6 Big Questions to Ask Before Starting a Nonprofit Social Enterprise

As they look for ways to become more self-sufficient and provide themselves with predictable revenue, increasing numbers of nonprofit organizations are engaging in social entrepreneurship.

The benefits of going this route take many forms. Making money through a nonprofit social enterprise can help fund the expansion of programs and services. That money is free from the restrictions of government agencies and foundations, which typically provide grants for narrowly defined purposes. And, with more money coming in, an organization’s leadership can focus less on fundraising and more on capacity building and the development of programs that meet the nonprofit’s mission.

Social entrepreneurship comes with its fair share of challenges, especially for organizations with little to no experience in the for-profit world. Below are several questions to consider before you move forward with a nonprofit social enterprise business plan:

1. What’s your current financial status?

Social entrepreneurship is not a feasible way to help a nonprofit out of immediate financial hardship. Rather, it’s a long-term strategy that may take several years to pay dividends. You may lose money on your venture for some time before turning a corner and becoming profitable.

2. Is your funding diverse enough?

There are few things scarier to a nonprofit than having one or two large funders responsible for the majority of its budget. If a funder does not come through on the next grant cycle, the impact could be devastating. A nonprofit social enterprise can diversify your funding and keep you from relying too heavily on any one revenue source.

3. How well are you raising funds now?

Are you having trouble bringing in funds from traditional sources? If so, social entrepreneurship could allow you to explore new methods of bringing more money through the door. If you are confident in your nonprofit’s ability to raise money through traditional means, you might be better off sticking with that.

4. What’s the status of your ‘funding well?’

As you look at your current and potential funders, is there a limit to the amount of money you could possibly raise? Many nonprofits find that they can raise a lot of money from a limited number of funders, but struggle to go beyond that. If your organization’s “funding well” appears to be drying up, social entrepreneurship could open up more opportunities.

5. Do you have strong leadership?

Launching a nonprofit social enterprise business plan is a big task—and not one that should be handled by an organization dealing with uncertainty in its leadership. Staff turnover should be relatively low and the board should have confidence in the executive director and other management personnel.

6. Does your nonprofit have an entrepreneurial spirit?

Some organizations like to take risks and explore new ideas, while others can be more traditional and conservative. If your nonprofit falls into the former category, it may be positioned well for social entrepreneurship opportunities.

While there are clear financial and capacity-building benefits to nonprofit social enterprise, it’s important for organizations and their boards to conduct a comprehensive assessment of their operations first. Without the leadership, staff and resources to make it happen, it can be difficult to support social entrepreneurship for the long term. Keep these questions top of mind as you discuss this issue with your board.

Contact Us if you would like to discuss how to use social entrepreneurship in your nonprofit organization.

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How good financial management increases your nonprofit’s social value

Managing a non-profit organization or trade association effectively is a very specialized skillset. As the management board or trustees, you’re the absolute experts in running the day-to-day elements of your non-profit in order to meet your key social objectives.

You’re driven by your social beliefs, you’re bringing in the donations you need and you’ve got all your event planning, fundraising, and membership under complete control. But there’s one element of managing your non-profit where many organizations fall down – and that’s getting control of your financials.

The better your financial management is, the more impact you can create from your available funding – and, after all, increasing your organization’s social value is precisely why you went into the non-profit sector, right?

So, how does better control over your financials impact your organization?

The impact of good financial management

When your non-profit organization was founded it had a mission;  to address an urgent social or community need or to serve the interests of a particular group of beneficiaries, stakeholders or members. Your aim is, no doubt, the same now as it was then, to have the most positive impact possible in furthering that mission.

A key part of creating this positive change is in  maximising your fundraising efforts and managing your financial affairs  responsibly and with a view toward greater efficiency and transparency. To do this well, you need to:

• Develop a budget and stick to itMonitor your costs, expenses and other transactions against your budget
• Record your donations and funding in detail
• Provide clear reporting on how you’re spending these funds.

In short, you need a robust and transparent accounting function.

The good news is that it’s never been easier to set up a cost-effective and easy-to-use accounting system. Advances in cloud technology and financial technology mean that there’s a great choice of cloud accounting solutions to choose from – from Xero Online Accounting to QuickBooks Online.

Cloud accounting software is simple to learn, automatically backs up all your data to the cloud and gives you a convenient, mobile way to access your accounts and key numbers at any time. Critically, with an accounting solution in place you’re in an excellent position to start improving the level of control you have of your organization’s financials.

A budget you can understand and track

Creating a budget for your spending is fundamental to staying in control of your financials. By knowing your expected overhead and projected funding income, you can calculate a budget that’s realistic and practical to adhere to.

This budget can then be plugged into your accounting system to give you a benchmark for the organization’s income and outgoings. By regularly reviewing your actual funding and spending against your budget, you can track these numbers and easily see where there’s a shortfall – and where there may be a need for urgent action.

Practical performance management

Tracking your budget is just one part of the wider need for performance management within your non-profit organization.

By running more detailed reports from your accounting system, and setting clear metrics and key performance indicators (KPIs), you can tag, monitor and review nearly every element of your internal performance. Keep a close eye on your cash-flow numbers, measure how your monthly funding income is performing against your projected budget, or see how well your payroll costs are comparing to your available income.

The core benefit here is that you have a transparent view of how well (or not) the organization is performing. By working closely with your accountant and advisers, you can monitor performance more productively, and get the guidance and advice that’s needed to avoid any pitfalls and take direct action, where needed.

And for those non-profits that have opted for the cloud accounting route, there’s the additional bonus of access to a wide range of hugely helpful cloud-based reporting, performance and forecasting tools – all of which adds to the depth of your financial insight.

The non-financial elements that help your non-profit

 Of course, it’s not just the financial elements of running a non-profit that have an impact on the organization’s cash reserves and overall performance. And that’s where a deep working relationship with your professional adviser can add real additional value.

• Increase your membership – working on strategies to expand your membership or finding new investor opportunities is a highly effective way to pump up your cash flow.
• Meet your compliance deadlines – running a non-profit means meeting a lot of regulatory and compliance-driven deadlines – something your adviser can help you with. The less time you spend on meeting your compliance requirements, the more time you have to focus on fundraising, events and other core ways of expanding your reserves.
• Expand your professional network – when you work with a non-profit expert, you have access to a growing network of other professionals who can help you get more from your own organization. The bigger your network, the more impact you can have.
• Find the best talent – your non-profit is only as good as the people that run it, so having access to a wider professional network also opens up opportunities to source the best possible talent and non-profit professionals to work on your team.

 Work with a nonprofit expert

 At Checkbox Accounting, we’ve been working with nonprofit organizations and trade associations for decades – so we know the challenges your organization faces and the most productive ways to overcome these potential hurdles.

Unlike some CPAs, we understand that running a nonprofit is a very different proposition to running the average private business. Your goals are different, you’re not driven by pure profit and your objectives are driven by a desire to work for the greater good of your communities.

We’ve pulled our nonprofit insights and advice into a free helpful guide – giving you all the key steps to take in order to improve the efficiency of your organization.

Download your free guide for nonprofits here

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Tax Reform Changes - How will they affect you?

When you file your 2018 tax returns – about a year from now – your return will look very different.  Here are a few of the biggest changes that may affect you.

 

Individual Tax

• Individual tax rates will range from 10% to 37%.
• Standard deduction increases and personal and dependent exemptions eliminated
• The Child Tax Credit increased and a new Dependent Credit created.

Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total;
• Moving expenses (with an exception for certain military);
• Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees, among others;
• Mortgage interest beyond interest on $750,000 of acquisition debt (if you buy a new home); and
• Mortgage interest paid on equity debt (all homeowners).

Some new benefits for individuals include:

• Medical expense Adjusted Gross Income (AGI) threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
• Alternative Minimum Tax (AMT) threshold increased;
• A deduction for qualified business income for passthrough entity owners;
• Recharacterization to an IRA cannot be used to undo a Roth conversion;
• The estate tax exclusion has increased to $10 million (adjusted for inflation); and
• Annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018), but the maximum rate on gifts is 35%.

Small Business Tax

• Corporate tax rate will be a flat 21% for 2018
• Up to 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activity. The rules are complex but there is a lot of planning that we can do to maximize this deduction for you.
• Corporate Alternative Minimum Tax (AMT) repealed;
  
• IRC §179 expensing and bonus depreciation increased;
• Deductible business interest reduced;
• The net operating loss (NOL) carryback repealed, NOL deduction amount limited;
• The domestic production activities deduction is repealed;
• IRC §1031 treatment is limited to certain real property; and
• Entertainment expenses are disallowed.

We are here if you would like to discuss how the changes apply to your unique situation >> Contact Us

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This includes the pulse or heart rate, body temperature, respiration rate, and blood pressure. Taken together, these help indicate the state of the patient’s essential body functions.

If any – or all – offer some cause for concern, the doctor can start diagnosing the patient more thoroughly, before suggesting a course of action…

And now we’ve arrived at the part where you’re wondering why we’re discussing basic medical practice.

Well, this idea of ‘vital signs’ is something that can be comfortably extended to your business.

Your company’s financial health should be examined regularly to make sure there are no underlying maladies that will only grow worse if left untreated.

Knowing What to Look For

These financial ‘vital signs’ have many names, some of which may be familiar to you. They include: Key Performance Indicators (KPIs); business metrics; critical success factors; and moneymaking statistics.

No matter the label attached, they are all essentially the same thing: a means of tracking the performance and success of your business.

Just as a soaring temperature or irregular heartbeat will make a physician want to dig deeper in diagnosing their patient, there are a few things you should keep an eye out for when it comes to the health of your business.

For instance, revenue is a clear indicator as to the financial performance of your company. By monitoring your income in comparison to your expenses, you will have an understanding of how much you are making (or not, for that matter), and why.

And when it comes to revenue, consider the various streams. In particular, online sales are simple to measure by implementing sales software, allowing you to spot trends and take action before it’s too late.

Or perhaps you could track the referrals that bring you new business. This will help you determine whether or not your marketing endeavours have been worthwhile, and if your current clients are actively recommending you to their network.

Once you have those customers, think about retention. How many clients are returning to your business over time after first working together or selling them on a discount or offer? Are you maintaining a loyal customer-base, or are you struggling to retain them? The answer will give you an insight into your company’s customer service capabilities.

Take the Pulse of Your Business

These are just some of the Key Performance Indicators – or vital signs – that you ought to look out for as you measure the performance and success of your business.

Understanding how your business is doing at any given moment is crucial to helping you make informed and effective decisions as its leader.

Tracking financial and non-financial metrics can help keep your business healthy. And as with your body, spotting any worrying trends early will make it a great deal easier to remedy than if you leave them untreated.

And it can be tough when you dig deep and track these metrics, only to discover that your business is living on borrowed time. When that happens, you must be ready to evaluate the alternatives; and quite often those alternatives can mean making difficult decisions, such as letting people go, selling the business, or filing for bankruptcy.

Start Tracking Today

Putting a plan in place to track key business metrics is fundamental to the growth and success of your company.

By staying on top of your KPIs, you will be in a much better position as you work with an up-to-date and accurate budget. And by doing so, you will be able to grow and invest in new resources, personnel, or locations, without putting your business under financial strain.

If you’d like to discuss setting up a system to track your key business metrics, please contact us.

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Since the launch of “Giving Tuesday”, nonprofits have another compelling reason to engage in year-end fundraising. Started in 2012 by New York’s 922nd Street Y organization, and supported by the UN Foundation, the “Giving Tuesday” movement has become a nationwide and global phenomenon. In just a few short years, the event has drawn huge interest and participation from individuals, for profit business, nonprofit organizations, schools and other community groups. In 2016, $168M was raised from over 98 countries (source).

As stated by the organizers on their website, “It’s a simple idea. Just find a way for your family, community, your company or your organization to come together to give something more. Then tell everyone you can about how you are giving. Be part of a national celebration of our great tradition of generosity.”

To learn more about “Giving Tuesday” and how you or your organization can participate, go to www.givingtuesday.org. You will also find out about the exciting celebrations and events planned for “Giving Tuesday 2017” which takes place this year on November 28th.

Nonprofit organizations may find the celebration of “Giving Tuesday” an opportune time to kick off their year-end fundraising or awareness campaign, launch a matching gift challenge, start a volunteer campaign in their community or simply share their organization’s story.

At the same time, you or your organization will be participating in an important global movement to bring attention to the charitable sector and the important work they do.

Originally published 2016 – Updated 11/13/17

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But you know it is looming. Out there, in the not too distant future. Waiting.

Here’s the truth – your end of year audit isn’t going to disappear anytime soon. Taking the right steps now in getting prepared will not only save you time and money, but also a great deal of frustration.

And whether or not you think of it as merely a necessary (or unnecessary) evil, be assured that the annual audit does in fact have its benefits.

You see, an audit is a great opportunity for taking stock of your nonprofit organization; to come face to face with its true financial condition, and to gain a better understanding of how well it’s using its resources.

Inquiries will come from your auditor regarding your accounting processes and internal controls. It may not be the easiest of conversations to have, but it is a terrific opportunity to improve upon those processes and controls.

The discussion with your auditor will also help your organization better protect itself against fraud and theft, while your board and your donors will gain confidence in the reliability of your financial reports.

Take Action Now

Here’s a few suggestions that should make this year-end process go more smoothly.

• Have a sit down meeting with your auditor in advance of your fiscal year end. Let’s face it, sometimes there is no replacement for a face to face conversation. This is the ideal time to address any problems that were encountered in the prior year and talk about how they can be avoided during the audit coming up. Also, it’s the time to give your auditor a heads up for any changes or new developments that might have an impact on the audit process.
• Read the engagement letter that you receive from your auditor. That letter will outline what the audit is and isn’t about, and define your responsibilities, as well as those of the auditor.
• Request that your auditor send you, in advance of the start of fieldwork, a list of the documents and information that you will need to assemble for their use and review. Also ask them to specify the items they will need before fieldwork starts to do their pre-audit planning.
• Organize the requested documents for their use and review. Typically the auditors will want to see the following documentation:
  • Bank statements and monthly reconciliations;
  • Investment summary showing year end balances, annual investment activity, and income;
  • Documentation in support of donor pledges, donated securities and property, and grant funds received;
  • Fixed asset and depreciation schedules;
  • Accounts payable and receivable aging statements at year-end; and
  • Copies of lease and debt agreements.

Coordination Is Key

To make sure the audit goes ahead with the least amount of disruption to your nonprofit, coordinate the auditors schedule with yours and that of your staff.

It’s best to schedule the audit fieldwork for a time when it will be the least disturbing to your office routine, and when you and your staff can devote the necessary attention to the audit.

What’s more, it’s crucial that the year end closing of your books has been done properly, and that all cash and balance sheet accounts have been reconciled, fixed asset and depreciation schedules have been updated, and that adjusting entries have been booked to give effect to any required
accruals and deferrals.

And it’s important to remember the more efficient and organized you are in preparing for the audit and assisting with the auditors, the less time they will spend in your office. Since many firms bill on an hourly basis when performing audit services, the less time they spend on the audit, the less they will bill your organization upon its completion.

So keep this simple equation in mind:

Greater preparedness = Greater Efficiency = Reduced Fees.

We’re Here to Help

If you’re feeling a bit overwhelmed with the organization and preparation of your records prior to the end of year audit, we can help.

Simply contact us today to speak with one of our friendly advisers.

The post Year End Audit Preparation for Nonprofit Organizations appeared first on Checkbox Accounting.

Long days, longer nights, and no-one to talk to when the going gets tough – it can feel isolating and demoralizing.

But there is a solution: speak and share with other business owners.

Many small business owners actively fear working with other businesses, worried that they may take advantage of them rather than offering guidance and advice.

However, the rewards can be terrific. By tapping into your local network of fellow entrepreneurs, you have the opportunity to become more knowledgeable, understanding, and efficient.

Why Should I Reach Out?

There’s no two ways about it; being a small business owner is stressful.

All the responsibility, all the decisions, the planning, strategy, and execution; it all falls squarely at your feet. And it can be quite overwhelming.

That’s why having a mentor – or joining a local group of small business owners – can help alleviate some of that stress. They give you a sounding board with whom you can discuss your problems and share your successes.

And this isn’t a new concept by any stretch of the imagination.

Take a beat and think about the franchises you see just about every single day. Starbucks, Wendy’s, Dunkin’ Donuts; they all share financial data and marketing information with the other stores within their franchise in order to better understand the overall market.

Won’t This Threaten My Business?

You might look upon this arrangement as a threat to your business. Sharing confidential information with a perceived competitor will understandably make you uncomfortable, and it will impact your business.

But, if done right, that impact will be positive, not negative.

By working with your peers, you will improve your understanding of the local marketplace, boost your efficiency and delivery, and oversee a better standard of customer service. This will only serve to drive more business and increase profits.

Where to Start?

If you run an independent small business (i.e. not a franchise) then it can be tough to know where to start when reaching out to fellow entrepreneurs.

Becoming active on social media (Twitter and LinkedIn in particular) is certainly a good idea. This gives you access to a whole host of like-minded individuals, many of whom won’t be swimming in the same waters, and are therefore less likely to appear threatening to your business activities.

But the fact is, nothing beats face-to-face networking.

Search online for local organizations, groups of similar business owners, or an association to join in order to meet and develop valuable business relationships with your peers.

Here are a few in our neck of the woods worth checking out:

Roseville, CA

• Roseville Granite Bay Business Network
• Women In Networking (WIN) Roseville
• Miscellaneous Small Business Meetups – Roseville (Meetup.com)

Sacramento, CA

• Sacramento Business Social Network Group
• Sunrise Business Builders
• Sacramento Area Business Connection

U-Link Network also has a number of local groups meetings listed on their website.

If you can’t find one nearby or relevant to your industry, consider setting up your own. It can be as informal as meeting for a coffee every few months, but just as valuable as an established organization.

And be sure to complement these meetings by fostering professional relationships with business advisers and mentors.

Put Yourself Out There

As your business grows and develops, and you begin to better understand your own key financial data and moneymaking statistics, you will find that you actively want to compare yourself to your peers.

It’s only natural to seek to benchmark yourself against others. In fact, it can become a crucial part of the overall success of your business.

By simply being active in your local business community, you will open up the doors to new and prosperous relationships, promising leads, and a wealth of advice and experience.

And by improving your knowledge of the local market, it will push you to be a better business leader.

Put yourself out there and make it happen.

If you’d like a helping hand in getting started, contact us today to speak with one of our friendly advisers.

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And you would be right.

The first step in any effective strategic process is essentially a truth telling exercise. It’s a matter of confronting the reality of what an organization – any organization – is, and what it really does.

In his book ‘The Nonprofit Strategy Revolution’, consultant David La Piana of La Piana Associates calls this “understanding Organization Identity.” It’s fair to say that leaving out this step may doom a strategic planning process to failure.

Now, strategy is not the same as planning (although planning can be strategic). Strategy should be an ever-evolving, ongoing effort to determine the right approach towards a desired end.

Good strategy, not necessarily good planning, ultimately determines the success of a nonprofit’s attempt to achieve its mission. And it is often essential to good nonprofit leadership and management.

In this post, we will take a brief look at where you should start the strategic thinking process, and what you need to do to understand your own nonprofit’s identity.

Start Here

La Piana recommends that you start by being brutally honest about what your organization really is and does. Your board and management need to make an assessment of who they are as an entity, what they do, how they do it, and how they finance it.

This process of assessment is not your strategy, but it does lay out the “raw ingredients of strategy”.

Next, your management and board need to draft an ‘Organization Identity Statement’. This will outline the following:

• A Sound Organization Business Model
• A Clear Market Awareness
• An Understanding of Your Organization’s Competitive Advantage(s)

Here we address each of these sections in more detail.

Your Business Model

Your board and management team need to be crystal clear on the following:

• Who the organization is or seeks to be (i.e. its mission and vision).
• The work you do. In other words, what are the activities you perform to achieve your mission and promote your vision?
• How you do it (i.e. the structure, operations, budgets, and policies that support these activities).
• How you fund it.

If all of these elements – mission, organizational structure, program activities, and finances – click, then you have a sound business model.

However, if there’s something clearly not working (a lack of integration between these elements, or dissonance among board members with regards to the organization’s mission) then you must rethink the business model.

Take the time to identify it, and make sure it’s the right one. As La Piana contends, “a relatively brief structured conversation among organizational leaders… can lead to startling insights on the part of participants.”

Be open and honest with one another. Otherwise, you’ll set down the path of a costly and time-consuming strategic process, only to find that your strategy is built on unsteady ground.

Your Market Awareness

Next, you must know the marketing landscape for your organization. And you must be able to pinpoint its position in that landscape.

Your nonprofit needs to ask and answer the following questions:

• What is your organization’s market – i.e., who do they serve?
• Is that market expanding or shrinking?
• Who else is in the same market? Who are your competitors?
• Where does your organization stand in relation to its competitors? And what are your organization’s relative strengths and weaknesses?
• How did your organization obtain its current status relative to others?
• Where does your organization want to go in the future?
• What are the demographic, economic, social, and technological trends that will shape our market in the future? And what threats or opportunities do they post for your organization?

This isn’t a step to be taken lightly.

Developing a deep and meaningful understanding of your organization and its competition can be an involved process of fact gathering and analysis, or a focused conversation among staff, the management team, and the board.

Either way, it’s crucially important that you fully comprehend your organization’s market position, wider market trends, and the strengths and weaknesses of your competition.

Your Competitive Advantage

The discussion of the marketing landscape and competition segues quite nicely into the discussion of your organization’s competitive advantages.

Taken from the perspective of a nonprofit, competitive advantage is essentially about your organization’s unique ability to produce sustainable social change.

Therefore, understanding your competitive advantage comes from asking: “Is there something that differentiates us from our competition? What makes us better than the average organization in our market in order to produce superior outcomes?”

Your competitive advantage can take one of two forms:

1. Asset Advantages – These involve a process or method that your organization has developed or owns that is inherently better than what other organizations have. For example:

• Better program design.
• A highly accessible location, network of locations, website, special connection with funders, or a class of donors.
• Great name recognition and reputation among funders or members
• An influential and well-connected board of directors.

2. Execution Advantages – Even if there is no unique process, method or technology, your organization may just be doing things better than others. Examples would be:

• Greater efficiency or effectiveness in the delivery of products or services.
• Superior marketing to or communication with clients, members or beneficiaries.
• Better transparency in accounting and reports of outcomes.
• More effective use of social media in connecting with members.

As La Piana writes, “breaking the concept (of competitive advantage) down, as we have here, into asset advantages and execution advantages requires thinking about your organization in what is probably an entirely new way – and one that will not occur during a traditional strategic planning exercise”.

Do You Need Help Understanding Your Organization’s Identity?

La Piana’s book and the accompanying Facilitator’s Guide contain detailed direction on how to conduct a strategy thinking session for developing and documenting an Organization Identity Statement.

But if you’d like some hands-on guidance, contact us today to arrange a strategy session with Checkbox.

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