The Key to Growth: Bookkeeping Strategies That Work
Hey everyone, I'm Sarah Lange and I'm here to spark the philanthropy revolution. The word philanthropy means love of mankind. My show is all about the ways we can revolutionize our fundraising so we can raise more money and do more good.
Sarah: Hello, everybody. It's Sarah Lange here with another episode of the philanthropy revolution. Welcome, welcome, welcome. Thanks for joining us. Today, I am SuperSight. Carleen Lamay is with us, and she's gonna talk about tricks and tips for streamlining your finances, which ultimately will help you have more money. So Carleen, why don't you introduce yourself to everybody so they can get to know you a little better.
Carleen: Yeah, awesome. Thank you. Like you said, my name is Carleen Lamay and I'm the CEO and founder of C2 accounting and business support. We are an accounting firm primarily focused on bookkeeping for organizations and small businesses to kind of help the founders, the executive directors, the owners focus on their mission or their goals. so that the weekend takes them with that off their plate and give them a bit of peace of mind, right?
Sarah: Nice, nice. Yeah, so one of the things I see a lot is that many, many nonprofits are very small and they think that they're saving money by doing the bookkeeping themselves. So I would love it if you would address that.
Carleen: So yeah, trying to save money by doing bookkeeping, unless you know, if you have a degree and you know, business or finance and you have a history in doing QuickBooks, then go at it. But if you don't, you're doing yourself and your organization a disservice for a couple of reasons. One, if things aren't correct, that costs you more time and money later when you're dealing with your audits to fix things, right? So it's going to cost you in the long run. Two, your talents are better spent driving the mission of the organization, not plugging things into QuickBooks. Very few people got into business or has started a non-profits to do QuickBooks. I, on the other hand, that's what I do, that's what we do, and let us focus on what we could do so you could do what you're supposed to be doing.
Sarah: Yeah, thanks for that. Yeah, I found over the years that the more I try to do, the worse I am at getting it done. And then, of course, I can never really call, you know, get to the meat and potatoes of it all, because I'm like, doing this thing and that thing. And it just detracts from what only I can do. Like I'm really trying to just focus on my genius zone and then bring other people on because I actually used to do my own QuickBooks. And the problem was I would let it pile up for six months cause I hated it. And then of course I don't really have any idea about my numbers for six months. So then I finally, you know, update it and I find all these errors and mistakes and my reconciliation office by like eighty three dollars and I got to go back and figure that out. And so it used to take me. It was basically I would chain myself to the desk and have at it for like 12 hours straight on a Saturday or Sunday and zero fun. I like was making mistakes. Then I had to go back and correct the mistakes. I didn't have my finger on the pulse of how we were doing. So there was all this bookkeeping stuff that I just, you know, forced myself to do, but it's certainly not my first language, nor is it my joy. So, and more importantly, I could not get to the meat and the potatoes, right? So.
Carleen: Right. Yeah.
Sarah: You know, I'm spending all this time spinning my wheels, doing things that really, like obviously you need bookkeeping, but it was not the best use of my time and talent.
Carleen: Yeah, I, as a business owner myself, I have found myself doing things that I should not be doing, like trying to do my own marketing or things like that. And you learn that it is such a waste of your time because someone could do it faster, more efficiently. And cheaper, because when you think about how much your time is worth, you're not saving any money by trying to do it yourself. It's funny listening to you talk about your struggles and the frustration of trying to do your books yourself. One thing that people don't realize about QuickBooks, it's not very smart sometimes. So if you haven't touched your books in six months, it has like a limited look back window when it comes to matching things. So you end up double counting your revenue, you end up double counting expenses. And like you said, then you're trying to figure out why am I off by, in your case, $83 isn't bad. I've seen a lot worse when you have like a $83,000 difference and someone's trying to figure it out. Why put yourself through that struggle? So it's-
Sarah: So now it's- Go ahead.
Carleen: No, I was just going to say it is literally one of the most frustrating things that people can do. And I am, as a bookkeeper, I have gotten behind on my own books and I'm frustrated. So I could only imagine what's going on who doesn't have my background must feel.
Sarah: Yeah, yeah. So how does a bookkeeper actually save you money? Because people are often worried about like, and I run into the same thing. I'm a fundraiser, right? And so they're like, well, we don't wanna spend money on fundraising. I'm like, well, how else do you think the funds are gonna show up? So I'm just wondering like, what's the parallel with bookkeeping? How does hiring a bookkeeper save you money?
Carleen: Yeah, so let me give you an example. We have a nonprofit that's a fairly decent size organization and they've gone through, they're on their third ED since we've worked with them. And so having, but having us as a consistent force, as a consistent vendor has been very grounding for them because we know their numbers. And so when the new ED comes in, we're able to help them get up to speed a lot faster because they're processes in place that we've put in. For real, when we first work with a non-profit, especially if they've been doing the books themselves, they're a little hesitant to let go because of that control thing like I know it, I wouldn't do it myself. And what they find after working with us for a month or two that it's like are you serious? How much more free time do I have to do whatever it is that you do in your organization? I like to think that we're really selling peace of mind and not just bookkeeping. So like, yes, we all need bookkeeping. And the question is, what's the value of your peace of mind? Right? Like, how much is that worth? And then how much can you take that time and do something else with it?
Sarah: Yeah, absolutely. I think one of the things I've observed in the nonprofit sector is that a lot of times, nonprofits end up feeling like they have to do these types of things by themselves. They don't feel like they can really hire it out. And it's exactly what you just said. They end up spinning their wheels, spending all this time doing things. They're not really sure they're doing it right. That was always my thing is like, am I really doing this right? And you have to generate reports for your board. You have to generate reports for your funders. So that can sometimes be nerve wracking, especially if you're not convinced you're doing it the right way. But more importantly, my observation is that they are spending so much time on whatever it is they should really be hiring out. You know, in your case, it's like the marketing, social media, that it hinders them in their ability to fulfill their mission. And I don't know a single nonprofit where the staff is sitting around playing solitaire on their computers because they don't have things to do. And I know tons of nonprofits who can't even begin to meet the need. I've got a couple of clients in Worcester, Mass, here where I live, who are focused on providing people with food and meals. And they're getting slammed. This one food pantry, their numbers haven't gone down since COVID. So I mean, yeah. And their numbers almost doubled during COVID. So now they're trying to meet this huge demand. They don't want to give people less food. So they give people between 60 and 75 pounds of food per visit. And they don't want to cut down because they're trying to alleviate hunger. So if you're giving them less food, then you're letting them walk out the door with the potential of being hungry before they can come back. So they've been really innovative and I give them a lot of credit for keeping up with the pace, but the same thing with this soup kitchen I work with. They are getting hit with more people because the rents are going up, the cost of everyday items are going up, the quantities that are in those packages are shrinking. Yeah, exactly. So you might have a box of cereal that looks pretty big, but when you open it, there's like this much in the bag. So they have to turn around and buy that product again more quickly than they used to. Yeah. They're scrambling just to keep up with the numbers. So I think if you're in a smaller organization where there's already a lot of role compression where people are wearing multiple hats and you're trying to do the bookkeeping and keep up with the increase for services, it's like, well, what's gonna give?
Carleen: Yeah. Well, and the thing you have to remember is that I think a lot of times organizations don't look at having an outside company do their books because they think it's crazy expensive. They just imagine that it's going to cost them so much money that they can't do it. But if they actually start to investigate and interview various bookkeeping firms, they may find that it's a lot more cost effective than they realize. Another mistake I've seen people do instead of the director taking it on themselves is they have an unqualified volunteer do it, which is a whole nother mess. So, because they meet well, right? They want to help. This is how they're hoping to serve the organization. But without a background, I mean, they're usually doing more harm than good. And while the heart's in the right place, it's still not the best use of their time, probably. So.
Sarah: Yeah. Unless that person happens to be a retired bookkeeper, which case, score.
Carleen: In which case, it's pretty different. Exactly. If they're qualified, then you're very lucky. That's amazing. And I find that- organizations that have a very supportive and understanding board, at some point they go, you know what, they're telling the ED, the director that this is something we want for you because we know that you could be doing other things. So a lot of times it's making sure you're getting that buy-in from the board because they understand that they could get their numbers faster, the numbers are clearer, there's less confusion. It benefits everyone all around.
Sarah: Yeah, completely. So tell me about the most common mistakes you see when it comes to nonprofit bookkeeping? What are some of the ways that people are making mistakes that are actually costing them money or time, which is the same thing, right?
Carleen: Yes. A couple of things. No separation of duties. So as a nonprofit, you are having control over funds that are intended to serve a purpose, right? Especially in a small organization when you have one person handling everything they're making they're getting the pledges they're taking the funds they're doing a reconciliation you're definitely opening yourself up for potential fraud so that's definitely something you've seen where it's costing people money. Another thing is not properly tracking grants if you're playing for grants and they're actually looking for reporting on how those funds are spent, not tracking those grants properly can you know either you don't have it so you may not get the grant again or you're not tracking it proactively so now you're spending a lot of time reactively trying to pull down the numbers as opposed to communicating with your bookkeeper where we can actually help you set up a process to track that stuff up front making the reporting process a lot easier.
Sarah: Yeah, good points. I think the other thing is that if one person is doing it all, first of all, they may not catch their mistake or they may be making the same mistake over and over and over. But also to me, it goes back to what you were saying is, nonprofits are given these funds to steward on behalf of their mission. And to me, if it's the same person doing the bookkeeping, creating the reports, doing the reconciliation, That is a conflict of interest because it goes back to what you were saying at the top of the show is separation of duties, right. So if you have a conflict of interest policy in your organization That talks about separation of duties. You could actually be violating your own conflict of interest. Yeah And like you said that could get you into trouble with funders, especially if you can't account for how the money was spent.
Carleen: Yeah, exactly Yeah, it's definitely one that you see. And it's hard to get around when you only have two or three people and office staff. But having an outside party get involved helps to balance some of that and provide a bit more checks and balances.
Sarah: Yeah, so I know this is probably not an easy question to answer. But on average, say it's like a small to mid-sized nonprofit, how much should they expect to spend per month on bookkeeping.
Carleen: Oh, that is a hard question to ask.
Sarah: I know, I'm sorry.
Carleen: Yeah, because it has to do with the transaction volume. It has to do with whether or not they are tracking grants. It has to do with location. I mean, if you live in a small town in Alabama, the cost can be different than if you're in New York City. So it's really hard to say. But I would say don't expect to spend anything less than $500 a month. I would say that will probably be on the low end, but it doesn't mean it has to go much higher than that either. So it's just, again, it depends on the complexity of the organization.
Sarah: Yeah. Yeah, sorry, I asked you that question. I knew as it was coming out of my mouth, that was going to be hard to answer. But I mean, at least, yeah, at least that gives people a bottom line and idea of like sort of where the basement is. And then, you know, depending on how complicated the tracking is and stuff and the volume.
Carleen: Whether or not they have audits. Yeah, if you're working with a CPA firm, and you have to have an audit as part of your bylaws, a lot of bookkeeping firms, what they can do is support you in the audit process, which makes it a little less taxing for you as well.
Sarah: Yeah, so what kinds of things can you do to support a nonprofit during their audit? Oh, yeah. So what happens is the CPA firm will send a list of things that they're looking for. And anything that's bookkeeping related we're providing that information. What we like to do is get that ahead and tell like when we're first starting to work with the client because they're asking for the same information year over year so that we're building our processes around what they're already going to need It makes it so much easier because we know that they're gonna ask us to break down something, for example. As we're doing it, we're breaking it down so that when it comes time to send the report they have it.
Sarah: Yeah, that's such a good point and such a good strategy because, you know, otherwise you're going to be spending a lot of time trying to find all these items that the accountant wants. And, you know, I have a couple of clients who have to undergo an audit and it is rigorous. You know, they, this one client, I'm like, I, they're the only client I've ever had that wants copies of all the grants. They want copies of all of the approval letters, all of the rejection letters. Like, dude, that's intense.
Carleen: Yeah. But if you know it up front, right, so that you just know, we keep a copy of all of this because they're going to ask for it, so let's just make a copy. But if you didn't know or you weren't prepared for it, you're right. Now you're scrambling. And it's just a pain.
Sarah: Excuse me. I don't know why I tend to yawn on this show, but I do.
Carleen: Glad to know it's not me. No, it's totally not you. It's me. Something is wrong with me where I get on my livestream show and just start yawning. It's rather bizarre. Yeah, anyway, in terms of the audit, it can either, I mean, an audit to me, an audit is a slog fest, right? And I get it because you're searching for numbers to verify that the organization is doing what it's supposed to be doing. and that they're being good financial stewards. And it can be really intense and disruptive. And so back to what you were saying, it is really good that you know ahead of time. And that's one of the things actually based on this conversation I'm going to ask every new client is, what do you need for your audit? Because with this other client, we've been with them for like 10 years. And so we just always have the accountants shoot us an email and then send the link to Dropbox, because we store everything in each client has their own Dropbox file. But, you know, it's a good question to ask and I'm going to definitely make that part of my onboarding process from now on. So thank you for that idea. Yeah. So what are some of the tricks of the trade that maybe people aren't white ready to hire an accountant or a bookkeeping firm, what are some of the things they can do or that they need to watch out of? Because I'm just thinking about, you know, 60% of the nonprofit market has budgets under a million dollars. So they're kind of these micro institutions like David and Goliath, right? So what are some of the things they can do to help streamline their own system?
Carleen: So one of the things they can do is put in standard operating procedures. So once they know how something should be done and that may mean working with a bookkeeping firm to help. So let's back up. The first thing they probably should do is have an outside firm at least audit their books and that audit in a sense of CPA from a bookkeeping perspective we do something called a diagnostic review. So we're going in and it's like you know telling the doctor hey my knee hurts they give So we can look at the books and show you what we see. It didn't give a point that this is how it is, and this is what you may wanna fix. And here are some tips on how you can fix it. So then once you have that kind of game plan, then if you want to do it yourself, you at least have a starting point, a roadmap per se. And then as you're actually doing the work, documenting the processes, and then start to separate those duties like we talked about. So, and have everything written down so that when, you know, if you do have a volunteer who's coming in to make deposits or is coming in to do something, there's a checklist and they don't deviate from that. And they know exactly what to do, which will cover, you know, 80 to 90% of the situations. They just manage the exceptions when they come up.
Sarah: Yeah, that's such a good idea. We work with our clients to build what I call a playbook, which is kind of where if you are a Martian and you were dropped off on the front steps of that organization, you should have a playbook that that Martian could read it and know how to run your nonprofit.
Carleen: Exactly.
Sarah: Yeah, or after the zombie apocalypse, right? So yeah, so I love that idea of having standard operating procedures in a playbook. So again, you could have a volunteer come in if you're not ready or can't quite afford a professional bookkeeper, and at least everybody's doing the same thing, you know I always say that about any kind of data collection system, right? So if you're working with a donor database, you better decide what those protocols are. For example, do you spell out street or do you have ST? How do you handle when there are two people in the same household with different last names, right? So I cite this example frequently, my son always buys me a membership to the local botanic garden for Mother's Day. That is his thing. And so what they ended up doing was they ended up merging our records and turning us into a married couple, which is like creepy and gross. I, you know.
Carleen: I can see that.
Sarah: Yeah. And worse, now I get, he has a different last name than I do. And so now I get Mr. And Mrs. His Last Name mail.
Carleen: Oh wow. They really messed up.
Sarah: Yeah, they did. They did. So I think the idea of having SOPs is really, really important. If you have database entry protocols and you want to make sure that those also to go back with like audits and reviews and things, you need to make sure that your SOPs line up with best bookkeeping practices. Like you can’t just make stuff up, right? So I know. I mean, you can, but you're gonna end up in a lot of trouble.
Carleen: Yeah. I would definitely cry.
Sarah: So I, yeah. And so what are some of those best practices that you use to make sure that everything is in alignment with the way it's supposed to be?
Carleen: Well, it's funny, you mentioned something as simple as naming conventions, just that in Quickbooks and your vendors, just being consistent with how you're naming things, it makes it easier to not have a lot of duplicates. Chart of accounts, talking with your CPA firm to see if there's a specific way they want to see the chart of accounts when they're going to do the audit. Let's build it to make it a lot easier for them, right?
Sarah: What is a chart of accounts, just so in case people don't know.
Carleen: So a chart of accounts in QuickBooks, it's like, or in any kind of accounting system, it's literally just a list of all the account names. So, you know, your checking accounts, your revenue categories, whatever you want to call your revenue, all of your expense categories, if you happen to have credit cards or loans, or if you own a building, like all of those are all accounts, and they all live in this one place called a chart of accounts. And that's how things are going to be categorized. So when you spend money, it comes from the, you know, assuming it comes from the checking account, but where did it go? It went to office supplies, right? So that's that kind of thing. And having like what is an office supply versus what should go under something else. It's not an office supply, right? Like how regular do you want to get? So that's one of the things that you can do. I kind of forgot to mention we have on our website a download called, I want to say it's like the step-by-step guide to managing your books yourself or something like that. But it has, you know, what you should be doing every day, every week, every month, every quarter and every year. So having, you know, we talked about those processes, but also having a cadence for those processes so that they're being done on a regular basis. If you're using any sort of like project management system like a sauna or a click up or something like that, having those as recurring tasks so that someone is responsible for checking it off and you know that it's being done. So those are things that you can do proactively if you're gonna maintain the books in your own organization.
Sarah: That's awesome. We will definitely grab the link to that and add it to the email. We always send out a transcript of the show. So we'll make sure we include that because it sounds like it would be really, really useful for folks out there.
Carleen: Oh, awesome.
Sarah: Yeah. So, one of the things I see that I'm wondering if you have any solutions for is a lot of times there'll be like a CRM, like a donor database. And that's where a lot of grants and donor contributions get listed, but not all CRMs interface with QuickBooks. So I only recommend ones that do, and there could be a lot more than I'm knowledgeable about, but there's three that I frequently tell my clients, these are the three I recommend. And it's not because I get an affiliate fee or anything like that. It's just because I know they're user friendly, they're intuitive, and more importantly, they interface with QuickBooks. But what if you have like a CRM that doesn't interface with QuickBooks, then how does a nonprofit handle that?
Carleen: Yeah, so for most of our clients, their CRMs do not interface with QuickBooks or their donor sites do not. Because we're doing the books, what we do is we go in and we reconcile the month-end balances from the donor site to QuickBooks. But what's most important, you don't really need to duplicate like donor information in QuickBooks because it does live over there, right? So if you need to, and you're probably going to be sending out donor letters from that software anyway, so they don't have to live in QuickBooks, but what does need to be in QuickBooks will be your grants. So that's usually a manual process. You will have to create the grant so you can then manually tag expenses so that you can track them on the grant level. So we're still getting away around that, but it doesn't have for us. We don't have to sync. As long as we get the financials, as long as the data lives somewhere else, that's fine.
Sarah: That's so interesting. So, for example, say that I give a gift of $25 and they log it in the CRM and you give a gift of $50, that could just go under like individual donations.
Carleen: And individual donors.
Sarah: I love that because I always thought you had to put in the name of the person who gave you the money, but you're right because the information lives somewhere else.
Carleen: Yeah. And QuickBooks, I mean, at some point you would clog up the system, especially if you have a lot of random individual donors, whereas those donors, those donor CRMs are built for that. So let them do kind of like we were talking about earlier, let QuickBooks do what it's good at and let the donor system do what it's good at and kind of keep those separate.
Sarah: Yeah. And I like the idea of just doing it once a month, like coming in and doing the month-end reconciliation and make sure that the donations that are showing up in your CRM match up with the donations that you've logged in QuickBooks. I think that's pretty easy to do. But yeah. So what other things would you recommend when people are first starting out? Because like so many of us have stuff about money. Right? So how can people kind of get over their money thing? So I'll just be completely transparent, when I first started running my own company back in, oh, 1999. And yes, I was 12. No, I'm just kidding.
Carleen: Wait, but that's your 25th year anniversary then. Congratulations. 25 years of entrepreneurship. That's amazing.
Sarah: Yeah, thank you. Thank you. I did it all for my son. I became a single mom when my son was three years old. And I very quickly decided that running on the hamster wheel of rushing to the daycare center, dropping him off, rushing to work, rushing back to the daycare center, going home, unpacking the lunches and fixing it. I was like, this is not allowing me to be present with my child. So I was like, I just need to start my own company. So yeah, I did it for him. I mean, I did it for me too, but it was also for him.
Carleen: Exactly.
Sarah: Exactly. Yeah, he was the thing that catapulted me out of the full-time workforce. So my point was, oh yeah, so when I first started, I had all this money stuff, right? I had come up through the nonprofit system. I was like, oh, I have to keep all my overhead low. So I had gone through the drinking the Kool-Aid of like, oh, we don't want to spend money. I got over that, thank God. But what are some of the things you see that might potentially trip somebody up when they're either starting a nonprofit or are in the early years of running a nonprofit? What are some of the things you see people kind of floundering with?
Carleen: Waiting too long to put something into place, like QuickBooks. You've got to do it. Starting with spreadsheets, it's don't do it. Just get started. It's never too late. Let me just say this. It's never too late to change and go to QuickBooks. But if you're starting out, just do it. Just take the investment. But more importantly, hire someone to help you set it up and give you some training. If you're going to do it yourself initially, because if you're just starting, you don't have the funds, at least get the company that can help you set it up and give you some training so that you can then at least have what we talked about, have some best practices, document those practices. and you feel a bit more comfortable. And then you have someone you could reach out for your consultative basis and ask questions to later on.
Sarah: Yes, thank you for mentioning not using Excel spreadsheets. I don't just, just don't do it. I have a client that I've been working with for quite some time and it took me two years to convince them to move over to a CRM. And what finally forced them to move it over is because they had 6,800 contacts in an Excel spreadsheet. Yeah.
Carleen: Oh, wow.
Sarah: And yeah. And so when it came time for the annual appeal, I would have to sift and sort by mailing address because there were so many duplicates. So say we had the Fred and Nancy Smith Foundation. Sometimes it would be the Fred Smith Foundation. Sometimes it would be the Mr. and Mrs. Smith Foundation. Maybe it would be the Nancy Smith Foundation. And so you'd have like four different entries for this one funder. And then it would just, I would just like mark all the duplicates and say, this is the actual name that the, and needless to say that took me probably like 10 or 12 hours.
Carleen: Right.
Sarah: And then I would make a copy of that and then just eliminate all the duplicates. But in some instances, I didn't know what the correct real name was. So then I'd have to like go on the internet and look it up. And I finally showed them, I said, this is what it has cost you over the last three years for me to... And I kept saying after every year I spent this many hours sorting and sifting through this Excel data, you probably want to get a CRM, right? And so they're like, no, no. So finally, after the third year, I said, OK. You have now spent this much money paying me to sift and sort through your data when you could have been on either this CRM, this CRM or this CRM for X, Y or Z dollars. Can you see where this is no longer making sense?
Carleen: Yeah.
Sarah: And the executive director, when she saw the numbers, she's like, why are you even paying you all this money to sift data? I'm like, because you don't want to sift.
Carleen: I told you.
Sarah: A, I told you, and B, you don't want to just do a mail merge because most of the letters are going to be wrong. Anyway, it was just funny. I was like, why are you insisting on sticking with Excel? I think they thought the CRM was going to be too expensive. I thought they thought it was going to be too hard to use. So finally, I got them to do a demo and they were like, oh, this is going to be easy. I was like, yes, especially compared to me sifting through 6,800 entries. You know.
Carleen: Yeah, I understand.
Sarah: Because different people were entering different data. Right. So this goes back to why you need to have protocols and SOPs because otherwise you have Fred and Nancy, you know, Nancy Smith, Fred Smith, like. The Smith Foundation, you know, it's just, yeah. And then, yeah.
Carleen: Yeah. And on the bookkeeping side, trying to do that in spreadsheets, it's not, you can't really, you can't run a report. I mean, it's just data. Like it's so hard to be able to click a button and get anything, so just don't do it. It's a great-
Sarah: Just say no to spreadsheets.
Carleen: Now with that being said, if someone's listening today. and they are using spreadsheets. I say towards the end of the year is where you wanna be having the conversations to change over in January. It will cost you too much money to go back to January of this year to move everything over, but it would make more sense to just pick up January 1, 2025 and start fresh. But you wanna have those conversations now, so.
Sarah: That's a good point, yeah. I think the other thing to think about is, you know, what does your board really need to know? So what are the things that you would include on a board report that you think, rather than like getting way into the weeds, because I've been at board meetings where the financial reports are way too detailed. And then of course the board can say, well, why did you spend 875 here under office supplies? And they're like, well, that was actually a new laptop. And then they're like, oh, all right.
Carleen: Right, right. So. And that's the good thing with having an accounting software like QuickBooks is you can have different versions of the reports. So you can collapse them where all you have are your headers and that's all they want to know, right? They want to see the high level of you and then you can have the expanded version for like the finance committee who's actually going to be maybe sifting through that data but then the executive board can just have the highlights and let's keep it simple for them.
Sarah: Right. So how much money came in and how much money was spent? It's kind of like, you know, what they need to know.
Carleen: Another thing to consider when you mentioned how much money came in and how much money went out is also understanding whether or not that you're going to present your financials on what's called an accrual basis and explain what this means in the second versus a cash basis. So most organizations, the board wants to know how much cash came in and cash came out. However, if you're using it like a receivables, if you're taking donations or you're taking that donation with pledges and you're actually billing those pledges now it's like you're do you do they want to know what do we expect to come in or they only want to know what actually came in so those are also kind of questions you want to ask the board because they can get most boards i've found are very confused when it comes to like accrual accounting but they see things that are supposed to come in but have it throws them off a lot and they just want to see what actually came in.
Sarah: Yeah, I'm a big fan of cash basis.
Carleen: Oh, yeah.
Sarah: Like you said, accrual gets so unless you have a lot of things that are paid out over time, and I'm talking about a lot. You know, so, for example, if you have like eight different government contracts and some of them are paid monthly and some of their paid quarterly, then maybe they need to know that I'm not convinced they do.
Carleen: Right.
Sarah: But they just need to know that you know X number of dollars is going to be paid out over the year. So I have a client that's got a state contract and they just say, this is what we expect every month from this state agency. And then it's like, okay, that's fine.
Carleen: Exactly.
Sarah: I think it is very, very confusing when you use accrual because the reality is that boards are volunteers and they may or may not have a financial background, and we all run our houses on a cash basis.
Caleen: Yep, exactly.
Sarah: Like what's in my bank account, and what do I owe in bills, right? And hopefully those numbers reconcile.
Carleen: And if you are taking pledges or things like that, it's probably in your CRM, which is fine. So just don't bring that information to QuickBooks, just in QuickBooks, just whatever came in, what is in there, and leave the other stuff over there to CRM, and so it's paid.
Sarah: Yeah, and I think that goes back to giving people the information that they need to do their job. So what's your experience with boards and their ability to read financial statements?
Carleen: It is a boards are across the board when it comes to their ability to read financial statements. Simpler is better for sure. They they need very straightforward, very simple. financial reports. Just keep it simple. Keep it like we just said, there's usually a collapsed version where you're just having the headers, the kind of the main account and then all the details can live underneath it. But all they need to see is the top level.
Sarah: Yeah. I've also recommended to many of my clients that they actually have either their bookkeeper enter the account or will come in and do, like a 101 training on how to read financial statements. Because when you're on a board, you're supposed to be the organization's leader, and you're supposed to know things. And so it's hard to admit that you're looking at a financial statement, and you're like, I have no idea what this means. So I just recommend once a year, come in, have that training so that literally everybody's reading from the same sheet music, and they're on the same page. Yeah, so I think that's, yeah. And then the other question I had is, can you talk about annual reports? Like, is there legally a reason you have to list donors in an annual report, or is it just more of a, just a practice, not a best practice?
Carleen: Yeah. So usually your CPA firms are the ones that's going to be compelling those annual reports, so the bookkeepers aren't involved with that. So that would definitely be more of a question for the CPAs. I think, I don't think legally you have to do it. I think people like to do it because they want people to feel good about making their donations, right? They want to see their name in print and so they do that. It costs more money if you're producing like actual printed annual reports, which I've seen the very glossy. They're very nice. But it's obviously taking up more ink and paper by doing it that way. But I think for some organizations it is worth it to be able to keep those donors contributing every year.
Sarah: Yeah. And this goes back to good data, right? Because you want to make sure all your donors, first of all, all your donors are included and then also that they're listed correctly. Because inevitably you're going to forget somebody, you're going to mess up somebody's spelling of a name, especially if it’s a complicated spelling, you know, like I have a friend whose last name is Edelman, that's how he pronounces it, but it's E-I-D-E-L-M-A-N-N, right? So that's, that's not like, you know, that's not how you would assume it is spelled, right? So he's consistently listed incorrectly on reports and he politely picks up the phone and said, you got my name wrong. But, Yeah, I mean, I think that goes straight back to what we've been talking about in terms of like, you really need to be careful about how the data is entered. You know, and sometimes there's different foundations with the same last name. So I know here in Massachusetts, there's three different, I know, well, maybe it's not three, maybe it's two. There are several foundations and they're the Stevens Foundation. And so you better get those first names right because otherwise you could be crediting the wrong foundation.
Carleen: Yeah.
Sarah: And then the foundation that did give you the money might be a little upset with you. So again, this goes, yeah, yeah. Um, so yeah, I can definitely see where that is really, really important. And then if you're trying to generate, say they want a year end report from you about where did our money go and now you have to actually go back and find the letter because you didn't enter the data right. And now you have to go back and dig up the original award letter to make sure that, you know, now you can correct the data entry error. So that's going to take longer than, you know, just doing it right in the first place.
Carleen: As much as you can. No one's perfect, but as much as you could do up front, it's always going to save you time on the backend.
Sarah: Yeah, exactly. So are there any other tips or tricks or recommendations you have for folks in terms of streamlining their bookkeeping and how important bookkeeping is to their organization?
Carleen: Yeah, well, it's definitely important. As far as tips for streamlining, I don't know if there are any tips for streamlining other than keep it simple. I've seen people, we talk about what a chart of account is. I've seen people make it way too complicated and put too much detail. So just keeping it as simple as you can, figuring out, like we don't need as many categories. And then having a cadence. I feel like so much of bookkeeping is literally just being organized and having a process and following the process. So once you could take the time to get a process in place, it just makes your life a lot easier. That's how you stream your whole process. It takes thinking about it off your plate, because the thing pops up. It says it's Tuesday at 12 o'clock. Do this. do it, get it done, it's done. You don't have to think about it until the next time it pops up on your computer and tells you to do it. So I think that will take a lot of the angst away from the process.
Sarah: Yeah, that's a good point. Just do it regularly and do it right.
Carleen: Exactly.
Sarah: Yeah, yeah. And obviously we're gonna make mistakes like that $83 that I could, I actually could never find it. I couldn't find the mistakes. I'm like, we're just gonna correct, like make the correction so that these numbers match. I mean, it wasn't, you know, it wasn't like if it was like $8,300, I probably would spend more time on it or, you know, especially if it was like $83,000. But…
Carleen: You don't want to have spent money looking for 83 cents. So, but that's what I do.
Sarah: I know. I know. Well, we had a situation where we had a federal government grant and we had to submit monthly reports. And then we just submit a quarterly report and they wouldn't give us our check for the quarter. So we would get, it was like a $5.1 million grant and we were renovating a 100-year-old schoolhouse into 50 units of housing with onsite services. So it was a big project. It was not like, oh, $5, right? And they held up our next payment because our monthlies didn't reconcile with our quarterlies. And it was off by like a hundred something bucks. I was like, I will give you the hundred something bucks just issue the next check, because we had construction companies working, you know, it's not like you can just like, oh yeah, we can wait on that big fat check that's coming. Anyway, at that point, we had outsourced our finances to a bookkeeping company and they found the mistake, thank God, pretty quickly. But it was, you know, it can have huge consequences. Like we literally were within days of not being able to pay our contractors, in which case they would have walked off the job. And good luck getting them back. So it can create havoc if you're not on top of things. And we were on top of things. And it was still just the federal government being the federal government.
Carleen: Luckily, the bookkeeping firm did what you were paying them to do. They found the mistake. So money is well spent.
Sarah: Exactly, exactly. Especially on a 5.1 million dollar project that was, we were like sweating bullets because, you know, HUD does not move quickly. So, you know.
Carleen: Yeah. And it's funny, you mentioned earlier about how most of your, most nonprofits are these micro ones under a million. They still should have outsource bookkeeping. A million dollars is still nothing to shake a stick at. They should, they should definitely be having someone to handle that for them because, yeah.
Sarah: And again, I think it's actually more important for smaller orgs to have bookkeepers because they have so few people that can actually work on the mission. Everything that you can outsource, outsource it. I was working with one client, and they were a single staff organization, but they had an army of volunteers that they had working at their disposal. And they had me do all their fundraising for 20 years, excuse me, because it took the executive director a week to create a grant application, which honestly wasn't that great, where I could come in and get it done in three or four hours.
Carleen: Exactly.
Sarah: And they just said, this is a dumb thing for you to be doing with your time, hire her. You know? Yeah. The only reason I stopped doing fundraising for them is because he retired and his replacement actually knew how to do fundraising. So I became redundant, which is totally fine. But yeah, it just was looking at the ROI of his time. And I think that's one of the things I think people make a big mistake, especially when they're in a smaller nonprofit. It's like, well, the more time you're spending doing bookkeeping, grant writing, all these things that are not your primary language, like you are actually preventing the mission from moving forward. Because there's only so many time tokens that we each have. And so now you're saying, okay, I'm gonna give up six hours of working with people and working on the mission to go do the books.
Carleen: Yeah, not to mention burnout, right? So you're just gonna burn yourself out trying to do it all. Just don't, outsource. Build a team around you. And my team, it doesn't mean people you hire to work in the organization, but having that team of vendors that can support you and the mission is what you want to eventually get to. Having great, not just bookkeepers, but attorneys, marketing people, fundraisers, insurance agents, like these are all people who really can help you make your life easier so that you can just go do what you need to do.
Sarah: Yeah, exactly. And I think, you know, people sometimes wait too long. And then, you know, the thing is that when you start a nonprofit, you're very passionate and you're excited and you're like gung-ho, let's change the world. Right. And then you run into all this minutiae like, Oh, bookkeeping.
Carleen: It's a business.
Sarah: Right. Exactly. So, you know, it can actually stand in the way of your ability to scale because funders and donors are paying for change and transformation. And if you're so busy writing that grant application or completing your QuickBooks stuff that you're serving fewer people and having less of an impact, then a funder might look at you and go, why are you not further along? Right. And funders don't always understand role compression and they don't always leave room in their applications to talk about role compression and burnout. And, um, you know, and I, I'm a big proponent of people getting paid well for what they do. And a lot of people in the nonprofit sector are underpaid, but then there's like the welcome and just like no one else sectors burned out. It's like, but this is where I think we have the power to change things because we can say to people, it's worth $500 a month to get this off the organization's plate because we can do more than $500 of work, which then we can demonstrate to the funders who will hopefully give us more money or we can go to more funders. Cause you have to get a track record before you can go get grants. I mean, it's very challenging for a new organization to get in on the grants scene. It's really competitive. There's like an 80% rejection rate. I mean, not for us, but. Well, because I mean, that's I have a whole grants team and that's all they do is they just that's their first language. That's what they do all day. So, you know, like I said, it took that nonprofit executive director I worked for 20 years, took him a week. And he's like, and the grant application I submitted still wasn't that good. You know, he was like the hunt and pack guys like doing this. I know. Right. I'm so grateful. My mother forced me to take a whole year of typing in high school. I was like, but I want to take photography. She's like, you’re taking typing. So, but yeah, I mean, sometimes you just have to take a step back and look at not necessarily the ROI in terms of money, but the ROI in terms of what's going to move your mission further down the road. You know, is it that, you know. And again, if you're busy doing bookkeeping, you can't be out talking to potential donors. You can't be out in the community developing partnerships. You know, you're doing what I did, which is chain yourself to the desk and it's done every six months. Yeah, yeah. So I think there's a lot a lot to be said for finding wonderful, smart people like you to take things off people's hands, get them in better shape. All right, well, thanks for joining me. And I learned a lot today.
Carleen: Thank you, Sarah.
Sarah: Yeah, yeah. And we will definitely get that freebie from your website and send it out to folks so people have it. But it was great to have you. And really appreciate your time.
Carleen: Awesome, take care.
Sarah: All right. Thanks, Carleen. Bye.
Carleen: Bye-bye. Thanks for tuning in. I'll be back in two weeks with another episode. Got topics you want me to cover? Organizations you want me to showcase? Let me know. Also, I'm here to help you revolutionize philanthropy at your nonprofit. If you wanna talk about what that looks like, drop me an email.