Nonprofit organizations have it especially rough during an economic downturn. While for-profit organizations can always lower prices, cut back on spending, or shuffle things around in any way that might help the business, nonprofits usually don’t have the luxury to do that. Many rely on donations, and even those that have some income sources, usually suffer more during an economic downturn.
According to Phillantropy.com, “the number of donors to organizations fell by 7% in the first half of 2022 compared to the first half of 2021.” The reason for this is due to the 17% drop in “small donors” (those that give $100 or less) due to the economic uncertainty and people looking for ways to cut back on spending.
But even during good economic times, nonprofits have a harder time in comparison to for profit organizations in one area: Their FP&A function. Some of the challenges that nonprofits may face in regards to FP&A include:
Limited resources- Nonprofits often have limited resources, including financial and staff resources, which can make it difficult to devote sufficient time and resources to FP&A.
Complex funding sources- Nonprofits may rely on a variety of funding sources, including grants, donations, and earned income, which can make forecasting and budgeting more complex.
Difficulty in forecasting- Nonprofits may face challenges in forecasting their financial performance, particularly in times of economic uncertainty or when they are dependent on external factors such as grant funding.
Limited access to financial data- Nonprofits may have limited access to financial data and may struggle to gather the data they need to inform their FP&A efforts.
Limited financial expertise- Nonprofits may have limited financial expertise within their organizations, which can make it difficult to effectively analyze financial data and make informed financial decisions.
Association Headquarters is a professional association management company that helps nonprofit organizations effectively manage their operations, engage their members, and achieve their missions. They struggled heavily with their FP&A processes as they have many different types of companies that they deal with.
One of the biggest challenges for Association Headquarters was job costing. Because they have so many nonprofit clients, tracking the costs of individual jobs was particularly difficult to the large variety of organizations and employees.
When it comes to nonprofit organizations, comparing the actual versus budgeted labor hours is particularly important. While no company wants to be inefficient, for-profit organizations only harm their profit when they are inefficient, while nonprofits have limited labor hours as well as the added scrutiny coming from outside sources (donors, government regulations, etc.).
Association Headquarters started using Datarails, an FP&A software solution that helps automate and consolidate financial planning, reporting, and budgeting. This helped them solve their biggest concerts over labor efficiency and greatly improved their financial planning and reporting capabilities overall. Some of the biggest improvements included:
1) Making use of labor data for the whole company
They were able to consolidate all of their labor data from Excel and the company’s payroll system, which made the data useful by breaking it down into monthly amounts. Reports showing project needs and staff availability are then distributed as reports to the rest of the company, instead of being hidden somewhere in the droves of data that nobody had time to sift through and make sense of.
Since so much of AH's costs and efforts go to labor, knowing where to place people and whether to hire more or less people for a project is crucial in maximizing their resources.
“Our actual labor data is saved in a thousand spreadsheets, and our labor history is saved in a million rows of data from our payroll system,” Kristina Orta, Senior Reporting Analyst for Association Headquarters said. “Datarails is able to easily consume all of those spreadsheets, identify the relevant data, transform it in the way that makes it useful, and then securely save it in the cloud.”
2) Increased transparency
The reports also increase transparency about what is happening with each project. For example, if one project was allotted too many resources causing others not to get what they need, now management was able to ensure that all projects on deck are not only allocated time but also receive it.
“One of the great things that our new reports can show us is that a specific project has a budget for this month, but no hours reported against it,” said Orta. “So we can dig into the data and figure out what happened. Is someone else working on the project? Did that person get assigned somewhere else so that we can stay ahead of things before projects really get behind?”
Nonprofits, and companies that support them, have a harder time conducting FP&A due to not being a regular, for-profit company that focuses on increasing revenue. However, that doesn’t mean that FP&A isn’t important. In fact, being more efficient with the limited resources they have is the key to a transparent and efficient nonprofit, and this will help them get through the economic downturn.