2023 is well underway and not-for-profit organizations can expect to face challenges both new and familiar. Key issues nonprofits often face are detailed below, along with suggestions on how to address them.
New Accounting Standards
ASC 842 presents new reporting requirements for leases. Its predecessor, ASC 840, allowed for the classification of certain leases as “operating leases”, meaning they were not capitalized and reported on the balance sheet. However, ASC 842 requires the present value of committed future payments be recorded on the balance sheet as a lease liability, offset by a right-of-use asset. ASC 842 intends to make lease reporting more transparent between organizations and financial statement users. Nonprofit organizations should review the terms of existing lease contracts, as well as the standard itself, as ASC 842 increases the complexity of lease reporting calculations and reconciliations. This may, for some nonprofit organizations, require assistance from accounting professionals to ensure proper reporting.
Staffing
Though many nonprofits struggle with finding an adequate quantity of people to fulfill staffing needs, another issue lies in finding and retaining a high quality of talent. Those who pursue work in the nonprofit sector generally possess a high level of dedication to their causes of interest. Despite this, it can be difficult for nonprofits to compete with the alluring benefits of more lucrative industries. While recruiting can be difficult, nonprofit organizations should not be afraid to invest in quality people. And, when the acquisition of new talent is not feasible, nonprofits can provide existing talent with engaging work, and contribute adequate time and attention to help promote fulfillment and engagement. This will boost retention and make open positions more attractive to potential talent.
Limited Funding/Accurate Budgeting
The public need for nonprofit organizations and services is ever-increasing. Meeting this expanding need can be difficult, especially given the funding limitations many nonprofits face regularly. Stable, predictable streams of income are a luxury most nonprofits do not have. However, many grantors offer multi-year grants, a source that would provide a steady revenue amount for multiple years to help your organization better budget. Since many nonprofit organizations rely on government funding and donations as their primary sources of income, accurately budgeting for annual operations is often complicated. It is important for organizations to stay within their means. This can simply be done by creating a budget where projected expenditures are less than projected revenues to avoid overspending.
New Technology
Whether due to funding, accessibility, or reluctance, staying technologically up to date is a challenge for many nonprofit organizations. Though newer technology offers countless benefits for nonprofits (efficiency, relevance, assistance), those benefits tend to come at a premium. To stay current, nonprofits might consider big investments in technology, especially if the lack of said technology is significantly contributing to operational difficulties or reduced performance. The cost of new technology should be considered in proportion to all of its relative benefits. Upgrading a nonprofit’s technological capabilities yields both financial and nonfinancial benefits. The improved reliability and timeliness of data can be invaluable for the accurate assessment of organizational performance and the discovery of new opportunities. Regularly deprioritizing the investment in and implementation of new technologies risks nonprofit organizations falling behind the curve. Instead, new technological investments should be reconsidered often, while fully weighing complete benefits against perceived cost.
Please contact the professionals at Gilliam Bell Moser if you have any questions.
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