Published on the 16/06/2020 | Written by Stephen Duncan
Running a not-for-profit organisation is certainly no picnic…
You’ve got the challenges for-profit businesses to deal with, such as increasing revenue, consolidating across multiple entities, budgeting, implementing internal controls, and facilitating audits.
But you also face maximum scrutiny from regulators and watchdogs, with financial irregularities potentially causing disastrous hits to your reputation and fundraising efforts. Donors and partners will expect your not-for-profit organisation to be unimpeachable.
Your stakeholders or donors will require accurate reports to keep financial tabs on their investment. You may need to show donors exactly where their resources have gone, which means isolating activity for each revenue source to create a series of specific reports with unique requirements.
Fortunately, with cloud-enabled financial management technology, there are ways to make your job as a non-for-profit CFO and your finance team’s roles more manageable.
Why traditional accounting is too complex
One big problem for not-for-profit organisations is the way conventional accounting systems work. Traditionally, with accounting systems, you produce a chart of accounts (CoA) that has thousands of unique account numbers, as they are forced to use a hard-coded structure.
As a result you end up with a long list of account codes. To make matters even worse, you’ll need to create potentially hundreds of additional accounts every time you want to add a new location, department, or program.
Unless your not-for-profit organisation wants to create a sophisticated and unwieldy chart of accounts, you won’t be able to create reports to track all the transactions you create.
Why should you use dimensional accounting?
With modern cloud-based financial management solutions, you can use a table-driven architecture that allows you to structure both your financial and operational data through logic-based dimensions. You can manage your general ledger using dimensions, which in turn makes it much easier to set up and use your chart of accounts.
Dimensions remove the overhead associated with complex, multi syntax chart of account structures. You can define dimensions – such as department, location, grant or project and tag transactions, enabling powerful reporting against both operational and financial data.
Dimensional accounting keeps things simple
Dimensional accounting keeps things simple for your not-for-profit organisation as you only need to set up primary account codes. Whenever you set new locations, funds or programs, you don’t need to add hard-coded segment combinations to create account numbers. Dimensions can work for any transaction – the general ledger, receivables, payables, time, revenue management, fixed assets and more.
Dimensional accounting helps you quit the spreadsheet
Having a dimensional chart of accounts means your not-for-profit organisation won’t need to pull information out of your accounting system and spend time manipulating it into a spreadsheet. The benefit being that through your system of record you can track performance closely and retrieve information instantly.
You can compare dimensions within a chart of accounts to how hashtags work on Twitter. You can search and sort data for reporting with meaningful context. If you can tag transactions with dimensions, you can slice and dice data to produce financial reports.
You can filter dimensions when you need reports, allowing you to show the exact information you need in the right format. If you save these filters and the format settings, you can repeatedly create the reports you need.
Dimensional accounting helps you provide more insightful financial analysis
With a dimensional chart of accounts, you can organise information by the attributes that matter most for your not-for-profit organisation’s mission, empowering you to perform the meaningful analysis of your performance. With multi-dimensional analysis, you can increase visibility by, for example, enabling drill downs from a BI dashboard, providing granular transaction details.
With dimensions you can analyse financial performance across multiple entities through the power of real-time dashboards. By tagging projects in transactions, you can analyse business performance project by project. You can quickly compare expenses and revenue between programs and locations, for example.
Adding operational context to improve visibility
Not-for-profit organisations with the right cloud management software can take advantage of statistical features that allow you to bring on-financial operational data into your financial reporting.
Traditional general ledgers provide the information needed to create generally accepted accounting principle (GAAP) reports, but if you enhance the general ledger with non-GAAP statistical data, not-for-profit organisations can also track and report on operational outcomes.
You can create contextually rich reporting that includes critical outcome and performance metrics by applying dimensions to the operational data. This contextually rich reporting increases the overall visibility and provides organisational decision-makers with a complete picture of performance.
Dimensional reporting increases donor transparency
If you combine financial performance data with real-world outcome metrics, you can produce reports that show the successes you are having with your mission. With multi-dimensional analysis, you can increase your transparency and visibility for your donors. You can tell donors the complete story of your not-for-profit organisation’s impact by bringing together financial, operational, and impact data.
For a not-for-profit organisation, dimensional accounting provides:
- Reduced complexity and higher efficiency in transactional data entry
- The ability to slice and dice reports without spreadsheets
- Better decision making with real-time analysis
- Broader and deeper financial visibility, with greater operational context
- Increased transparency for donors
- Better visibility into the impact of your mission
To take advantage of the power of multi-dimensional accounting, organisations need to use a modern cloud financial management solution.
Not only will dimensional accounting greatly simplify the lives of your finance team, but it will also empower you with greater insight, helping your organisation support its mission and build a story to compel existing and future donors.
ABOUT STEPHEN DUNCAN//
As product marketing manager for Sage Intacct, Stephen draws on over 25 years in the software industry to help Australian businesses and not-for-profits simplify financial management with innovative technology.