Nonprofits operate in a complex and constantly evolving environment, often with limited resources. Our upcoming "Sage Nonprofit Technology Trends 2023 Survey" found that 1 in 10 nonprofit leaders anticipate that economic uncertainty may cause layoffs within their organization in the next year.
Over half expect to reduce operational spending. However, nearly a quarter of respondents anticipate an increase in grant funding due to economic challenges. Both sides of this equation reveal an even greater need for better financial visibility and insights to weather uncertainty and expand mission impact.
Access to accurate, up-to-date financial data is necessary for organizations to react in real-time to prevent problems or take advantage of opportunities. Slow decision-making, which leads to missed opportunities and potentially costly mistakes, also can be challenging for nonprofits that lack timely reporting.
Although nonprofits rely on financial reporting to make data-driven decisions that help drive their mission forward, many nonprofits struggle with insightful and timely financial reporting, which can lead to several problems.
So, what can nonprofits do to improve their financial reporting and avoid these potential issues Here are four key areas that organizations should focus on to start 2023 on the right foot:
1. First, it is essential to eliminate manual, Excel-based reporting and automate it as much as possible
Removing manual reporting outside the accounting system can help reduce errors, improve accuracy, and speed up the reporting process. Automation also makes accessing and analyzing financial data easier, which can help nonprofits make more informed decisions. Traditional financial reporting only provides backward-looking information about the prior month, quarter or year.
In contrast, real-time reporting through cloud financial management can be customized by role, location, program, funding source, and more. This level of automation and granularity will allow more time for analysis and, ultimately, should deliver better decisions.
2. Nonprofits should consider integrating their financial system with other critical business systems to gain greater organizational visibility
This can help them get a more comprehensive view of their financial data and see how different areas of the organization are performing. Better visibility into financial and operational metrics means making better decisions about programs, fundraising, staffing, and more. The finance team can move beyond serving only as a financial “scorekeeper” and assume a more strategic partnership in organizational intelligence and planning.
3. Nonprofits should consider marrying financial data with statistical data for outcome metrics
This can help organizations tell a better story and show the impact of their work, which can be crucial for attracting donations and funding. By demonstrating the impact of their work, nonprofits can make a stronger case for critical needs and increased funding. Proper financial reporting helps donors see that their money is being used effectively, efficiently and transparently.
4. Nonprofits are subject to various regulations and reporting requirements and failure to meet these requirements can lead to fines and other penalties
Accurate financial reporting is crucial for compliance and avoiding these problems. The right technology can streamline compliance reporting by using built-in nonprofit-specific reports built for compliance with FASB and IRS.
Overall, effective financial reporting allows nonprofit organizations to make data-driven decisions about allocating their resources, identifying areas for growth and improvement, and tracking their progress toward their goals. By focusing on automation, system integration, and outcome metrics, organizations can improve their financial reporting and avoid potential problems.
As we roll into 2023, nonprofits that keep these issues in mind and take steps to improve their financial reporting will be the ones to thrive amidst the current economic uncertainty.
Joan Benson is Senior Director, Nonprofit Industry for Sage.
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