Ten Tips for Managing Your Bookkeeper

Your bookkeeper is a key member of your team. To get the best out of them you need to manage the relationship, as you would any staff.

1. Be involved in the process. You may have hired a bookkeeper to “make it all go away.” But, no matter how wonderful that bookkeeper is, they can’t do a good job without your input. Yes, they should be able to code the phone bill to the telephone expense account – but there will be other transactions where they’ll need your clarification and instructions; and you need to understand the underlying logic as you prepare your management reports.
2. Bookkeeping feeds into financial management. You are still the manager. You must be in charge even if you hate numbers. Ditto for your board.
3. Ask questions. Provide feedback. Ask more questions.
4. Decide how much detail you require for program decision-making, management/board decision-making. Use this to shape the chart of accounts, as well as the nature and frequency of reports you require from the bookkeeper.
5. Make things simpler where you can. Standardize processes for gathering information.
6. Provide a space, a desk, a computer, storage for active files (waiting to be processed) and completed work.
7. Provide advance warning of meetings/other needs for reports – e. g. grant deadlines – to avoid scheduling conflicts.
8. Know what your government reporting obligations are for payroll, sales tax, charities reporting, etc. Learn what the tax returns look like and how to read them. Put the due dates in your calendar. Check up from time to time.
9. Know how the work is verified. In particular, learn what a bank reconciliation looks like and read it from time to time.
10. Read your statements . . . no surprises!

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Ten Tips for Analysing Your Organization’s Operating Statements

Understanding your organization’s financial statements is essential to controlling the purse strings. These ten tips are intended to help you better assess and interpret your Statement of Operations – a.k.a. Income Statement, Statement of Revenues and Expenses, Profit and Loss Statement (P&L).

Your operating statement captures revenues and expenses, and the difference between them: a breakeven (revenues = expenses), or a surplus (revenues > expenses), or a deficit (revenues < expenses). This statement mirrors your day to day activities. Understanding it is essential to making sound operational decisions for your charity.

1. Understand your financial documents. Formal financial statements (including those prepared by professional accountants and those generated by commercial software programs) are designed to be understandable by people who’ve made a reasonable effort to learn how to read them. It’s worth taking the time to become familiar with the layout and terminology. Read your operating results regularly. The more familiar you are with your organization’s reports, the better you’ll become at spotting good news and bad news, and knowing how to address potential problems.
2. Read with a critical eye. If you’re the manager, and you’re not “hands-on” with the bookkeeping, it’s important for you to be alert for accounting errors. Even the best bookkeepers finger-slip from time to time. Does a certain number look surprisingly high or low? Ask about it! Your constructive feedback supports and encourages excellent staff work.
3. Relate your revenues and expenses. The operating statement is designed to compare revenues to expenses, and tell you whether you’ve made or lost money. Within that, though, much can be learned by comparing specific revenue and expense items. For instance, what is the difference between Fundraising Revenue and Fundraising Expenses? Are you getting a satisfactory return from your investment in fundraising? Similarly, compare program revenues to program expenses. Do your various activities net to a financial gain or a financial investment? (Either can be fine!) Comparing revenues and expenses by area will help you to evaluate whether you’re maximizing opportunities, and deploying your resources effectively.
4. Relate this year to your overall financial position. This year’s operating result is Revenues minus Expenses, leading to a surplus, deficit or breakeven. The Balance Sheet shows your organization’s “lifetime” result – the accumulated surplus or deficit – in the Net Assets section. This year’s revenues contribute to the accumulated surplus or deficit, and this year’s expenses reduce it. Reading your operating statement without ever looking at the Balance Sheet can be a dangerous business! Consider: your operating statement might show that you’re in good financial shape this year – but if you have a huge accumulated deficit from the past, you might still be in trouble. You would only know that by reading the Balance Sheet. By the same token, your operating statement might show big financial problems for the current year – but if you’ve got a bigger accumulated surplus from the past, you might still be ok. (NB: see also “Ten Tips for Analysing Your Organization’s Balance Sheet.”)
5. Variance analysis – don’t look at this year’s results in isolation. A single column of numbers showing this year’s operating results can actually be quite uninformative! Compare your revenue and expense actuals to the budget, to assess whether you’re meeting your goals – and whether you need to change tactics. Create this variance analysis column in your report using the formula (Actuals – Budget = Variance). Similarly, compare this year to the same period from last year, to learn how your results stack up against past accomplishments. This can help you to evaluate how you’re managing within an ever-changing environment. Create this variance analysis column using the formula (This Year – Last Year).
6. Ratio analysis – percentages highlight the “weight” of numbers. Using spreadsheet software, it is quite straightforward to calculate each revenue item as a percentage of total revenue, and each expense item as a percentage of total expense. Use the formulas Revenue Item / Total Revenues x 100, and Expense Item / Total Expenses x 100. These ratios can be easier to scan than the “hard numbers,” because they’re all on a common base of 100. You can use a separate column to create another set of ratios that will convert your variance analysis to percentages. For instance, in the previous bullet-point you read about creating a budget variance column using the formula Actuals minus Budget. You can convert this to a percentage using the formula (Actuals – Budget) / Budget x 100. It is easy to scan the percentages and tell at a glance where the high and low rates of change are – and to focus your attention on the items that need it most.
7. Trend analysis – past data has predictive value. Your past accomplishments offer guideposts towards your future. If you know you’ve achieved a certain result before, you can assess whether you’re likely to pull it off again. If you’ve never achieved a certain objective, be careful about counting on it as part of this year’s forecast! You need at least three years of results (ideally more) to identify trends. (A year over year change could be a “blip.”) This can be done easily in a spreadsheet: use Column A to list your revenue and expense categories, and Columns B onward to record past operating results. Each year, add a new column of results to your spreadsheet, to build a picture of your charity’s financial history. Most spreadsheet software will readily convert your table of numbers into helpful graphs, to provide visuals of your financial trends.
8. Comparative analysis – keeping an eye on the Joneses. It’s very easy to be immersed in your own organization’s day to day challenges, and lose sight of what’s going on in the sector as a whole. Knowing how your charity stacks up against comparable organizations can help to validate your results – or it can galvanize change. Networking with colleagues can be very informative. Some sectors of the charitable world have associations that gather and disseminate comparative data to help you assess your progress.
9. Use publicly available comparative research data. All registered charities in Canada must file a T3010B Charities Return within six months of their financial year-end. These returns (minus certain confidential information) are publicly available on the Canada Revenue Agency website, at www.cra.gc.ca/charities. Do you want to know how another charity is doing financially? On this website, you can access a summary version of their financial statements, plus general information on their activities, fundraising practices, staff and board.
10. Go beyond the numbers. Financial figures only capture so much. You need to understand the organization’s context in order to interpret them accurately. It’s important to supplement financial documents with information on your operating environment. Internal factors might include human resources issues and future obligations (e.g. the operating report shows this year’s rent expense, but doesn’t indicate how long the lease is, or what annual escalations you are expecting). External factors might include economic, taxation and regulatory circumstances.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Summary of a Simple Bookkeeping System

This basic outline captures the key elements and processes of a bookkeeping system for a small organization. Bookkeeping should follow standardized procedures. It should fit into a management system that includes regular financial statement of review, and feedback to the bookkeeper.

Business papers/source documents. These are the “raw materials” of bookkeeping: invoices, receipts, contracts, leases, sales reports, cash register tapes, etc. Each item may trigger a transaction, such as issuing a cheque or making a bank deposit. Ideally, all transactions will be documented. That is, there will be some explanatory paperwork that offers proof that expenses are legitimate, and that the company received all the revenue it was entitled to. The Canada Revenue Agency requires most organizations to retain their business papers for the current year and six previous years for audit purposes.

Withdrawals and deposits. Most transactions take the form of withdrawals from or deposits to the bank. Not that long ago, most business bank transactions were made by cheque, which provided excellent documentation. Nowadays, online banking, electronic funds transfers, preauthorized payments, direct debits and other electronic transactions are becoming more prevalent. Make sure you retain sufficient documentation of all items. This not only meets your CRA requirements – it also ensures that your bookkeeper has enough information to compile accurate records.

Journals. All of your accounting entries are made in journals. Journals capture financial transactions day by day; note the French root “jour.” Most accounting software packages provide an array of journals, organized by type of transaction. For instance:

• the purchases journal records incoming bills (accounts payable)
• the payments journal records cheques or other forms of withdrawal, to pay those bills
• the sales journal records invoices issued to customers for goods/services (accounts receivable)
• the receipts journal records payments from customers to clear those receivables
• the payroll journal records employee paycheques, with a detailed breakdown of deductions and employer contributions (e.g. EI, CPP, company health plan)
• the general journal offers a catch-all for items such as error corrections that may not easily fit elsewhere

If I purchased a newspaper ad for $1000 plus HST, my journal entry might look something like this:

Date	Description/Account	Debits	Credits
May 30, 2011	The Weekly News re: ad buy
	Adverstising Expense	1,000.00
	GST paid on purchases	130.00
	Accounts Payable		1,130.00

General ledger. The general ledger reorganizes the data captured in your journals into an account by account format. Note that my advertising payable entry, above, updates three accounts: accounts payable, an expense account, and the GST/HST account. The journal entry captures all of this as one record. In the general ledger, the lines are split up and assigned to the individual accounts:

• A $1,000.00 debit would appear in the Advertising Expense account
• A $130.00 debit would appear in the GST/HST Paid on Purchases account
• A $1,130.00 credit would appear in the Accounts Payable account

The general ledger allows you to review transaction detail by account. For example, the Advertising Expense account would list all my ad buys throughout the year, with a running balance showing the total spent in this category.

Check your work: Bank reconciliation. Most business bank accounts provide monthly statements by mail – although with online access, you can see your statement any time you want. Because cash is the lifeblood of small organizations, it is crucial to prove that your books show the accurate bank balance. The bank reconciliation provides a structured way to compare the bank’s records to yours and identify variances. It is normal for the two balances to be different – but you should be able to explain those differences to the penny. Some need to be corrected – for instance, errors (yours or the bank’s) and bank charges or interest that you hadn’t posted. Other variances are legitimate – for instance, cheques that you issued that have not yet cleared. Legitimate reconciling items such as these should explain the difference between the bank statement and your books.

Check your work: Other reconciliations. Your bookkeeper may have similar methods of verifying other accounts. For instance, some suppliers send monthly statements listing all outstanding transactions. These can be compared to the payables records. The Canada Revenue Agency provides regular payroll statements that can be compared to the source deduction remittances you have made.

Financial statements. The statements summarize the information in your ledger. They take the month-end balances in all of the accounts, and slot them into two statements: the Balance Sheet (a.k.a. Statement of Financial Position or Statement of Fund Balances) and the Income Statement (a.k.a. Profit and Loss Statement, P&L, Statement of Revenues and Expenses, Operating Statement).

Read your statements regularly! Typical moments for reviewing statements are: at month-end, at the end of a project, prior to a board meeting. You should always do so with extra care at the end of the fiscal year. Many not-for-profits engage a chartered accountant to audit their statements. The auditor tests the transactions in your books for accuracy, makes any changes s/he feels are necessary (with your approval!) and presents a formal set of statements for the year.

Check your work: Do the statements look right? Some errors can only be caught through the scrutiny of someone who knows the company's financial activities well. For instance, the bookkeeper could record a purchase in the wrong expense account and the bank reconciliation wouldn’t reveal the mistake. The manager, who knows what purchases have been made, may be able to spot the problem by noticing that one expense account is surprisingly high and another surprisingly low. This is not a very scientific way of checking – but it’s extremely effective in the hands of an astute manager who questions everything that looks unusual, and pursues answers until they’re satisfied that the statements fairly reflect the company’s activities.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Ten Tips for Better Financial Planning

If bookkeeping is the bricks and mortar of your financial reporting system, then financial planning is the architecture; effective financial planning can better prepare your organization to respond whatever happens on a daily basis.

1. Failing to plan is planning to fail. It’s an old saw, but a good one! You wouldn’t start on a long trip without a road map and a destination; by the same token, you shouldn’t launch a new year of activities without a financial plan that lays out some sensible goals – and boundaries. That plan is your annual operating budget – a statement of your programs and activities in dollars and cents. The budget is your financial road map, a key operating document approved by your board as a current-year operating policy, defining and quantifying your targets for spending and raising money.
2. Put it in writing. Your plans will undoubtedly change as the year unfolds, and you respond to changing circumstances (a budget is an adaptable planning tool to help predict your future; financial statements are historical documents that record where you’ve been). However, keeping a clean copy of that initial budget is important! It serves as a yardstick for measuring your progress in fulfilling your plans – and your success at adapting them to your organization’s evolving situation. A written document provides a solid basis for comparing plans to results. It is also an excellent tool for sharing information amongst your organization’s leadership and staff.
3. Share responsibilities effectively among your staff, board and volunteers. What’s effective depends on the nature of your organization and the individuals involved. For some charities, financial planning is staff’s hands-on responsibility, with board members in a governance role, approving the results or requiring changes. In other charities, board members – e.g. the President or Treasurer – take an active role in planning. Some have a Finance Committee, where volunteers outside the board contribute to the process. Often, smaller organizations need more volunteer support, and larger ones delegate more responsibility to staff. Consider what will work best for your organization at this moment in its life cycle.
4. Identify and use all resources. Chances are, you recruited board members based on the skills, connections and support they could bring to your charity. Are your directors fulfilling those roles for your organization? If not, have you talked to them about stepping up to the plate? Consider, too, that your directors may be able to recruit colleagues or friends to provide pro bono support for specific needs. If your organization has an annual financial audit, don’t forget to use your auditor for accounting, planning and tax compliance advice. Your banker, broker, government funding officer and others should be able to contribute planning advice on trends and opportunities for your organization.
5. Think about how to share financial information. Personal data such as staff compensation must, of course, be treated with care. More broadly, though, it is important to think about who needs to know about your charity’s financial situation, and at what level of detail. You wouldn’t want staff or volunteers to be worrying needlessly.But, if you need their input, you must provide enough information for them to offer an informed opinion. You can share financial data in a controlled way by preparing mini-statements by program or activity, as well as a complete operating statement. You can also prepare both detailed and summary (“high-level”) financial statements, to be disclosed depending on people’s level of engagement with the challenges at hand.
6. Secure board buy-in to your plans. A charity’s board of directors is legally responsible for the organization. In situations where staff are front and centre in terms of running the show, board members may become complacent – but they are still on the hook! Staff should ensure that board members receive – and read – and understand – budgets, cashflow projections, financial statements and other key financial planning documents. It’s important to be clear with your directors where the risks lie in your plans for the year. If those plans go awry, you need them to stand behind you and back you up. The organization’s financial plans must be the board’s plans too.
7. Secure staff buy-in to your plans. Staff are instrumental in carrying out the plans for the year. The more they feel ownership of the targets set for their position or their department, the more invested they’ll be in achieving those goals. If belt-tightening is in order, you need your staff, especially those in leadership, purchasing and revenue generation roles, to be fully on board with whatever needs to be done. Develop appropriate ways to bring them into the process of brainstorming, generating options, and making decisions.
8. Follow an annual planning agenda. If an organization is very project-driven, each year may be quite different from last year and next. However, many organizations have a well-understood annual routine. In these cases, financial planning should also follow a well-defined pattern where the tasks associated with creating, reviewing and adjusting plans happen in the same order, within about the same time frame, with the same participants each year. A written annual planning agenda (for instance, setting out key tasks by month) can be used to ensure staff and board understand what will be expected from them. Your planning calendar will also help you identify and meet external reporting deadlines, e.g. funding applications and tax returns.
9. Create time for planning. Make sure your work schedule allows time to read and analyse financial reports, think about the implications, consider your options and prepare well-researched plans for your programs and overall operations. This is even more important for Board members who meet intermittently; get the financial statements to them before they need to act on them. The worst decisions are often the ones made under pressure in the midst of a crisis. If you’ve invested time in contingency planning – anticipating problems and brainstorming “what-ifs” and possible responses – you will be much better prepared to give a measured response and a sound decision.
10. Take the long view. “Now” always seems to be the imperative. Staying on top of today’s demands can take all your time. However, this year is just one more milestone in your organization’s life. You need to consider this year’s plans in context with medium- and longer-term objectives. This year’s operating budget carries through from last year’s results, and it should help your charity achieve its plans for the future. Situating each year’s budget within a multi-year strategic plan is an excellent way to anchor your financial planning.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Ten Tips for Drafting Your Annual Budget

Your annual operating budget is a key management and planning document approved by your board as a current-year operating policy. By defining and quantifying your financial targets, it provides a financial road map that can help you successfully navigate your cycle of programs, services, events and other activities. Creating a detailed plan, grounded in reality, is an essential first step to effective financial management.

1. Format can support you. Treat your budget as part of a broader financial management effort, which embraces your accounting system, external reports (e.g. grants, taxation) and management reporting needs. Your budget categories should align with your accounts, and with the funding and tax forms that you need to complete. This integrates planning with records-keeping, and helps the bookkeeper, managers and board to speak the same financial language. Create a spreadsheet template and use it year over year. Base your financial report spreadsheets on the same template. Consistent formatting makes it easier to share documents and coordinate amongst staff, volunteers and board.
2. A conservative approach: start from revenues. Here’s a good piece of advice – don’t spend money that you don’t have! If you start your budget process by thinking carefully about how much revenue you are likely to generate, you are less likely to “bluesky” your way through the expense lines and wind up with a deficit on the bottom line. This method is particularly effective for organizations with only a few years of history under their belts. Your past revenue achievements are likely to point to what you can reliably predict for this year, giving you reasonable boundaries for planning your expenditures.
3. Testing a new idea: start from expenses. What if you’re launching a big new project? In this case, it’s important to consider what investment it would take to make your new activity a success. You may need to work your way through the expense lines first, and then think about how you will cover your costs.
4. Start from knowns and work towards estimates. On both the revenue and expense sides of your budget, you will know more about some lines than others. For instance, you might have confirmed multi-year funding that you can slot into revenue lines, and leases, union agreements and employment contracts that you can plug into expense lines. At the other end of the scale, the forecasts for some lines may amount to educated guesses, based on past history and current circumstances. If you fill in the knowns first, you create a context that can support the process of estimating other figures.
5. Start from last year’s actual results. Past accounting data can have strong predictive value. If this year’s operations are going to be similar to last year’s, and your charity’s circumstances haven’t changed significantly, then it can be effective to base your budget on previous actuals and adjust as needed for your evolving situation.
6. Use reasonability calculations where appropriate. This technique breaks your budget estimate down into its components, and helps you think things through at a higher level of detail. For example, I could ballpark my advertising expense, or I could break it down to X ads times Y price. Similarly, I could break down my part-time staff expense to X individuals, times Y hours per week, times Z rate of pay. Not all budget items lend themselves to this treatment: categories that are catch-alls for numerous items, such as office supplies, may call for a ballpark figure.
7. Research. Base your budget estimates on research where you can. “Hard” research may take you to catalogues, websites and quotes from suppliers. “Soft” research, such as advice from colleagues, can help you to develop sound options and to learn from others’ experience.
8. Use building blocks. You can build your operating budget from smaller components by developing separate budgets for each program or activity. These add up to your plan for the year. To them, you will need to add an overhead budget, including administration and any other items that can’t readily be broken by activity (e.g. insurance, fire and security). This technique lends itself to a decentralized approach, where every program manager develops their own budget, and the executive director assembles the building blocks, and negotiates any changes required to make the operating budget work.
9. Make an environmental scan. Charities can be highly vulnerable to changes in their environment. Donation and grant revenue is sensitive to economic circumstances, personal taxation and local labour market conditions. Political change can bring some issues to the foreground and back-burner others, and affect the availability of government support. Tax and regulatory changes can affect your expense picture. Stay in touch with the news, and consider how the changing environment may impact your budget forecasts. Remember, your bookkeeper should be a source of up to date details.
10. Don’t idealize. And don’t catastrophize either. It can happen that everything goes your way – or goes against you – but more often things are somewhere in the middle. In particular, don’t get hooked on a wonderful idea and assume that everything will fall in line to support your vision. Develop best-case and worst-case scenarios, then settle on an estimate somewhere in between, based on your assessment of what the contingencies might be.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Ministry of Finance’s Procurement Guidelines for Non-designated, Public Funded Organizations in Ontario

Staff Post
By Heather Young 

The Ontario Ministry of Finance is planning to introduce these guidelines for organizations receiving funding from the Government of Ontario.

They propose standards for making purchases (e.g. seeking comparative quotes) — and will set expectations for how publicly funded organizations should behave in making their expense decisions. At the moment, they are guidelines — not requirements.

This is happening in the wake of the 2010 Broader Public Sector Accountability Act, which issues procurement *directives* to an array of organizations including hospitals, school boards, colleges, universities, Community Care Access Centres, Children’s Aid Societies and organizations that receive more than $10 million in funding from the Ontario government.

The Ministry is seeking feedback on its proposed guidelines.

The Ontario Nonprofit Network (ONN) is one sectoral association that’s addressing this topic on behalf of all of us. They are circulating copies of the draft guidelines and will assemble the comments they receive into a report for the Ministry.

If you’re interested in learning more, please contact Sue Wilkinson, ONN’s Director at 416-642-5786. She needs your comments by DECEMBER 14, 2011, in order to include them in her report.