Learn how outsourcing can enhance efficiency and ensure regulatory compliance in non-profit organizations through insights from Matt Lescault, co-founder of Lescault and Walderman. In this interview, Matt discusses how outsourcing can transform financial management practices, streamline operations, and address emerging trends in the sector.
What are the common pitfalls non-profit organizations face when opting for outsourced accounting services?
I think this is obvious but often overlooked: communication is key. Many organizations that decide to outsource are accustomed to having an accounting department—or any department, for that matter—in-house and accessible at a moment’s notice. They can simply knock on the door, ask a question, get an answer, and continue their work seamlessly.
When they choose to outsource, they maintain that same expectation. Even if they verbally acknowledge that we are not physically in their office, there is a subconscious desire for nothing to change. This is where communication style, understanding, and managing expectations become very important.
As the service provider, it is largely our responsibility to build and communicate these expectations effectively. We must explain to the client how we can be successful for them. When communication breaks down, issues arise not only in the client relationship but also in the quality of work. Finance and accounting rely heavily on information from all parts of an organization, and poor communication directly impacts the service we provide.
While there are other pitfalls in outsourcing, the primary focus must be on maintaining clear and effective communication.
How has outsourcing transformed financial management practices in non-profit organizations?
I want to be careful with this answer. In response to your question, I find that many nonprofit organizations tend to live in the past. They have systems, processes, and solutions that have been in place for many years because they have relied on these methods for so long. Change is hard and often scary, leading to resistance.
For instance, someone who has been with an organization for 20 years may be used to doing things the same way. This is not the case for everyone, of course; there are certainly trendsetters in nonprofit leadership and finance. However, there is a common mentality of “if it ain’t broke, don’t fix it.”
Outsourcing can transform this by staying on top of technological advancements in accounting. Our job is to create more efficient and cost-effective products. As an industry, we need to focus on best-in-class utilization of software systems and other tools. Outsourcing can modernize the financial management of nonprofits, bringing them into the current era of operations.
This transformation allows nonprofits to gain a deeper understanding of their own organizations by leveraging data, key performance indicators, and other metrics. This data helps organizations analyze what is working and pivot quickly when necessary. Over the last decade, we’ve seen significant changes in the nonprofit sector due to regulatory and political factors, which have affected funding strategies. Having access to accurate data is an important step for nonprofits to analyze their performance and make informed decisions to stay successful.
How do advanced technological solutions enhance accounting for non-profit organizations, and how can they be leveraged to streamline financial processes?
This ties into what I previously discussed. Technological solutions help us operate more effectively. Everyone talks about efficiency, but our goal is to be an effective support system for the nonprofit. Finance and accounting touch every part of an organization, from paying people and reimbursing expenses to allocating costs for departmental analysis.
The old mentality of finance often involves putting everything into one bucket, producing financials only for the 990 form or a functional expense breakdown. This approach doesn’t yield truly useful information. Technological solutions enhance accounting for nonprofits by taking even the smallest sets of data and making them valuable.
We leverage these solutions to make it easy for other staff members to interact with the finance department and provide necessary information. When it’s easy for them, they do it, and we get the information we need to succeed. This also improves our perception by the organization’s leadership.
Technological solutions, whether in accounts payable, expense management, donor management, or programmatic management software, help extract information from users and integrate it into the financial system. By doing so, we can gather statistical, time, and financial data efficiently, making us look like all-stars. Ultimately, it’s about providing our team with the tools they need to give us what we need, focusing on what’s in it for them.
What long-term financial benefits, beyond immediate cost savings, can non-profit organizations gain from outsourcing accounting tasks?
This may seem obvious, but it’s often overlooked in the business world: outsourcing provides expertise. Whether it’s marketing, sales, business development, or any other function, outsourcing brings specialized knowledge. For example, if my organization focuses solely on accounting with 100 people doing it all day long, we have a collective wealth of experience in one aspect of operations.
Nonprofits gain from outsourcing what they might lack in-house. If you hire a new accountant with only a few years of experience, they might not fully understand nonprofit-specific accounting nuances like grant reporting, cost reimbursement, and fixed fee grants.
Here’s an example: A few years ago, I worked with a nonprofit that had a cost reimbursement grant. The previous accountant’s interpretation left the grant margin very low, which strained the organization. When our firm reviewed the grant, we found a new way to calculate costs that increased the allocation by 20%.
We validated this new approach with an auditor and presented it to the granting organization. The local government initially questioned the change, but we demonstrated that it met their standards and had the auditor’s approval. This additional cost allocation significantly improved the nonprofit’s financial situation.
This story illustrates the importance of expertise. Without understanding the nuances, nonprofits can miss out on crucial funding opportunities. Nonprofits aren’t there to make money, but they still need to cover operational costs like electricity and administrative support. Outsourcing can help ensure they maximize their resources efficiently.
In what ways does outsourcing boost efficiency and productivity in non-profit organizations, particularly with complex financial operations?
I don’t want to disregard the value of a highly effective accounting department with high efficiency and productivity. However, when it comes to outsourcing, our job is to be efficient. If we’re not efficient, other service providers can outbid us for contracts. It’s not all about money, but if we focus on doing our job effectively, we can complete tasks faster and more efficiently. For example, closing the books earlier each month gives the organization more time to act on the information.
Expertise is also crucial. When dealing with complex financial operations, we don’t have to learn every nuance as we go. Consider a scenario where an organization switches from QuickBooks to Intacct. Their current staff, familiar with QuickBooks for the last decade, must learn a new system, reducing efficiency and productivity.
In contrast, if the organization works with our firm, we have experts in both QuickBooks and Intacct. This eliminates the learning curve and maintains efficiency during the transition. Additionally, our knowledge of nonprofit accounting allows us to quickly identify ways the new solution can further enhance efficiency and productivity within the organization’s finance operations.
What factors should non-profit organizations consider when selecting an accounting service provider to ensure a successful partnership?
Here are the top components to consider when selecting an outsourced accounting service provider:
- Nonprofit Knowledge: Does the provider understand nonprofits? This is essential.
- Software Expertise: Does the provider know the software you’re using? Simple but crucial.
- Cultural Fit: Does the outsourcing firm match your organization’s culture? This is less straightforward but critical. As an extension of your team, a mismatch in culture can deteriorate the relationship over time. We help clients see how we operate and understand our value system through our potential client process, but it remains a challenging aspect to gauge upfront.
These considerations apply broadly, but here we’re focusing on accounting services.
How does outsourcing help non-profit organizations adhere to regulatory requirements and industry standards?
It’s about knowledge and expertise. I’ll keep this answer short. As an outsourced organization specializing in nonprofits, our job is to understand the regulatory climate and requirements, whether it’s grants, 990 reporting, or other regulations.
An internal team might struggle with this due to the constantly changing landscape. Our role is to stay updated on these changes to ensure compliance and effectiveness.
How do outsourcing accounting functions facilitate the growth and scalability of non-profit organizations?
I’m glad you mentioned “facilitate” in your question. Accounting does not create growth or scalability; it facilitates, enables, and supports them. Outsourcing helps by addressing capacity needs at the moment.
For example, if I have 100 staff members handling outsourced accounting, and a client currently has three resources allocated based on their scope of work, but then they acquire another entity through an M&A transaction, we can shift additional resources to support them.
For a nonprofit, a similar situation might involve receiving a large grant that doubles their revenue. This would necessitate an additional headcount in the finance team to manage the grant, and we can quickly allocate resources to meet this need.
What emerging trends do you see shaping the future of outsourced accounting services for non-profit organizations?
The only thing I don’t like about this question is that emerging trends will likely shape the future similarly across all industries, including nonprofits. However, our focus as leaders is on where we can derive value in the future.
When I started this company in 2006, there was significant value in handling transactional work like accounts payable, accounts receivable, bank transactions, and credit card transactions. It was cheaper and more effective than hiring a full-time person. But with advances in technology and globalization, the value of these services has diminished. Clients no longer view them at the same level, partly because these tasks can now be outsourced globally to places like India, the Philippines, or Africa.
Our role has evolved. Clients now expect more from us in the regulatory and consulting space. This involves data-driven decision-making, extracting information from accounting, and focusing on FP&A (financial planning and analysis), reporting, and analytics. These services need to drive value for our clients.
