How Not-for-Profits Can Take Control of Their Finance and Accounting Operations
And how outsourced boookkeeping can help them focus on their mission
The Finance and Accounting Burden
GIVEN ENOUGH TIME, ALL NOT-FOR-PROFIT DIRECTORS EVENTUALLY REALIZE THAT TO ACHIEVE THEIR MISSION, THEY MUST EXCEL IN FINANCIAL MANAGEMENT.
This isn’t always what they signed up for, but it’s the reality. However, managing finances can be challenging.
Not-for-profits often have limited resources, which forces them to reduce spending in certain areas. Rising operating expenses, inadequate finances, and limited staff capacity are the top three challenges not-for-profits faced in 2024. In our experience, finance and accounting departments are usually the most affected. These departments handle essential financial tasks like forecasting, decision-making, and operational planning, yet many organizations deprioritize them when they have funding shortfalls.
On the other hand, some not-for-profits want to hire qualified talent to manage their finances but struggle due to the current accountant shortage:
• 85% of companies are struggling to hire finance managers.
- Robert Half
• 300,000 accountants left the industry from 2020 to 2022.
- Wall Street Journal
• 28% of companies that had a material reporting weakness also had higher CFO turnover.
- Wall Street Journal
In this guide, we’ll explore the financial management challenges not-for-profits face in more detail. We’ll also discuss how outsourcing finance and accounting functions can help them address these issues and stay focused on their mission.
The Major Financial Challenges All Not-for-Profits Face Today
Not-for-profits face both universal challenges and those specific to their funding sources. We have categorized these challenges into three groups: general challenges, challenges for federally and state-funded organizations, and challenges for grant-funded and fundraising not-for-profits.
General Challenges Not-for-Profits
Face
IT IS DIFFICULT TO GENERATE REVENUE CONSISTENTLY
Not-for-profits often rely on external funding sources like grants, religious support, government funding, individual donations, crowdfunding, etc. However, these sources are unpredictable and can fluctuate. Economic downturns may reduce individual and corporate donations. Changes in government policies can decrease funding for certain programs, and donor priorities often shift based on emerging issues, like global crises or natural disasters.
As a result, it is challenging to generate enough revenue to meet your targets each year. You might need to work harder to secure alternative funding to get the resources to fulfill your mission.
LACK OF TIMELY AND ACCURATE FINANCE REPORTS FOR DECISION-MAKING
Not-for-profits often have more complicated and nuanced finance and accounting work due to the nature of their business. But they find it difficult to find the people they need to handle these tasks. In the last decade or so, there has been an increase in demand for accountants, yet a drop in supply, as the number of accounting graduates and professionals has been declining. Even worse, many available accountants are hesitant to work full-time with not-for-profits because they believe the sector does not pay as well as others, yet it has a heavier workload.
Revenue constraints compound this problem. It forces many not-for-profits to underfund and understaff their finance team, leaving them unable to meet organizational demands. Without the necessary expertise and capacity, you may struggle to produce accurate and timely financial reports. This can lead to poor financial and resource allocation decisions, particularly in critical program areas, reducing your organization’s impact.
IT IS DIFFICULT TO DEMONSTRATE IMPACT TO FUNDERS
Eighty percent of not-for-profit executives struggle to effectively demonstrate their outcomes, mainly because there’s no standardized way to measure impact. Unlike in the for-profit sector, where financial metrics like EBITDA provide a clear and consistent measure of success, not-for-profits must create their own frameworks tailored to their mission and services to prove effectiveness. Organizations like Charity Navigator have suggested metrics like the overhead ratio to assess performance, but they later acknowledged its limitations.
Proving impact involves more than just collecting data. It involves demonstrating how funders’ contributions lead to tangible, measurable change. You can achieve this through impact statement reports and narrative storytelling that clearly connect funding to outcomes.
NO EXPERTISE TO MANAGE BACK-OFFICE SYSTEMS AND CYBER RISK
Not-for-profits handle sensitive data making them prime targets for cybercriminals. The sector is the 4th most targeted sector, according to Microsoft’s 2024 Digital Defense Report. Twenty-seven percent have also experienced a cyberattack, reports Nonprofit Tech for Good. For example, the International Committee of the Red Cross (ICRC) experienced a cyberattack that exposed the personal data of more than 515,000 people.
Despite these risks, many not-for-profits lack the resources to establish good IT departments or hire cybersecurity professionals. They also don’t have comprehensive security plans and fail to train their staff to respond effectively to threats. Only 40% of respondents to an NTEN survey report that they regularly provide cybersecurity training to staff.
Adding to the problem, these organizations often underestimate their risk. “Many not-for-profits think they will not get attacked because they’re doing good work, which of course makes no difference to a bad person with a set of email addresses. Not-for-profits need the same security as large businesses!” explains David Krumlauf, Chief Technologist, Pierce Family Foundation.
“Many not-for-profits think they will not get attacked because they’re doing good work, which of course makes no difference to a bad person with a set of email addresses. Not-for-profits need the same security as large businesses!”
-
DAVID KRUMLAUF, CHIEF TECHNOLOGIST, PIERCE FAMILY FOUNDATION
Now, let's explore the specific challenges of federal/state-funded and grant-funded/fundraising organizations.
THERE’S INCREASED COMPLIANCE FOR FEDERAL AND STATE-FUNDED ORGANIZATIONS
Federal and state-funded not-for-profits are facing growing compliance demands. During the COVID-19 pandemic, organizations had to quickly adapt to new programs and policies, which stretched already overburdened staff and created additional compliance challenges. By 2023, many organizations identified government laws and restrictions as one of their biggest obstacles.
However, many not-for-profits cannot fund their compliance departments because of limited budgets. The existing staff and leadership also lack the time to understand and keep up with the ever-evolving complex regulations, making it increasingly challenging for the organization to meet compliance requirements.
SECURING FUNDS IS COMPETITIVE FOR GRANT-FUNDED AND FUNDRAISING ORGANIZATIONS
Unlike for-profits where more customers mean more revenue, for not-for-profits, more beneficiaries mean higher costs to meet rising demand. This puts them in a constant cycle of needing to raise more funds to support the increasing number of people they serve. Donations declined in frequency and size in 2023, making it more difficult for fundraising organizations to secure the necessary funding.
For grant-funded organizations, seeking grants can feel like a full-time job. It also has a 40–50% chance of success, making it a highly competitive process.
Additionally, reporting requirements can vary among funders, with some requiring personalized impact reports to meet various expectations. For example, MacKenzie Scott, billionaire philanthropist, has simplified the process for her grantees by offering unrestricted grants with minimal reporting — such as an annual three-page letter. However, this approach is the exception rather than the rule. Most funders require detailed reports on how you’re spending their money, which adds to your administrative burden.
Why Not-for-Profits Should Outsource Finance and Accounting
Outsourcing finance and accounting allows not-for-profits to access specialized support without the cost of fulltime staff. This approach eliminates overhead expenses and provides the flexibility to scale services based on changing needs, making it an efficient way to manage fluctuating demands and limited resources.
What can you outsource?
Revenue Generation Strategy
Relying too heavily on a single revenue source is risky. It leaves you too vulnerable to economic shifts or changes in funders’ behavior. As a precaution, it’s best to diversify your revenue within your funding category. This doesn’t mean having different unrelated funding categories but expanding sources within your primary category. For example, if grants are your dominant funding category, consider supplementing them with a secondary category, such as earned revenue, while actively seeking grants from different providers.
This approach is a win-win. It reduces the risk of overdependence on a single funding source, protecting your organization from revenue disruptions if one source is unavailable. At the same time, it keeps your funding strategy aligned with your mission and organizational expertise so you can manage them easily. It also aligns with how many successful not-forprofits operate. Over 90% of U.S. 297 not-for-profits with $50 million or more in revenue have a dominant revenue category, accounting for about 90% of their
total income. They also maintain a secondary revenue stream contributing about 10% for added stability.
Not sure how to begin? Outsourcing specialists can assess your funding structure, identify diversification
opportunities, and create a tailored revenue generation strategy. They can also help you build a compelling case for support, ensuring you effectively communicate your organization’s impact and value to funders.
Budgeting, Forecasting, and Cash Management
Budgeting involves creating a financial plan that outlines projected income and expenses over a specific period, typically a year. It enables not-forprofits to allocate resources, set financial goals, and track performance against those goals.
Forecasting predicts future financial trends, including revenues, expenses, and cash flow. It helps not-forprofits identify potential shortfalls, plan for surpluses, and make informed decisions about resource allocation.
Cash management ensures not-for-profits have the liquidity to cover daily expenses and maintain
uninterrupted operations. It involves tracking cash flow, managing accounts payable and receivable, and ensuring funds are available for critical needs.
These activities are necessary for maintaining financial stability but require significant time and expertise, which many not-for-profits lack. Outsourcing these tasks to professionals with specialized knowledge in not-for-profit financial management ensures you receive timely, reliable, and actionable reports on those areas. This frees up your staff to focus on your core mission rather than spending time on complex financial processes.
Attributing Funders’ Dollars
As mentioned earlier, not-for-profits often struggle to demonstrate the full impact of their work to funders, as there are no universally agreed-upon metrics for measuring success. Funders, however, expect transparency about how their funds are used.
Impact assessments address this need by linking donations to tangible outcomes. A highly regarded impact assessment method is the randomized control trial (RCT), considered the gold standard in research. RCTs offer strong evidence of a program's effectiveness by randomly assigning participants to either a treatment group (which receives the
intervention) or a control group (which does not). Comparing the outcomes between these two groups helps not-for-profits demonstrate the causal impact of their efforts.
If RCTs are too resource-intensive, simpler tools like pre- and post-program surveys or key performance metrics can still provide valuable insights.
After conducting impact assessments, ensure that your reports transparently reflect these results. Outsourced specialists can track funds, report on allocations, and ensure every dollar spent aligns with
Many NGOs are beginning to assess impact using randomized control trials (RCTs), which compare the impact of a development intervention on a certain community with a “control group” community.
– AICPA & CIMA
Reducing Tax Compliance Risk and Being Aware of Tax Implications
It’s essential to regularly review your organization’s tax strategy, considering both the regions where you operate and the requirements tied to your funding sources. In the U.S., not-for-profits have to address state and local taxes (SALT), as different jurisdictions impose distinct requirements that affect how you report income, allocate expenses, and manage exemptions.
Check whether any of your activities could generate unrelated business income tax (UBIT). While unrelated business income (UBI) can provide additional revenue, you need to manage these activities carefully to comply with tax regulations and protect your taxexempt status.
In addition, closely monitor ongoing legislation. Changes in tax laws can introduce new compliance requirements or present opportunities to improve tax efficiency. For example, the Tax Cuts and Jobs Act of 2017 introduced changes that affected not-for-profits, such as reducing tax incentives for charitable giving and increasing taxes on UBI.
Given the constantly changing tax landscape, maintaining compliance is an ongoing task, not a one-time event. Consider bringing in a dedicated external financial specialist to regularly review your tax strategy, so you remain compliant across regions and can quickly adapt to new legislation.
Managing Back-Office Financial Systems and Cyber Risk
Cyberattacks can disrupt your daily operations, leading to data breaches or financial losses.
One proactive measure is conducting an enterprise resource planning (ERP) system audit. This audit reviews your financial and operational software to ensure it functions properly, is secure, and integrates all aspects of your work. A well-implemented ERP system can link programs to financial data, helping not-for-profits track everything from donors and volunteers to revenue and program outcomes.
You should also conduct a cybersecurity audit. This identifies vulnerabilities in your digital infrastructure, ensures compliance with data protection regulations, and strengthens your overall cyber defenses.
Instead of handling these audits internally, consider outsourcing to specialists with expertise in not-forprofit finance and cybersecurity. They can provide an unbiased perspective, identify overlooked issues, and ensure your systems are secure and up to date.
Types of Outsourcing: Bookkeeping vs. the Full-Service Model
Not all outsourcing offerings are alike. Broadly, there are two main types: outsourced bookkeeping services and a full-service outsourcing model.
OUTSOURCED BOOKKEEPING SERVICES
Outsourced bookkeepers provide basic accounting services: They will balance your books, record accounts payable and receivable transactions, reconcile cash, and provide a standard balance sheet and profit and loss (P&L) report.
To keep their services low-cost, they standardize their service and technology platform across their clients and try to keep those systems and processes consistent across their client portfolio. For smaller not-for-profits with basic accounting needs, this can be a viable low-cost, low-touch option.
FULL-SERVICE OUTSOURCING MODEL
A full-service outsourcing model is more custom-tailored to your organization’s needs. Engaging a full-service outsourcing solution can help you build better processes, achieve a deeper and more insightful level of financial decision-making, and select and integrate the right technology to help you achieve faster, more accurate reporting.
They can bring in industry specialists as needed to support or augment your team, stay current on the latest changes to both GAAP accounting standards and operating best practices, and help train and upskill your existing finance staff. Working with a full-service provider allows you to establish a collaborative relationship and scale up or scale down your service package as needed.
Outsourced bookkeeping services
Output
Standard output: Provide a standard monthly balance sheet and P&L report
Use the client's tech stack or onboard onto a basic system
Employ lower-level staff to perform routine tasks
Provide a low-cost solution for simple organizations
Lower cost for a canned solution
Full-service outsourcing model
Custom output: Provide a monthly deliverable that supports decisions, including financial planning and analysis
Customized technology stack and processes based on your specific needs, including system selection and integration
Employ highly skilled professionals who can provide specialized advice, training, and best practices tailored to the company and its industry
Provide mature finance capabilities to fastgrowing NFPs
Higher cost for a tailored solution
Our perspective is that not every not-for-profit needs to strive for the highest level of financial complexity. Each organization should individually evaluate its unique operational needs and determine the level of speed and maturity required in its financial reporting and analytics. If all you need is basic bookkeeping services, an outsourced bookkeeper can be a cost-effective solution. However, notfor-profits should recognize that not investing in the finance function could lead to compliance or budgeting issues and hinder the organization’s ability to fulfill its mission.
For not-for-profits dealing with more complex financial needs — such as grant management, donor tracking, and program-specific budgeting — you likely need faster, more detailed financial reporting to make timely, informed decisions. This might include a quicker month-end close, more granular financial reporting (e.g. by program or funding source), regular forecasting, and implementing greater automation in the finance process. Choosing financial consulting as a service provider can unlock a world of additional benefits, which we’ll discuss in the next section.
Benefits of a Full-Service Outsourcing Solution
GO FROM MANUAL TO MODERN IN MONTHS
Achieve financial maturity in just 60 days.
The first step in moving toward a mature financial model is being able to identify the areas of improvement. Having professionals who understand your organizational structure and not-forprofits in general is key to being able to access every part of the model from tech stack to people and processes. You can become financially mature in a much shorter time by using an outsourcing solution than by attempting to do it yourself. The right specialist will bring in a ready-made team — or experienced people to augment your existing systems and team — to quickly improve your financial capabilities.
Our outsourcing clients typically go from slow, manual processes (a level one or two on the scale
PEOPLE
PROCESSES
Disconnected people and processes
Steps towards centralization
Ill-defined roles and responsibilities
Defined roles and responsibilities
Transformation through automation
Leadership through innovation
Well-trained and appropriately deployed staff
GOVERNANCE
Manual, timeconsuming processes
Informal and ineffective policies and procedures
Fewer manual processes
Centralized activities
Defined policies and procedures and procedures
TECHNOLOGY
DATA
Unintegrated systems and data architecture
Limited data which is rarely used
Level 1:
SUSTAINS
Common platforms
Integrated policies and procedures
Highly specialized staff
Fully automated processes
Automated governance
Integrated and automated systems
Machine learning / artificial intelligence
Ad hoc analysis; manual data cleansing
Level 2: REACTS
Data is clean, accessible, and easy to use
Level 3: TRANSFORMS
Predictive analytics
Level 4:
INNOVATES
Building internal capacity to achieve these kinds of results can be difficult and time-consuming, but when you hire a financial consultancy, you can level up your maturity in a shorter period.
2
ACCESS TOP TALENT WITHOUT THE HIRING HASSLE
Top talent is hard to find. Cost accountants, finance managers, compliance officers, and financial analysts are currently the toughest roles to fill.
– ROBERT HALF
More than anyone else, NFPs are struggling to find and hire top finance and accounting talent. Given that the industry is going to be understaffed for the foreseeable future, outsourcing is the most feasible way to access the best people who can be available almost immediately and transition seamlessly into your organization’s accounting function.
Our outsourcing practice specializes in talent arbitrage. Because we collaborate with so many notfor-profits, we can offer career paths that are appealing to top-level accounting talent. Since we are always hiring, we have strong candidates joining our team on a continuous basis, not just the moment there is a need. We always work as a team. As people progress in their careers, there are strong candidates who are being trained and mentored behind them and can sustain excellent work quality while adopting best practices. All that means is we’ve already done the hard work of finding the right people for your finance and accounting function — and we can match folks who have the right skills and expertise for your needs.
3
NEVER WORRY ABOUT STAFF TURNOVER
44% of managers cite staff turnover as a key reason they need to add to their teams.
– ROBERT HALF
Not only can you avoid a potentially long and arduous hiring process, but choosing to outsource also means you don’t have to worry about staff turnover. If you choose to hire in-house and an important person leaves on short notice, the lift for identifying and hiring the right replacement can be arduous and lengthy. When you work with an outsourced finance specialist, you can easily scale up and rest easy knowing that your finance team has continuity.
For instance, if your organization’s controller quits after two weeks’ notice, your outsourcing specialist can provide a solution to execute the necessary responsibilities on an ongoing basis while continuing to train and mentor your junior accountants. Or perhaps your outsourcing specialist will recommend that you don’t actually need a full-time controller, and they can instead provide you fractional support by the hour. This ensures you get the help you need while putting everyone’s time toward their most effective use.
4GET BETTER VALUE FOR YOUR MONEY
46% of hiring managers say meeting candidates’ salary expectations is a challenge.
– ROBERT HALF
Hiring talent is growing more expensive. Using an outsourced finance consultancy gives you access to the expertise you need without having to hire full-time employees. If you compare it to the cost of having full-time employees cover all of the skill and knowledge areas you require, it can be more cost-effective. Ultimately you’ll gain a much broader range of skills and expertise through outsourced support. Furthermore, salaries of qualified accounting staff have been increasing disproportionately to the market. As a result, accessing a fractional solution will enable you to gain a more flexible option and more control over a normally expensive fixed cost.
Your outsourcing provider can help you build more efficient processes and systems, so you can meet your needs with specialists in fractional roles. Instead of hiring a suite of full-time staff, you only have to pay for the hours you actually need.
STAY UP TO DATE ON CUTTING-EDGE TECHNOLOGY AND BEST PRACTICES
60% of employers identify an inability to bridge skills gaps as a barrier to business transformation. – WORLD ECONOMIC FORUM
The finance and tech landscape is constantly changing, and it can be difficult for small teams at NFPs to stay on top of the latest best practices and technologies. When you choose to work with an outsourcing provider, all that knowledge comes as part of your engagement.
Through subject matter specialists, outsourced finance consultancies like ours are always on top of the latest trends, improvements, and new regulations. If you have an internal finance staff, you would likely have to bring in a third party to help you understand the latest standard and see how you can apply it, which carries additional costs. We consult on this for all of our clients as part of our core services.
89% of finance and accounting senior managers in the U.S. report challenges finding skilled talent.
– ROBERT HALF
Evaluating a potential sale? Need to analyze and update your standard costs? Pursuing a new financing structure? For all these and other finance questions that come up in the course of managing an NFP, an outsourcing firm likely has access to the specialists you need to resolve these issues.
Having dedicated staff who already know your NFP makes it easier to identify and engage these resources. They bring with them the tools, technical expertise, and methodologies that already integrate with how your books and records are being maintained. Our approach makes it so you receive high-level, senior capabilities for any of these areas as you need it.
UPSKILL YOUR EXISTING TEAM
76% of employees agree that they are more likely to stay with a company that offers continuous training.
– TALENT LMS
Finally, bringing on an outsourcing specialist can be a boon to your existing finance and accounting team. Their financial consultancy can help mentor your team and bring them up to speed on the latest best practices so they can be more efficient.
This is very much in your not-for-profit’s best interest — the more skilled your internal people are, the more efficient and effective your outsourcing specialists will be. At Citrin Cooperman, we view ourselves as part of the internal finance and accounting team and focus on developing other team members’ technical and accounting skills.
The Citrin Cooperman Solution
Our solution to outsourcing finance and accounting allows us to provide all of the capabilities our clients need as they manage, grow, and evolve their businesses. We help your finance function become more efficient and effective through people, processes, governance, and technology.
When you choose to work with Citrin Cooperman as your outsourcing solution, here is what you can expect:
FINANCE ASSESSMENT
1 Get in touch with a strategic advisor
(Approximately 3 weeks)
The first step in our process is what we call a finance assessment. During this process, our team evaluates the quality of your documented procedures, the ERP and financial systems you are using, the maturity of your financial reporting, and the level of support you currently receive from the accounting department. We identify where there might be opportunities for improvement and where there are significant issues or gaps. We’ll also look into whether your organization complies with key not-for-profit reporting requirements like Forms 990, 990-PF, and 990-T.
The output from this phase is a list of recommendations and an implementation roadmap that our team can help execute, ensuring your not-for-profit’s finances are structured to qualify for tax-exempt status. The leader of this assessment stays engaged afterward on an ongoing basis. Contact us to find out how we can help you achieve your finance goals.
(First month through first close)
The month-end close begins with an onboarding phase, at which time we start implementing the findings from the assessment and setting up the delivery structure for our services. This includes things like:
• Establishing a month-end close checklist
• Documenting standard operating procedures
• Agreeing on financial reporting formats and KPIs
• Implementing controls for private foundation excise taxes (including net investment income, annual distribution requirements, and other relevant taxes)
• Planning for Unrelated Business Income Tax (UBIT) and potential excess benefit transactions
• Setting approval thresholds, workflows, and other key controls
• Onboarding the team who will perform all of the in-scope tasks
• Setting up the monthly deliverable deadlines and collaboration technology used to work with your team
STEADY STATE ONBOARDING
Once we’ve laid the foundation for our work together, we settle into a monthly cadence. In addition to your engagement lead, you will have a dedicated staff divided into functions who work alongside your internal staff. Our documented processes show everyone what’s assigned to them, and we have digital portals that everyone uses to track their deadlines and other weekly activities.
With our support, you’ll stay compliant with ongoing IRS and regulatory requirements, such as audits, employment taxes, and resolving tax controversies. We pursue continuous, incremental improvement to your processes and financial information. We can provide a much-needed external perspective so your finance and accounting functions can continue to improve.
DECISION SUPPORT
Our ultimate goal is to provide management with decision support platforms that enable you to make crucial decisions about your organization’s direction. These forward-looking tools include budgets, financial forecasts and re-forecasts, projections, and key performance indicator dashboards. We tailor these analyses to your specific needs and present them in a clear and concise format. Having the right decision-making support system in place is crucial to your not-for-profit’s success.
MORE ABOUT CITRIN COOPERMAN’S NOT-FOR-PROFIT INDUSTRY PRACTICE
Citrin Cooperman’s dedicated Not-For-Profit Industry Practice forms collaborative relationships with our clients that go beyond the compliance needs of the organization. The practice team is comprised of professionals who possess the specialized technical skill-sets to successfully address our clients’ accounting and regulatory requirements, and who are also extremely proactive, creative, and strategic thinkers. We immerse ourselves into the programs of the organization in order to gain unique perspective on the organization and their mission.
Our experience with not-for-profit organizations of all shapes and sizes has given us insight into best practices, along with the ability to recognize opportunities for improvements that we openly share with our clients. Some challenges may be identifying funding sources, budgetary concerns, effective board governance, asset management, employee benefit/incentive programs, and financing needs. Our Not-For-Profit Industry Practice teams have the diverse skills and experience to be a resource in all of these areas and more.
MORE ABOUT CITRIN COOPERMAN'S BUSINESS PROCESS OUTSOURCING PRACTICE
Citrin Cooperman's Business Process Outsourcing (BPO) Practice is designed to help organizations achieve efficiency, cost savings, and strategic growth. We understand the challenges executives face in managing operations with limited resources and time. Our BPO Practice offers a comprehensive suite of outsourced services to support your finance, accounting, and IT needs, allowing you to focus on your organization's core activities.
Citrin Cooperman’s BPO team consists of industry-specific finance and accounting, and IT professionals with extensive experience in providing outsourced solutions. Our focus is on delivering cost-effective services tailored to meet your organization's needs, whether on an ongoing or project basis. We integrate our BPO services with our firm’s other offerings, such as tax advisory, digital services, cybersecurity, and transaction advisory, providing a holistic approach to supporting your organization.
