Latest / Nonprofit411 Podcast / Fiscal Fitness for Nonprofits with Joseph Scarano | Nonprofit411 Podcast

Transcript

Fiscal Fitness for Nonprofits with Joseph Scarano | Nonprofit411 Podcast · Nonprofit411 Podcast

0:00
Hello and welcome to Nonprofit411, where we dive into resources and strategies that help nonprofits not just survive, but truly thrive.
0:08
I'm Sarah Barton, your host and fundraising advocate.
0:11
Each episode, we bring you inspiring conversations with experts in fundraising, sustainability, and best practices to equip you with the tools and confidence you need to make a real impact.
Nonprofit leaders know that funding is key to making a lasting impact, but finding the right approach can be challenging.
At Nonprofit 411, we understand that grants are just one piece of the puzzle, but an important skill for every nonprofit to master.
That's why we created the Grant Writing Proposal Guide to help you turn your mission into actionable plans that attract funding.
Let us support you in taking your fundraising to the next level.
Download the Grant Writing Proposal Guide at Nonprofit411.
org today, and let's build a stronger future together.
Hi there and welcome.
I'm thrilled you're here with us today.
Each week we have conversations with nonprofit experts who offer practical strategies and inspiring stories to help nonprofits build sustainable funding and stronger communities.
Whether you're here to learn, to be inspired or simply to recharge, I'm glad you've joined us.
So let's jump in.
I'm your host, Sarah Barton.
And today I am joined by Joseph Scarano with Arise.
And he currently serves as the CEO.
Welcome.
Thank you, Sarah.
It's a raise.
I know a lot of people, no problem.
A lot of people have difficulty pronouncing the name.
We kind of, we may actually made up the name.
So, you'll, this will be perfect for your audience.
It's a raise like raising funds and you work hard.
You deserve a raise.
I love that.
I even wrote it down.
And I, you know, short term memory, that's okay.
No, no, not a problem.
You got my last name, right? So that's, that's a good one.
Yeah.
I grew up in Pennsylvania.
So like having, is it Italian? It is Italian.
Yes.
Yeah.
So having Italian names all around me was pretty common.
So yeah.
Well, welcome.
I'd like to start with a fun question.
Okay.
Just to learn a little bit more about you.
And my question always is, what is your favorite hobby? Well, cooking.
Cooking is I, I mean, I love to cook.
I love to feed people, so I guess, you know, hand it down from my Italian grandmothers.
So I really enjoy, you know, cooking and, and, and having people enjoy what I, what I cook.
So I would say that would be my favorite hobby.
I love that.
I, if on the weekends, you will always find me in the kitchen at some point, because I love to prepare food.
I just love the process of preparing food.
And I am the entertainer in our family.
My mom says I'm the matriarch, even though she's older than me, she's like, you're the matriarch in the family because.
I love to have people come into my house and I can imagine being, you know, the true matriarch at some point in my life.
Yeah, well, you kind of reminded me of a song back in the 80s.
I don't know if you know this one, but there was a, I guess, a pop song called You'll Always Find Me in the Kitchen at Parties.
Yeah.
Yep, that's true.
That's where you'll find me.
So that's so fun.
Well, thank you for sharing that.
So, can you tell our guests a little bit about yourself and your role and what you currently work at? Sure.
I started my professional career back in the early eighties.
I'm a, I'm a CPA I was licensed in the state of New York and the firm that I worked for the majority of our clients were nonprofits.
So being in the eighties, that was the introduction of the pc.
The IBM PC and, and the Mac and my partner in the firm had this brilliant idea of we should write accounting software for nonprofits.
So we started the business in the mid 80s, and it was a separate business from the accounting firm.
And so we grew into where we are now.
So software became my ticket out of public accounting.
I left the accounting industry in 1991 and never looked back.
So, Arrays has been around, started in New York.
We're now in North Carolina, but we've been around for 40 years and serving Over 1500 nonprofit municipal government agencies around the world.
Yeah.
So I was really interested in having you on because I think the fiscal management side of nonprofits is something that we don't talk a lot about you know, in the sector, but it's such a vital piece in fundraising.
You know, I, I deal with fundraising and.
You, you can't create a strategy without understanding your fiscal situation.
Right.
And so I really, yeah.
So I just am so excited to have this conversation and just to hear, you know, what are some of the, what are some of the things that you recommend every nonprofit? Well, no.
Well, all the nonprofits, regardless of their mission, whether it's social service, community services, economic development, you know, religious, arts whenever, you know, whatever they form the nonprofit and create their mission the most important thing is identifying funding streams, because you can't fulfill your mission without proper resources, and those are financial resources, even, even if you're, you know, You know, if you want to be able to totally volunteer run, you need financial resources.
So, you know, the number one thing that I emphasize, you know, when I am consulting with nonprofits is build out your mission, you know, what is your mission statement? And the second thing is, how are you going to fund that mission? So you have to identify multiple funding streams.
It can't be 100 percent reliant on, on donations or fundraising events.
There has to be something that diversifies.
funding to enable you to do it properly execute your mission and provide the services that the nonprofit has been created for.
So, you know, again, from us, fiscal management is one of the key things to proper sustainability for any nonprofit organization.
Yeah, yeah, I really, I have begun speaking about nonprofit development, like business development in many ways.
You have started a type of business, you know, a nonprofit is just a type of business.
And I don't think that we often talk about it in those terms, but Can you help our listeners understand the difference between a nonprofit business and a for profit business, you know, because it's true.
In both business and nonprofits, we talk about diversification of funding streams.
But the difference I know is in the budgeting, correct? Yes, but it's also the responsibility of the nonprofit when revenues received.
I always like to draw the analogy of If you go to the local bakery and buy a loaf of bread, you know, whatever that loaf of bread costs.
Now, the only thing you're really concerned with is the bread fresh.
And it doesn't taste really good.
What, what the bakery does with the funds that they receive from selling bread, they reinvest in the business.
They can do whatever they want with it.
Whereas.
On for a nonprofit, the revenue that they receive typically has strings attached.
You know, the nonprofit really can't do what they want with money that they receive.
Typically, a donor will designate their funds for a specific purpose or expect the nonprofit to invest their funds in in their mission and also in overhead.
And, you know, a nonprofit will not will not be able to operate with proper without proper overhead.
So There's always a portion of revenue that has to be allocated towards the management of, of the non profit, you know, the, and so, again, it, it, the differences when funds are received from a non profit, it's their responsibility to demonstrate to their various funding sources that the funds were used for their designated purpose, and that's why they have what they call restricted funds and unrestricted funds.
So that really is the key difference.
Yeah, and I think that understanding that difference is so important, especially when we look at our funding streams, having a nice plan for the unrestricted funds is really important because like you said, that's all of the operating costs.
So what are some of the restrictions, or how does an organization go about.
Developing a strong, unrestricted fundraising plan.
Well, number one is communication.
You know, they have to communicate to their communities, you know, the work that they're doing and their, their need to, in order to fulfill that mission to perform, you know, the work that they wanted, want to execute it in their community.
So communication.
Of course, you know, building a strong board, a board of directors will help them with their outreach, you know, with their connections and raising funds, you know, they have to understand they have to communicate to whether it's donations, you know, they're trying to solicit donations or solicit grant funding or possibly a program service revenue, because there's all different, you know, Types of revenue that a nonprofit could generate, but the three main would be fundraising, grant revenue and program services.
So with each of those three funding streams, you know, the nonprofit has to develop a strategy on what they're going to focus on that's going to fund the nonprofit.
If they don't think that they are going Eligible for for grants, then they have to focus on the other two, whether it's fundraising events or charitable contributions coming in.
And so, you know, the nonprofit, you know, they really have to have a, a.
A very diversified plan, and they need to execute that plan by outreach to the community, you know, whether it's you know, through social media now, because that's a great way that they can outreach, you know, that, that goes beyond just their, you know, their geographic community, you know, it could be worldwide outreach if they execute and, and use social media properly.
Okay.
Yeah.
Yeah.
I think that that's true.
And I, I think that we sometimes underestimate the generosity of our donors because donors really do understand that you need unrestricted funds and they'll invest in you.
Right.
Yes.
I like to use that terminology, invest, you know, yeah, yeah.
And it's really important that, you know, the nonprofit has systems in place to acknowledge every single donation they receive, whether it's a dollar or a thousand dollars, you know, it, if you donate to a, an organization and you receive no feedback, no, thank you.
You're don't know if your donation went into a black hole and acknowledgement of that, of that donation.
And to explain how that donation is going to benefit the community at large that the nonprofit is serving goes a long way in in, in building trust and building proper stewardship of those funds.
So, you know, the nonprofit, you know, once when they get started.
They really need to, as I said, develop a funding stream plan and then implement systems that enable them to properly manage their funds that are coming in.
And on the other side of it, the funds going out their expenses.
Yeah.
Yeah.
Thank you so much.
I think that this is great information.
So what are some common challenges that you see when you're serving nonprofits? What do you consistently see are some of the barriers or challenges? The biggest issue that I see, you know, it's not 100 percent of the time, but lots of nonprofits, you know, God bless them for what they're doing.
They totally underestimate the importance of fiscal management, you know, they, they will find a volunteer to handle their books, so to speak.
And that person doesn't understand basic bookkeeping, doesn't understand accounting, doesn't know, you know, how to do a bank reconciliation, can't read a financial statement.
And then they wonder why.
They're, they're struggling fiscally because they don't have a good handle on their finances.
So, you know, they might use a off the shelf accounting system that they perceive as providing proper fiscal management, but if they have someone that's.
Managing that system, recording the income and expenses, but not recording it properly, they're going to get inaccurate financial statements.
So they really can't rely on those financial statements to see how they're doing, you know, from month to month, you know, building budgets and, and properly allocating expenses to the appropriate areas.
So, you know, it's really important that.
You know, as they plan on getting the nonprofit started, you know that they find a volunteer if they are not hiring someone, but find someone that understands basic accounting.
So that person, you know, could record all of their cash in and cash out.
And, you know, proper nonprofit reporting so they can pull out financial statements to see how much money came in, where that money was designated for, how much money has gone out and where that money is being spent.
And so that way they get a good idea of whether or not that were specific programs that they're operating their mission based programs.
Are they bringing in enough resources to cover the expenses so they could continue running those programs.
Oh, yeah.
I think this is a very important for nonprofits here and to understand.
And I think so often we do rely on volunteers and kind of whoever's willing to volunteer to be the treasurer for a nonprofit, right? Yeah, exactly.
Yeah.
But it's, you know, it's like any other business, they're nonprofit, but it's still a business.
So, you know, you wouldn't take your, your dog or pet to the local vet.
Right.
And have a volunteer, you know, take care of your dog or pet or go to the doctors, you know, you, you want someone who's qualified, you know, that could diagnose an issue.
So it really is a yeah.
The nonprofit is doing themselves a disservice if they don't have someone in place that understands accounting and specifically understands nonprofit accounting, because as I said, it's, it's a completely different reporting structure than a for profit business.
Yeah.
So.
Is this an area then you typically advise organizations to outsource? Yes.
If, if they don't have an in house person that is qualified to do the job, then I would advise that they outsource it.
You know, outsource it to an accounting firm or a bookkeeping service firm.
And ideally, an accounting or bookkeeping service firm that specializes in nonprofit accounting.
Is it very expensive? Yes, it is.
Not really.
I mean, again, it really all depends on the scope of of the of the job.
I mean, if it if it's a relatively small nonprofit with, you know, maybe 100 transactions a month, it shouldn't be more than four or five hours of accounting work.
To prepare financial statements, you know, based on those one say 100 transactions, but you know, if the nonprofit is a little bit more complex with payroll with grant reporting, then, then the, the job, you know, and the responsibilities of the outside accounting firm, you know, a little bit more intensive or, you know, a little bit more involved.
Yeah.
Yeah.
I think a lot of people may hesitate, but I think that, you know, it's just an investment in the business and it provides such great outcome.
You mentioned something that I really want to touch on.
You said you need a firm that understands the reporting requirements for a nonprofit.
Can you tell us a little bit about those reporting requirements? Sure.
So as a nonprofit, the, you have to track three different pieces of information.
You have to track revenue and expenses by what we like to refer to as who, what, and why, who is pretty simple, you know, who donated to you or who did you pay the expense to the, the, what is.
Well, if it's a donation, it's fundraising revenue.
If it's an expense, you know, it's office supplies or utilities or rent or payroll.
The why is the part of the equation that makes nonprofit accounting unique.
The why is, is this an expense? A mission based program expense.
Is it a management in general administrative expense, or is it a fundraising expense? So proper nonprofit reporting requires that you break out all of your expenses by those three main, what are referred to as functional expense categories, mission based program.
And then support services, which which includes management in general or administration and fundraising.
So any nonprofit who has revenue over 250, 000 a year has to file an annual 990 and there's a report on the 990 for your functional expense report.
So this, so all of your expenses need to be broken down by those three categories.
Yeah, I think that's really good for all of our nonprofits to know, because I think that a lot of times that's the area they're least familiar with when they start the nonprofit.
Yeah.
So again, even though they're, they're not taxable because they are a nonprofit, the IRS requires that they file an annual report that report is a nine 90.
There are different versions of the 990 depending on the size of the nonprofit.
So real small nonprofits with a revenue less than 50, 000, that's an e file online.
You go to irs.
gov and file your 990 electronically online.
There's very little information on that.
Post, they call it a postcard because it used to be a, a mailed in postcard.
Then there's the 990 EZ for revenue between 000 that has a lot more information than the postcard.
But then the final 990, if your revenue is over, 250, 000.
That's where your functional expense report comes.
You have to have that's where you have to complete that reform.
You also have your balance sheet.
There's a lot of supplemental schedules on the 990 regarding your mission.
How much, how many, how much resources were dedicated to the mission, your sources of revenue, information about your board and you know, And your donors.
So good to know.
Good to know.
Now.
So tell me, tell me about the best nonprofit that you work for.
They have all their ducks in a row.
Do you have one of those? Well, I mean, we have a lot, you know, about 1500 worldwide.
It's kind of hard to pick out what I would think is the best, but off the top of my head, there's an organization in Hendersonville, North Carolina called Safe Light Family.
They've been a user of our fast fund system over 20 years.
They have all three pieces of our applications, our full accounting suite, our fundraising suite for donor management, and payroll.
Unfortunately, they were also, they were just I don't know if this is that this was recently, you know, hit by Hurricane Alene.
So they were closed down for a week or so.
And, so they went through a difficult time, but fortunately, they're back up and running.
But I've been working with the fiscal director and development director, as I said for over 20 years.
It's a mother, daughter.
Team, the mother was work, and then the daughter took over for the mother, and they provide services for families women who might be undergoing spousal abuse, or, you know, they need a shelter, and so they, they provide services to hundreds of families in, in the Western North Carolina area and You know, many times we hear from them how easy their audits are, you know, with our system, how their, their fundraising database integrates automatically to accounting.
So it's really easy to do in their reconciliations.
But the most important thing is you know, why I picked them off the top of my head is, you know, the, the length of time we've been working with them, And getting to know them personally, the executive director, the development director, the fiscal director, and knowing the hard work that they that they do to serve their community.
And it's really gratifying for us, knowing that the software we're providing to SafeLight is helping them, you know, fulfill their mission and be more sustainable and and helping them just continue to operate.
Do they have an excellent way? Like, I love organizations that have a nice way of being transparent to their donors, like how their donations are used.
Do they do that? Yeah, they you know, through their fundraising system from a raise, they're able to automatically acknowledge their donors, you know, for gifts that they received.
When they have fundraising events, you know, they, they track, you know, the revenue coming in from, from the events.
And at the end of the year, they send out year end donor statements, you know, with a summary of what the organization accomplished during the year and how gratifying, you know, they are thankful to their donors, you know, for helping them you know, with their donations during the year.
Yeah, that's great.
I think it's so important for us to remember to like, close that feedback loop and really give our donors that information about the change that they're making in the world because the donors are, I mean, I feel like the nonprofits are the conduit, but the donors are the ones who really make that happen.
Yeah, they do.
And there's a lot of competition for donations, you know, as all nonprofits know, so.
You need to do something to help you stand out, you know, whether it's a, you know, a thank you note, you can even get a letter of appreciation, even if you know you didn't donate, you know, we, you know, we appreciate your past donations and this is what we've been able to accomplish, you know, through your help.
So any kind of acknowledgement, you know, you know, for the to the donors is really helpful.
Yeah, because they really do help make it all possible.
So, what, what advice would you, like, if, what is, The number one piece of advice that you give leaders or you give non profit leaders when it comes to their fiscal management? Well, number one, they need to make sure that they have the proper tools.
If whether it's an inside accountant, bookkeeper, accountant, fiscal director, or if they're outsourcing their accounting, they want to make sure that The accountants doing the job are provided and use proper tools for nonprofit reporting because of the major differences, how nonprofits have to present their financial statements and off the shelf accounting package typically doesn't provide them with proper segregation of their functional expenses of their unrestricted and restricted funds.
You know, proper statement of financial positions or balance sheet and proper statement of activities.
So if you're not using a nonprofit accounting application, then typically you have to export all your data into Excel to try to formulate your financial statements, which in and of itself could create a internal control deficiencies if your statements don't agree with what's in your accounting.
So getting the having the proper tools in place is really important.
And having an integrated system where the fundraising and payroll systems.
And the accounting all talk to each other.
So that way, you know, you don't generate a report from your fundraising system that says we raised 20, 000 in donations this year, this this month, and the accounting system says, Well, we only booked 15, 000.
Where's that 5000 discrepancy? And so they go crazy trying to figure out why does fundraising say 20? And why does accounting say 15? And so having a single system that tracks both You know, without exporting and importing and trying to reconcile makes their jobs a lot easier.
And it, it, it just eliminates the, the need to try to figure out why there are differences in our systems.
Same thing with payroll.
You know, you want to make sure that in payroll.
The difference in nonprofit payroll and accounting and for profit payroll is typically nonprofits have to allocate individual salaries.
So if you have multiple programs or multiple grants and funding sources, you might have an employee that during their payroll cycle, let's say a semi monthly payroll cycle that they work.
Part time and the homeless shelter.
The other part time they work in food pantry.
Sometimes they're there.
And the counseling center and those three programs might be funded by three different grants.
So, a single salary or paycheck is not just posted to salaries it's posted to salaries to three different line item expenses for those three different programs and or.
Funding sources.
So, you know, having a system that allows the nonprofit to do that just makes it a lot easier when it comes to budgeting, when it comes to financial reporting grant management and, and grant reporting.
Yeah.
So I you're singing my language right now.
So I, I have been director of human resources for a very large organization and I have done grant management for years and that having, not having systems that communicate with one another does create.
It creates extra steps.
And so I love that you recommend that they all be integrated.
And if, if they're not integrated organizations have to schedule in and plan that time to help create that consistency across all the books, because especially with grant management, which has been a huge focus for my career you know, it's so simple for a item that should be reimbursed from the grant to be to not be linked with the grant, right? Because we may be purchased it in our on our credit card, but it didn't go back with the correct grant.
So I know that there are a lot of headaches in that area.
So I love that you recommend that.
Yeah.
And typically, if they are receiving grants, they are subject to an audit.
Right.
And so having a clean audit trail from their accounting system to their financial statements to their grant reports if everything ties together, it just makes the grant reporting and the audit much easier.
You know, the, the, unfortunately during my time as an auditor, the biggest challenge that we had was financial statements that did not tie into the accounting system.
You know, there was discrepancies and then you have to go crazy trying to figure out those discrepancies.
Yeah.
And it can be hours and hours.
Sometimes wasted time.
Yes.
Yes.
I've lived that life multiple times.
So, yeah.
So thank you so much.
So can you tell our listeners how they can get in touch with you and learn more about a race? Sure.
Sure.
Again, it's a raise a R a I Z E so they can go to a raise.
com.
That lists all of our.
Fast fund modules, the accounting, the fundraising and payroll.
They could sign up for a a meeting or a demo or download a trial version.
They can send an email directly to me if they're interested.
That's Joe at a raise.
com a R a I Z E.
com.
Awesome.
And do you have any resources available that like, just let Non profits know like what they need to have.
Oh, yes.
Besides arrays specializing in nonprofit software, we also have a small branch within our company or a different, you know, Department that provides education resources.
We have a nonprofit financial management course.
We have a YouTube channel that has a series of videos that explains the differences of nonprofit between nonprofit and for profit accounting, you know, how to track.
Restricted and unrestricted donations, how to track allocation of expenses.
So if you go to YouTube and just search a raise, it'll pop up with our YouTube channel with the educational resources that we provide to, to help people understand, you know, proper nonprofit accounting.
Yes.
Thank you.
Thank you so much for that because it is such a needed educational area, like it for all nonprofits.
So I appreciate that.
So thank you for joining us.
Is there any last piece of advice or last tips or tricks or whatever you'd like to give our listeners before we sign off? Well, Sarah thank you for having me.
I really appreciate the time you afforded me.
And, you know, hopefully your, your listeners will heed our advice when it comes to proper fiscal management.
And I mean, my last piece of advice is continue doing the work that you're doing to serve your communities, regardless of what your mission is.
And, you know, we, we, we really value what you add to all of our communities, and we're happy to be able to help some of you out there with proper fiscal management.
Ah, thank you.
I echo that.
That's, that's perfect.
Yes.
Keep doing what you're doing.
So, to all of our listeners, thank you for joining us this week, and Joe, thank you so much.
We look forward to being able to have more conversations again in the future.
Great.
Sarah.
Thank you so much for tuning in to this episode of Nonprofit411 I hope you found today's conversation as insightful and inspiring as I did.
Remember, building a healthy nonprofit requires a holistic approach.
There are many resources available to support your staff and we're dedicated to helping your organization access what it needs to thrive.
One key to creating a thriving organization is a diverse fundraising strategy.
While grants are an important part of that strategy, they're just one piece of the overall puzzle.
If you're looking to strengthen your grant writing skills as part of this bigger picture, I've got a resource to help you get started.
Download my free grant writing guide, packed with practical tips and best practices to help you craft proposals that align with your overall fundraising goals.
You'll find the link in the show notes.
And as always, if you enjoyed today's episode, Please subscribe, leave a review, and share it with your fellow changemakers.
Let's work together to build a vibrant nonprofit community.
Until next time, keep pushing forward and making a difference.