Finance and accounting outsourcing: Considerable benefits for nonprofits
Finance and accounting outsourcing (FAO) is a growing trend, enabling organizations to cost-effectively improve several back-office functions. FAO is valuable for all industries, providing fractional use of finance and accounting professionals and enhancing processes and technologies. In addition, FAO provides multiple benefits specific to nonprofit organizations, including fund and project tracking, stronger compliance measures and more effective use of funding.
Most nonprofit organizations have complex compliance reporting and demands tied to their grants and contracts which go beyond generic reporting requirements. Unfortunately, most nonprofits cannot afford the level of experience and sophistication necessary to manage the multiple grants and projects. In addition, if an organization does have qualified personnel in place, they may be difficult to retain as more lucrative opportunities arise.
FAO provides the appropriate level of experience and can scale to work with the ebbs and flows of an organization. Organizations may grow in volume or complexity depending on funding sources but are not ready to hire a new person, outsourcing can seamlessly scale to meet new demand. The inverse is also true; if demand seasonally drops, outsourcing resources can be reduced on demand. FAO also eliminates the time and financial expense related to employee turnover.
Migrating to a new technology system in an outsourcing agreement also provides more enhanced reporting and visibility into key metrics. Where most industries may require a three-dimensional view of reporting, nonprofits may require six, due to additional compliance demands. Finance and accounting outsourcing can provide that necessary insight that enables more efficient compliance measures.
In an era of decreasing funding, the financial benefits of finance and accounting outsourcing are typically significant for nonprofit organizations. The time and dollars normally needed to replace employees diminishes, while a big savings also comes from not needing physical space, energy and computers for internal personnel. That responsibility falls on the provider, and is no longer your organization’s concern.
Any extra office space that was previously used for internal finance and accounting personnel can be used for programs that can be charged to a grant. Finally, with FAO’s enhanced reporting and visibility, your organization will likely save significant time and money on your audits.
Finance and accounting outsourcing can help your organization enhance several functions, including budgeting, payroll, accounts payable, transactions and reporting. Introducing experienced personnel and enhanced technology through outsourcing can help provide a fresh perspective and focus on what processes should be in place.
Technology plays a key role in outsourcing and subsequently enhancing finance and accounting functions. For example, a vendor can link a cloud-based accounting system to your donor management platform. Instead of managing paper files, the cloud can enable increased access and visibility, allowing personnel to approve invoices and payments, and submit checks electronically. A cloud solution saves significant time during an audit, and saves space and funds without the need to maintain on-premise servers and equipment.
Developing an effective outsourcing strategy is critical to gain the most benefits, and the right solution may include keeping some functions in-house. An outsourcing provider can perform an assessment to help your organization understand what to outsource and what to maintain internally. The assessment should document current processes, and how to enhance finance and accounting functions. In many cases, processes may work, but they could be much better and more cost-effective.
Nonprofit organizations are very diverse, with many different finance and accounting systems and reporting demands. Many organizations are already using some form of outsourcing, but strategies may need improvement, better alignment or scaling, or expansion. A qualified provider can understand your reporting obligations and the different types of audiences necessary and develop the optimal solution for your organization.
To learn more about the benefits finance and accounting outsourcing can bring, read our recent white paper, The value of finance and accounting outsourcing compared to insourcing.