Special to the Philanthropy Journal
By Jessica B. Kuhn, CPA
When looking for ways to appeal to donors, not-for-profits typically turn to storytelling as a chance to show a compelling need for the communities they serve. Not-for-profits collect testimonials, show touching pictures, and share stories of how they created positive change. While it is effective to show programming efforts and results, many donors also want to see the organization’s financial position to understand how their money was or will be used and their contribution will have a direct impact on the causes they hold near and dear. In many ways, financial statements and reporting are one of the most important ways a nonprofit can tell their unique story and the difference they’re truly making.
Financial statements of not-for-profit organizations are now required to be updated with FASB 2016-14 in the upcoming periods. But while it may seem like yet another task to take on, organizations should be taking these changes to heart and seeing how they can improve their story each year through the use of the financial statements. There are several new or enhanced disclosures required, one example being the new liquidity footnote disclosure. Through this new requirement, organizations must now disclose the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date. Rather than treat these financial statement changes as a burden, consider them an opportunity to paint the picture of how your year went and why donors should continue to contribute.
Using the liquidity footnote addition as an example, what will your available cash look like in a year? What does this mean to a donor and how can you explain a low-cash position versus a high-cash position to continue to encourage donor contributions or new grants? Many not-for-profit organizations can explain a strong liquidity position in that they have skilled management and are well equipped to handle growth. There can be a concern that donors won’t want to help a financially sound organization as much as one that’s struggling, but there are opportunities to speak to the advantages of each through this footnote and through conversations with your donors. Exploring what this new disclosure requirement means for you will reveal an opportunity to tell your organization’s unique story.
Another change to the financials per FASB 2016-14, is that the methods used to allocate costs among functional classifications, are now required to be disclosed in more detail. This gives your organization another chance to review allocation methods, often the time spent or the square footage of a space, to determine how much of an expense goes toward program costs or general and administrative costs. If this is not already transparent, it gives the donor an opportunity to see the thought behind where their contribution is going and the specific needs of your organization. A team of 150 employees needs significantly more resources than one with two dozen and without sharing those needs, your donors may not be able to look past the numbers.
Next, really dig down and use your financial advisors to see how you can improve those overhead expenses that have remained stagnant year over year. More than likely, there are provider contracts that renew each year that could be reviewed and negotiated, creating potential to both increase your services received and cut back on expenses. Are you getting the value that you need from all your existing providers? Perhaps addressing two or three each year can be an easy way to maximize what your organization is receiving and show your donors that you’re constantly looking for ways to be more efficient with expenses or the operation as a whole.
This can also be thought of in terms of the constantly changing landscape of technology. How can your organization take advantage of this? What can be outsourced or improved to give more time to your mission? What else can your providers be doing for you? Focusing on the accounting arena, there are growing opportunities to utilize experienced, outside bookkeeping organizations that can provide a level of expertise that many not-for-profit organizations do not have the resources to properly address or afford. For example, having several complicated grants with certain allowable expenses, can be hard for organizations to track. But many accountants are experts in helping set up the system properly in the beginning to make tracking and grant reporting much easier at the deadline. Solving those headaches with research or consultation with your existing advisors can be great long-term solutions as technology continues to rapidly change in the accounting field and as reporting requirements to grantors continue to be complex.
Though the reporting changes required to not-for-profit statements will affect each organization differently, this can be a great opportunity to challenge your status quo and see if any thoughtful changes can be made as you address the new disclosures. And most importantly, share how your mission is making a difference for the communities and causes your donors care about most.
Jessica Kuhn, CPA, is a manager in the audit, accounting and consulting department of Ellin & Tucker in Baltimore where she performs high-quality audit, financial reporting and advisory services for several not-for-profit organizations. Jessica can be reached at firstname.lastname@example.org.