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Challenges Facing Tax-Exempt Finance Departments

“Time, you know, takes everybody out. It’s undefeated.” - Rocky Balboa

References to the Rocky movies are frequently made as they are applicable to many situations. However, the above quote has never been more relevant in the tax-exempt world particularly with the challenges facing many tax-exempt finance departments. In my discussions with clients, I have heard several underlying challenges facing finance personnel— they are often interacting with multiple departments and functioning as a “Jack/Jill of all trades.” Below are a few of these challenges along with some suggestions to better manage them.

Too Much to Do with Too Little Time

Oftentimes, finance professionals are spread too thin. They wear multiple hats during the day. When you look at your calendar, are you overwhelmed by the number of meetings, both live and virtual? Do most of those meetings/tasks tend to be outside of the finance office?

First, prioritize your time. Review your daily tasks and determine which ones relate to your organization’s mission. Are the meetings you have scheduled proactive or reactive? Although it’s important to remain compliant, and thus be reactive, focusing on the future should be the goal of finance personnel. Also, look for opportunities to delegate tasks that do not require your attention. Ask yourself, is this the highest and best use of my limited time? If the answer is no, determine who else can do it and delegate.

Keep in mind, delegating to someone else may require them to remove something from their list. A team approach is needed to prioritize and hopefully eliminate or automate some tasks. Asking “Does this need to be done at this time?” will help you focus on what is mission critical.

Grants

With limited resources, many organizations look to grants. However, caution should be used when applying for and accepting grants. There needs to be a positive cost-benefit for the organization. If you have certain programs where you are seeing less activity, then replacing that revenue with grants may be beneficial. Organizations sometimes apply for and accept every grant without realizing that it creates significantly more work without sufficient benefit. The need for organizations to track the flow of dollars and which grants are vouchered, receivable, or collected can be very time intensive.

Being able to easily track grant activity saves time. Organizations should set up the general ledger to easily capture the related revenue and expenses of each grant to assist in future decision making. Having data on the cost-benefit of grants will assist in the decision-making process of future grant opportunities.

Revenue Recognition

Speaking of general ledger activity, organizations are faced with multiple sources of revenue – restricted and unrestricted contributions, fundraising events, membership fees, grants, etc. Keeping track of all these different sources can be confusing and difficult. Further, finance professionals need to determine whether the revenue should be accounted for under the accounting guidance for revenue recognition or contribution standards. Lastly, restrictions may exist that need to be researched for proper classification.

Keeping all revenue sources straight is key to being able to tackle these challenges. A monthly revenue recognition process will help organizations stay up to date and make year-end audit preparation easier.

Lack of Internal Collaboration

If you are a finance professional that is not involved with the fundraising and development department, change that immediately. Yes, this may be somewhat contradicting to what I said above but stay with me. Communicating and collaborating with the fundraising and development team will support the long-term sustainability that you need to remain viable. Your focus should be proactive by setting clear, concise, and attainable goals, along with ensuring solicitation material are clear and worded correctly, in order to not restrict funds unintentionally.

Budgeting/Forecasting

Virtually all organizations have a budget process. However, I have found few that perform sensitivity analysis on their budget. What if the attendance at our largest fundraiser is 10% less than expected? What if our volume of fee for service revenue generating programs doesn’t meet budget? Consider what impact exceeding or missing targeted volumes have on the organization.

Knowing what could happen to your revenue based upon volume variances makes finance departments more prepared for the “what ifs?”

Having contingency items in budgets or sensitivity analysis reports will assist the finance departments for the impact of unbudgeted variances. When looking at the “what ifs,” start globally – revenue/salaries/attendance at events. No need to get too granular.

Information Technology

Now I’ll admit, I’m not the most technologically savvy individual out there. However, we all need to realize the risks associated with information technology. The increasing need to maintain and upgrade existing equipment and security often falls to the finance department, especially when determining what resources are available. The COVID-19 pandemic accelerated investments in technology, primarily because organizations were forced to.

If you have an IT department, working with them is integral to understanding what they forecast their needs to be in the next 6, 12, and 18 months. Those forecasts should include a detailed technology budget. Whether it’s hardware, software, or security, having some understanding of IT needs should be near the top of the finance departments list of responsibilities.

Cashflow

You have probably heard the question, “how’s cashflow?” from your auditors, board, or both. After all, you can work to improve everything above, but if the cash is not there, the organization is not long for survival. As grantors and funders continue to face the same challenges you are facing, getting reimbursed timely is imperative.

Make sure you respond to all funder inquiries timely and completely. Ask for clarification. I have found the best clients ask, “how quickly can you turn around my voucher?” when approached to begin a new program. Understanding the timing of receiving the cash should be front and center.

At the end of the day, you have finite time and resources. Prioritizing your, and your team’s, time has never been more important. Just like Rocky – Keep Punching!

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.