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All posts by Erin Mirante

Make your nonprofit’s accounting function more efficient

Erin Mirante0 Comment

How efficient is your not-for-profit? Even tightly run organizations can use some improvement — particularly in the accounting area. Adopting the following six tips can help improve timeliness and accuracy.

 

  1. Set cutoff policies. Create policies for the monthly cutoff of invoicing and recording expenses — and adhere to them. For example, require all invoices to be submitted to the accounting department by the end of each month. Too many adjustments — or waiting for different employees or departments to turn in invoices and expense reports — waste time and can delay the production of financial statements.
  2. Reconcile accounts monthly. You may be able to save considerable time at the end of the year by reconciling your bank accounts shortly after the end of each month. It’s easier to correct errors when you catch them early. Also reconcile accounts payable and accounts receivable data to your statements of financial position.
  3. Batch items to process. Don’t enter only one invoice or cut only one check at a time. Set aside a block of time to do the job when you have multiple items to process. Some organizations process payments only once or twice a month. If you make your schedule available to everyone, fewer “emergency” checks and deposits will surface.
  4. Insist on oversight. Make sure that the individual or group that’s responsible for financial oversight (for example, your CFO, treasurer or finance committee) reviews monthly bank statements, financial statements and accounting entries for obvious errors or unexpected amounts. The value of such reviews increases when they’re performed right after each monthly reporting period ends.
  5. Exploit your software’s potential. Many organizations under use the accounting software package they’ve purchased because they haven’t learned its full functionality. If needed, hire a trainer to review the software’s basic functions with staff and teach time-saving shortcuts.
  6. Review your processes. Accounting systems can become inefficient over time if they aren’t monitored. Look for labor-intensive steps that could be automated or steps that don’t add value and could be eliminated. Often, for example, steps are duplicated by two different employees or the process is slowed down by “handing off” part of a project.

 

Contact us. We can help review your accounting function for ways to improve efficiency.

© 2018

The fine art of valuing donated property

Erin Mirante0 Comment


Not-for-profits often struggle with valuing noncash and in-kind donations. Whether for record-keeping purposes or when helping donors understand proper valuation for their charitable tax deductions, the task isn’t easy. Although the amount that a donor can deduct generally is based on the donation’s fair market value (FMV), there’s no single formula for calculating it.

FMV basics

FMV is often defined as the price that property would sell for on the open market. For example, if a donor contributes used clothes, the FMV would be the price that typical buyers pay for clothes of the same age, condition, style and use. If the property is subject to any type of restriction on use, the FMV must reflect it. So, if a donor stipulates that a painting must be displayed, not sold, that restriction affects its value.

According to the IRS, there are three particularly relevant FMV factors:

  1. Cost or selling price. This is the cost of the item to the donor or the actual selling price received by your organization. However, note that, because market conditions can change, the cost or price becomes less important the further in time the purchase or sale was from the contribution date.
  2. Comparable sales. The sales price of a property similar to the donated property can determine FMV. The weight that the IRS gives to a comparable sale depends on the:
    • Degree of similarity between the property sold and the donated property,
    • Time of the sale,
    • Circumstances of the sale (was it at arm’s length?), and
    • Market conditions.
  3. Replacement cost. FMV should consider the cost of buying or creating property similar to the donated item, but the replacement cost must have a reasonable relationship with the FMV.

 

Businesses that contribute inventory can generally deduct the smaller of its FMV on the day of the contribution or the inventory’s basis. The basis is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution. If the cost of donated inventory isn’t included in the opening inventory, its basis is zero and the business can’t claim a deduction.

Important reminder

Even if a donor can’t deduct a noncash or in-kind donation (for example, a piece of tangible property or property rights), you may need to record the donation on your financial statements. Recognize such donations at their fair value, or what it would cost if your organization were to buy the donation outright. Contact us for more information.

© 2018

Volunteers are assets nonprofits must protect

Erin Mirante0 Comment

How much are your volunteers worth? The not-for-profit advocacy group Independent Sector estimates the value of the average American volunteer at $24.69 an hour. Volunteers who perform specialized services may be even more valuable.

Whether your entire workforce is unpaid or you rely on a few volunteers to support a paid staff, you need to safeguard these assets. Here’s how.

1. Create a professional program

“Professionalizing” your volunteer program can give participants a sense of ownership and “job” satisfaction. New recruits should receive a formal orientation and participate in training sessions. Even if they’ll be contributing only a couple of hours a week or month, ask them to commit to at least a loose schedule. And as with paid staffers, volunteers should set annual performance goals. For example, a volunteer might decide to work a total of 100 hours annually or learn enough about your mission to be able to speak publicly on the subject.

If volunteers accomplish their goals, publicize the fact. And consider “promoting” those who’ve proved they’re capable of assuming greater responsibility. For example, award the job of volunteer coordinator to someone who has exhibited strong communication and organization skills.

2. Keep them engaged

A formal program won’t keep volunteers engaged if it doesn’t take advantage of their talents. What’s more, most volunteers want to know that the work they do matters. So even if they must occasionally perform menial tasks such as cleaning out animal shelter cages, you can help them understand how every activity contributes to your charity’s success.

During the training process, inventory each volunteer’s experience, education, skills and interests and ask if there’s a particular project that attracts them. Don’t just assume that they want to use the skills they already have. Many people volunteer to learn something new.

3. Make it fun

Most volunteers understand that you’ll put them to work. At the same time, they expect to enjoy coming in. So be careful not to make the same demands on volunteers that you would on employees. Also, try to be flexible when it comes to such issues as scheduling.

Because many volunteers are motivated by the opportunity to meet like-minded people, facilitate friendships. Newbies should be introduced to other volunteers and assigned to work alongside someone who knows the ropes. Also schedule on- and off-site social activities for volunteers.

4. Remember to say “thank you”

No volunteer program can be successful without frequent and effusive “thank-yous.” Verbal appreciation will do, but consider holding a volunteer thank-you event.

© 2018

Analyze your health plan’s electronic security to comply with HIPAA

Erin Mirante0 Comment

If you’re an employer that sponsors a health care plan, you may worry about inadvertently violating the Health Insurance Portability and Accountability Act — commonly known as HIPAA. But you should also bear in mind that there is a formal requirement for ensuring electronic data security. Specifically, sponsors of most plans must do a risk analysis to comply with what’s called the HIPAA security rule.

Pertaining to PHI

The HIPAA security rule describes the required risk analysis as “an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information.”

In this context, a “vulnerability” is a flaw or weakness in a security system that could be exploited (intentionally or accidentally) to breach security. “Risk” is determined by assessing both the likelihood that a vulnerability will be exploited and the extent of the resulting impact on the health plan.

In performing the risk analysis, it’s important to remember that the HIPAA security rule applies only to electronic protected health information (PHI). Employers with insured plans may limit their compliance obligations by minimizing the amount of electronic PHI they create, receive, maintain or transmit. For example, you might structure your plan so individually identifiable information, such as claims data, is maintained exclusively by your insurer.

Also, enrollment information created by the plan sponsor — for instance, when you administer open enrollment — doesn’t constitute PHI because that information isn’t collected on behalf of the plan. Thus, the risk analysis for a small insured plan can be much simpler than that for a large, self-insured plan where the sponsor performs administrative functions.

Surveying your systems

As a first step, identify all hardware, software, facilities, workstations and information systems used in storing, receiving, maintaining or transmitting electronic PHI. You may be surprised at the amount of electronic PHI you have. Next, identify and assess security measures currently in place to protect the electronic PHI, noting specific vulnerabilities and risks. Finally, determine what, if any, additional security measures are needed to respond to the identified vulnerabilities and risks.

It’s particularly important to document completely each step of the risk analysis, including how the health plan reached its conclusions regarding vulnerabilities, risk assessment and security measures. The security rule doesn’t require perfect security but, in the event of a security breach, a health plan must be able to explain why its security measures were appropriate.

Undertaking the process

Note that the HIPAA security rule doesn’t apply to a health plan that has fewer than 50 participants and is self-administered by the employer that established and maintains the plan.

If the rule does apply to you, keep in mind that it doesn’t specify how often employers should conduct a risk analysis. Undertaking the process annually or whenever there’s a major change to your health plan or IT systems is generally recommended. For further information, please contact us.

How to boost the potential of your nonprofit’s special event

Erin Mirante0 Comment

Not-for-profits use special events to raise large amounts in a short period of time. Most often, the donor receives a direct benefit from the event — such as dinner or participation in a gaming activity. But special events don’t always meet their fundraising goals. In fact, organizations can lose money on them. Following these steps can help boost your event’s potential and enable you to decide whether to hold it again in the future.

Step 1: Make a budget

Planning and holding a successful event is a process that should start with a budget. Estimate what you anticipate revenue to be. If costs are likely to be greater than revenue, consider forgoing the event. Of course, you can also come up with a less costly event or look for sponsors to help defray expenses.

Step 2: Develop a marketing plan

Determine the target audience for your event and the best way to reach that audience. For example, bingo nights are often popular with seniors. And they may be more likely to read about the event in the local newspaper than on your nonprofit’s blog.

Step 3: Account for everything

Track all of your event’s costs to arrive at an accurate net profit amount. For example, a gala’s costs could include:

• Amounts paid to market the event, such as printed invitations and paid advertisements,
• Amounts paid related to the direct benefit that the participant receives, such as food, drinks and giveaways, and
• Other actual event costs, such as rental space and wait staff.

Step 4: Evaluate the event

After the event, review a detailed statement of its revenue and expenses, and compare them to what was budgeted. Take a look at ticket sales: Did you bring in the amount you had anticipated? Was the attendance worth the amount of planning and organizing that went into the event? Next, evaluate money raised at the event itself. How much did your silent auction or raffle raise? Did you make more than the fair market value of the items donated?

Also review unexpected expenses. Were these “one-time” or “special” costs that aren’t likely to occur yearly, or are they recurring? The answers to these questions can help you determine if the event was a true success.

Crunching the numbers

Consider these results — along with changes in your organization and evolving economic conditions that could affect profitability — when determining whether your event is likely to be successful in the future. If you’re unsure, contact us. We can help you crunch the numbers.

© 2018

Keeping a king in the castle with a well-maintained cash reserve

Erin Mirante0 Comment

You’ve no doubt heard the old business cliché “cash is king.” And it’s true: A company in a strong cash position stands a much better chance of obtaining the financing it needs, attracting outside investors or simply executing its own strategic plans.

One way to ensure that there’s always a king in the castle, so to speak, is to maintain a cash reserve. Granted, setting aside a substantial amount of dollars isn’t the easiest thing to do — particularly for start-ups and smaller companies. But once your reserve is in place, life can get a lot easier.

Common metrics

Now you may wonder: What’s the optimal amount of cash to keep in reserve? The right answer is different for every business and may change over time, given fluctuations in the economy or degree of competitiveness in your industry.

If you’ve already obtained financing, your bank’s liquidity covenants can give you a good idea of how much of a cash reserve is reasonable and expected of your company. To take it a step further, you can calculate various liquidity metrics and compare them to industry benchmarks. These might include:

• Working capital = current assets – current liabilities,

• Current ratio = current assets / current liabilities, and

• Accounts payable turnover = cost of goods sold / accounts payable.

There may be other, more complex metrics that better apply to the nature and size of your business.

Financial forecasts

Believe it or not, many companies don’t suffer from a lack of cash reserves but rather a surplus. This often occurs because a business owner decides to start hoarding cash following a dip in the local or national economy.

What’s the problem? Substantial increases in liquidity — or metrics well above industry norms — can signal an inefficient deployment of capital.

To keep your cash reserve from getting too high, create financial forecasts for the next 12 to 18 months. For example, a monthly projected balance sheet might estimate seasonal ebbs and flows in the cash cycle. Or a projection of the worst-case scenario might be used to establish your optimal cash balance. Projections should consider future cash flows, capital expenditures, debt maturities and working capital requirements.

Formal financial forecasts provide a coherent method to building up cash reserves, which is infinitely better than relying on rough estimates or gut instinct. Be sure to compare actual performance to your projections regularly and adjust as necessary.

More isn’t always better

Just as individuals should set aside some money for a rainy day, so should businesses. But, when it comes to your company’s cash reserves, the notion that “more is better” isn’t necessarily correct. You’ve got to find the right balance. Contact us to discuss your reserve and identify your ideal liquidity metrics.

Stop your trade secrets from walking out the door

Erin Mirante0 Comment

Trade secrets are among the most critical yet often overlooked assets of any organization. And they aren’t always as sophisticated as proprietary software or as famously secret as Coca-Cola’s formula. A trade secret can be as seemingly innocuous as a customer list, business strategy, policy manual or pricing sheet.

When looking to protect yours, the first line of defense should be following the advice of your attorney. But your HR staff and policies can also play critical supporting roles in stopping trade secrets from walking out the door.

Eyes only

For starters, create an internal employee policy dealing with the care and keeping of confidential information. Only those needing access to trade secrets should be able to get to them.

Control access to physical facilities where documents related to trade secrets are kept. Just as important, if not more so, establish strong technological safeguards to prevent unauthorized access to servers and hard drives where confidential data is stored.

Whenever you must share trade secrets with a third party, first get approval from your legal counsel. Then, require the third party to sign a nondisclosure agreement stating that the information is confidential and proprietary to your organization.

Also incorporate nondisclosure language into employment applications and job descriptions for sensitive positions. And ask key employees to sign a noncompete agreement that contains language specific to trade secrets.

Employee departures

When employees leave your organization, you should conduct exit interviews to, in part, remind them of their obligation to maintain confidentiality. During the interview, use a checklist to ensure all intellectual property has been returned. And change passwords and take other security measures after the employee departs.

If necessary, send a letter to the former employee’s new employer, advising them that this person had access to trade secrets as well as confidential information and has a continuing duty not to disclose it. But don’t overstate your company’s rights to confidentiality or cast the former worker in a negative light.

Everything in your power

A well-protected trade secret can mean the difference between keeping a competitive edge and losing it. Make sure you regularly take inventory of your trade secrets. Then do everything in your power to protect them. Our firm can provide more information and further guidance.

© 2018

Business tips for back-to-school time

Erin Mirante0 Comment

Late summer and early fall, when so many families have members returning to educational facilities of all shapes and sizes, is also a good time for businesses to creatively step up their business development efforts, whether it’s launching new marketing initiatives, developing future employees or simply generating goodwill in the community. Here are a few examples that might inspire you.

Becoming a sponsor

A real estate agency sponsors a local middle school’s parent-teacher organization (PTO). The sponsorship includes ads in the school’s weekly e-newsletter and in welcome packets for new PTO members. Individual agents in the group also conduct monthly gift card drawings for parents and teachers who follow them on Facebook.

The agency hopes parents and teachers will remember its agents’ names and faces when they’re ready to buy or sell their homes.

Planting the seeds of STEM

An engineering firm donates old computers and printers to an elementary school that serves economically disadvantaged students. The equipment will be used in the school district’s K-12 program to get kids interested in careers in science, technology, engineering and math (STEM) disciplines.

At back-to-school time, a firm rep gives presentations at the schools and hands out literature. Then, in the spring, the company will mentor a select group of high school seniors who are planning to pursue engineering degrees in college.

Participating in STEM programs fosters corporate charity and goodwill. It can also pay back over the long run: When the firm’s HR department is looking for skilled talent, kids who benefited from the firm’s STEM efforts may return as loyal, full-time employees.

Launching an apprenticeship program

The back-to-school season motivates a high-tech manufacturer to partner with a vocational program at the local community college to offer registered apprenticeships through a state apprenticeship agency. In exchange for working for the manufacturer, students will receive college credits, on-the-job training and weekly paychecks. Their hourly wages will increase as they demonstrate proficiency.

The company hopes to hire at least some of these apprentices to fill full-time positions in the coming year or two.

Finding the right fit

Whether schools near you are already in session or will open soon, it’s not too late to think about how your business can benefit. Sit down with your management team and brainstorm ways to leverage relationships with local schools to boost revenues, give back to your community and add long-term value. We can provide other ideas and help you assess return on investment.

© 2018

Is there a weak link in your supply chain?

Erin Mirante0 Comment

In an increasingly global economy, keeping a close eye on your supply chain is imperative. Even if your company operates only locally or nationally, your suppliers could be affected by wider economic conditions and developments. So, make sure you’re regularly assessing where weak links in your supply chain may lie.

3 common risks

Every business faces a variety of risks. Three of the most common are:

1. Legal risks. Are any of your suppliers involved in legal conflicts that could adversely affect their ability to earn revenue or continue serving you?

2. Political risks. Are any suppliers located in a politically unstable region — even nationally? Could the outcome of a municipal, state or federal election adversely affect your industry’s supply chain?

3. Transportation risks. How reliant are your suppliers on a particular type of transportation? For example, what’s their backup plan if winter weather shuts down air routes for a few days? Or could wildfires or mudslides block trucking routes?

Potential fallout

The potential fallout from an unstable supply chain can be devastating. Obviously, first and foremost, you may be unable to timely procure the supplies you need to operate profitably.

Beyond that, high-risk supply chains can also affect your ability to obtain financing. Lenders may view risks as too high to justify your current debt or a new loan request. You could face higher interest rates or more stringent penalties to compensate for it.

Strategies to consider

Just as businesses face many supply chain risks, they can also avail themselves of a variety of coping strategies. For example, you might divide purchases equally among three suppliers — instead of just one — to diversify your supplier base. You might spread out suppliers geographically to mitigate the threat of a regional disaster.

Also consider strengthening protections against unforeseen events by adding to inventory buffers to hedge against short-term shortages. Take a hard look at your supplier contracts as well. You may be able to negotiate long-term deals to include upfront payment terms, exclusivity clauses and access to computerized just-in-time inventory systems to more accurately forecast demand and more closely integrate your operations with supply-chain partners.

Lasting success

You can have a very successful business, but if you can’t keep delivering your products and services to customers consistently, you’ll likely find success fleeting. A solid supply chain fortified against risk is a must. We can provide further information and other ideas.

© 2018