Financial and regulatory requirements vary between for-profit and nonprofit organizations. In this blog, we will delve deeper into how to align your accounting team with your business model, including an examination of the distinct characteristics of for-profit and nonprofit business models, their accounting structure, and reporting requirements.

For-profit businesses generally operate with the primary goal of generating profits for their owners or shareholders, while nonprofits are organized for a specific social cause or mission, and do not have owners who expect to earn a financial return on their investment. As a result, nonprofits often have a different revenue model and source of funding compared to for-profits.  Let’s dive into the distinctive characteristics of each business model and explore how those differences impact best accounting practices.

What Is the Ideal Accounting Structure for a For-Profit Business Model?

The ideal accounting team and structure for a for-profit business model will depend on the size and complexity of the business. However, in general, a good accounting team and structure should have the following key roles and responsibilities:

Chief Financial Officer (CFO): This is the head of the Finance and Accounting Department and is responsible for overseeing all financial activities of the business. The CFO should have a strong background in accounting, finance, and business management.

Controller: The controller oversees the day-to-day accounting operations and reports to the CFO. They are responsible for maintaining the integrity of the company’s accounting records, including managing the month-end close process, preparing financial statements, and ensuring compliance with accounting regulations.

Accounting Manager: The accounting manager reports to the Controller and oversees staff who are responsible for managing the accounts payable and receivable, recording financial transactions, reconciling accounts, and preparing financial reports.

Staff Accountants: Staff accountants are responsible for recording financial transactions, reconciling accounts, and preparing financial reports.

Tax Specialist: The tax specialist should have expertise in tax laws and regulations and be responsible for preparing and filing tax returns, managing tax audits, and providing tax advice to the business. For most small and midsized companies, this function is outsourced to their Tax CPA

Financial Analyst: The financial analyst is responsible for analyzing financial data to help the business make informed decisions, such as forecasting future revenue, assessing the profitability of different projects, and analyzing financial trends.

The Ideal Reporting Structure for a For-Profit Business 

The Ideal Reporting Structure for a For-Profit Business refers to the process of organizing and presenting financial information in a clear and accurate manner to support informed decision-making by stakeholders. For a service-based business, for example, it is important to track revenue by source, credits used to arrive at net revenue, and the cost of services provided.

Additionally, different profit centers, service lines, and geographic locations may require separate tracking for more effective financial management. Overhead costs, such as sales and marketing, general operations, rent, and administration, must be taken into account when determining sales, general, and administrative costs.

By properly tracking these expenses and revenue sources, a service-based business can ensure accurate financial reporting and decision-making. Ultimately, the ideal reporting structure for a for-profit business should support the overall accounting team structure and ensure compliance with financial reporting requirements.

Optimizing Accounting and Reporting Structures for Nonprofit Organizations

Nonprofit organizations can have business models that resemble for-profit businesses, such as generating revenue through fee-for-service programs or selling products. However, unlike for-profit businesses, the revenue generated is used to further the nonprofit’s mission rather than to provide financial returns to owners or shareholders. For example, the Girl Scouts of America’s $800 million in annual cookie sales helps fund their programs and activities. 

What Is the Ideal Accounting Structure for a Nonprofit Organization?

The ideal accounting team for a nonprofit could include the following positions:

 

Chief Financial Officer (CFO): This senior executive is responsible for overall financial strategy and management, including financial planning and analysis, treasury, and risk management.

Fundraising Director*: The fundraising director is responsible for developing and implementing a comprehensive fundraising strategy that includes major gifts, planned giving, corporate sponsorships, and grant applications. 

Grants Manager*: This person is responsible for managing the organization’s grant applications, reporting, and compliance with grant requirements.

Donor Relations Manager*: This person is responsible for managing the organization’s relationships with donors, including receipting, acknowledgment, and stewardship of gifts.

Controller: The controller oversees the day-to-day accounting operations and reports to the CFO. They are responsible for maintaining the integrity of the organization’s accounting records, including managing the month-end close process, preparing financial statements, and ensuring compliance with accounting regulations.

Staff Accountant: This person is responsible for maintaining the organization’s general ledger, including recording transactions and preparing financial statements.

Bookkeeper: This person is responsible for performing routine accounting tasks, such as data entry and reconciliation of bank statements.

*These special roles are not always on the accounting team – they collaborate with the accounting team to ensure that grants are accounted for correctly. 

What is the Ideal Reporting Structure for a Nonprofit Organization?

The ideal reporting structure for a nonprofit organization is structured more around programs and their associated costs, as opposed to operational running expenses. In nonprofit accounting, any cost associated with a program is directly associated with how it contributes to fulfilling the organization’s mission, rather than generating profits.

An accounting ledger is a key component of a nonprofit organization’s accounting system and serves as the primary source of information for financial statements. The accounting ledger records all financial transactions, such as donations, grants, program expenses, fundraising expenses, and other financial activities of the nonprofit.

Nonprofits have different financial objectives compared to for-profit organizations, as their primary goal is to fulfill their mission rather than generate profits. Therefore, their accounting ledgers are structured differently to account for different types of financial transactions. 

How Can Outsourced Accounting Teams Support Businesses Who Want to Align Their Accounting Team to Their Business Model?

Outsourced accounting teams can support businesses in aligning their accounting team to their business model by providing specialized expertise, resources, and technology that may not be available in-house. Some of the ways in which outsourced accounting teams can support businesses include:

Customization: Outsourced accounting teams can provide customized services to match the specific needs of the business, including the creation of a tailored accounting team structure that aligns with the business’s goals and objectives.

Scalability: Outsourced accounting teams can scale up or down as needed, providing the business with the resources it needs when it needs them, without the need for a long-term commitment or investment in new hires.

Access to technology: Outsourced accounting teams often have access to the latest accounting software and technology, enabling them to provide efficient and accurate services to the business.

Expertise: Outsourced accounting teams often have a deep pool of specialized expertise, including certified public accountants (CPAs) and other financial professionals, who can provide guidance and support on complex accounting and financial issues.

Cost savings: Outsourced accounting teams can provide cost savings compared to hiring in-house staff, as the business does not need to invest in salaries, benefits, and other employment-related expenses.

About Signature Analytics

By working with an outsourced accounting team, businesses can focus on their core activities, knowing that their financial operations are being handled efficiently and effectively, freeing up their own internal resources to focus on driving growth and profitability.

Signature Analytics is the Smart Choice for both nonprofit and for-profit organizations. Why? Our assessments provide a deep dive into your existing accounting structures and processes and help us customize the right solution for your business. With those insights, we then bring in the right outsourced team to get you the Accurate, Relevant, and Timely financials you need to run your business successfully.

Contact our team of experts to learn more. Then, read on to learn more about How Outsourced Accounting Supports Non-Profit Annual Audits.