What is Bookkeeping?
If you ask a business owner or nonprofit leader what bookkeeping is, they may give the response: “It’s a headache.” While that might be true for some, bookkeeping is unavoidable.
It is the process of recording transactions. All financial transactions that happen during day-to-day operations must be tracked; bookkeeping is the part of the accounting process that tracks these transactions. Ongoing and consistent bookkeeping translates to accurate accounting records.
Bookkeeping can be done within the organization by any individual or it can be outsourced. Some nonprofits believe it will be easier or more cost-efficient if they handle record-keeping themselves.
There are benefits to the organization with outsourced bookkeeping. By allowing an outside person or accounting service to handle financial recording and accounting, it frees up valuable time that nonprofit leaders can then use to focus on operations.
Many organizations also realize that having enough staff to accurately and efficiently keep the books ends up costing more. However, the most frequently reported reason for outsourcing bookkeeping and accounting is that it reduces risks in the following areas.
Reducing Risks by Outsourcing Bookkeeping Services
Flawed or outdated accounting systems
Choosing to do the bookkeeping internally means working with whatever accounting software or system is already available. Often the accounting system is outdated, and a replacement is an expensive improvement. Accounting software that is out of date, or not operating correctly, can cause inaccurate financial reports. Inaccurate reporting may lead to having to invest more time into corrections or worse: an investigation or audit.
The people are what make our organizations work. Without the faces on the front and back lines of our businesses, a nonprofit would not be able to serve its members or the community. People make mistakes though, that is inevitable.
With outsourced accounting services, human error can be reduced. An accounting service has the proper software and internal controls in place to catch and correct errors.
Sanctions for non-compliance
Sanctions are restrictions placed on economic activity. Financial operating and reporting guidelines are constantly evolving. Sanction compliance requires tedious education and costly training and is just not feasible for many nonprofit organizations. Outsourcing the bookkeeping and accounting functions of a business reduces the risks associated with non-compliance.
Inaccurate financial data and reports
Financial data and reports are incredibly important to the overall health and well-being of a nonprofit organization. Potential donors and regulating agencies use financial reports to evaluate the organization. Inaccurate financial data may also lead to bad decisions about the future activities of the nonprofit.
Cash Flow Problems
Monitoring cash flow is a necessary function. Cash flow reports tell us how much money we made, how much we spent, and how much we need. Managing cash flow allows us to accurately forecast, or predict, the future cash needs of a business. Financial planning depends on knowing whether the organization has enough cash to continue operations.
Untracked costs and profit margins on clients
For a nonprofit, the profit margin tells us how much money we will be able to use for the purpose of the organization. Tracking the profit margin allows us to understand the relationship between the costs and the revenue that we bring in. Tracking the cost of doing business is essential to accurate reporting.
Forgetting about receivables
Receivables tell us what is still owed to the business. It is important to account for receivables when evaluating the financial position of a nonprofit organization. Leaving the total of our accounts or notes receivable off our financial reports will cause our business to be undervalued. Not reporting receivables may also mean that they get forgotten and not collected.
Instinctive Decision Making
Instincts guide the decisions we make. Having great instincts is a key to success for any business leader. However, business decisions must be made with information. Having accurate records allows us to make informed decisions that benefit the organization. Proper accounting strengthens the much sought-after instinct ability.
Marketing allows us to share our message. The marketing material issued to potential donors, recipients, and other organizations is only as good as the data provided in it. In order to effectively represent the organization, it is important to be working with validated financial figures.
Not understanding your costs
Running a nonprofit organization requires that funds be specifically used for a purpose. Tracking expenses must be done with precision so that the costs are allocated to the proper funds. Understanding costs allows us to evaluate whether they are producing a return on their investment and are justifiable expenses.
How We Can Help
No one can do it all, and that is okay. That’s why we’re here. At JFW Accounting Services, we do more than handle your bookkeeping and other accounting needs, we make sure that you not only make any decision. You make informed decisions every time.
Book a call with us and let’s discuss how we can grow your organization!