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Studio 512: Outsourced Accounting with Bookminders

Our team was back in the studio with Co-Host Rosie Newberry this past week. CEO Jessica Minkus and Director of Business Development Pamela Falkner Hartigan explored what makes outsourced accounting so attractive and what clients can expect when onboarding with Bookminders.

Visit Studio 512’s website or review the segment highlights:

Rosie asked why businesses and nonprofits choose to outsource accounting rather than hiring internally: Jessica explained that when factoring in the costs of salary and benefits, training, employee turnover, and limited access to expertise, outsourced accounting is often the stronger choice. “Leadership doesn’t have to manage the HR responsibilities of hiring an employee. They should get redundancy and an entire company of experts, not just one or two people. And, depending on the outsourced firm, there may be hosting as well meaning they take responsibility for security of the financial information.”

Pam described how Bookminders’ holistic approach to analyzing and building out client services has placed Bookminders above other outsourcing options: “At the very start of onboarding, we review each client’s process for efficiencies, design the accounting system, and manage it from start to finish.” She details the array of professionals that each client has access to: “They’ll have an onboarding accountant, an ongoing accountant, and a client relations manager all of whom are supported by the operations and management team.”

Jessica notes that Bookminders’ Quality Assurance department, led and staffed by senior staff, ensures that financials are accurate and complete. “We also continually review the file for process improvements to ensure that all clients receive a consistent, high-level of service. Not only do we manage clients’ financial info, we provide a secure, cloud-based platform so they can access their information from anywhere.”

Lastly, Rosie asked Pam what a prospective client can expect when they reach out to Bookminders: “They’ll talk to a member of our business development team. The conversation will be around whether a partnership would be mutually beneficial. If not, we often are able to refer them elsewhere.” If a client does move on to the next step, “Bookminders bills volumetrically. We will look at their activity and accounting needs to prepare the best possible estimate for our service, which is usually within a 10% variance.” After moving forward, the BD team facilitates a smooth handoff to the operations team. “That starts at the initial client meeting, throughout onboarding and even after.”

Outsourced accounting firms like Bookminders provide affordable access to many experts.
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Preparing for an Audit

Definition: An audit is an examination of an organization’s financial statements by an independent certified public accountant (CPA).

Who’s Required To Have An Audit: Nonprofits audit requirements vary by state. For example, Nonprofits with charitable contributions greater than $300,000 are required to submit audited financial statements to the Pennsylvania Bureau of Charitable Organizations within 135 days after the end of their fiscal year.

Preparation: To be well prepared for an audit, you should:

  1. Review the auditor’s prior year recommendations to ensure any significant weaknesses have been addressed. Also review the auditor’s prior year adjusting entries to see if any corresponding adjusting entries need to be made for the current year.
  2. Ask your auditors for a list of reports and documents they’ll need for the audit, which will probably require you to assemble:

    • Trial Balance and/or General Ledger Bank confirmation requests
    • Bank statements and reconciliations
    • Reconciliation of activity in balance sheet (and sometimes income statement) accounts
    • Board meeting minutes
    • Updates to internal control procedures
    • Grant acceptance letters
    • New contracts and leases
    • Bills for fixed asset additions
    • Lists of vendor bills and customer invoices (including outstanding A/P and A/R) to enable the auditor to select items for review or confirmation
    • Reports of transactions subsequent to year end up until the audit report date
    • Bank statements and reconciliations subsequent to year end up until the audit report date
    • Draft financial statements, footnote disclosures, and/or Statement of Functional Expenses
  3. Be prepared to discuss:

    • Changes in governance, management, ownership, and personnel
    • Changes in operations and technology
      Economic/industry developments and their impact on your operations
    • Estimates used in the financial statements, such as allowance for uncollectible accounts
    • Significant variances versus budget and prior year Non-compliance with credit agreement covenants

Regulatory or legal actions Independence: To maintain independence, your auditor is not allowed to prepare these documents. If your organization is unable to prepare the documents internally, then it may be prudent to hire outside an accountant (like Bookminders) to assist in the audit preparation.

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Do you need a budget?

Does your organization really need to prepare a budget? Yes, it does. Although it seems like a lot of work, a budget is an indispensable tool for converting your plans into a successful reality.

What is a budget? A budget is a forecast of expected income and expenses. It is organized in the same format as a financial statement and most commonly covers a 12-month period.

Why create a budget?

  1. Monitor performance—A budget is a yardstick to measure how your organization is performing.
  2. Cash management—A budget helps you determine how much cash you will have, how you will use it, and whether you have enough cash to achieve your financial goals.
  3. Prevent problems—A budget allows you to forsee problems and alter your plans to prevent those problems. Problems are far less costly to fix on paper than with actual dollars.
  4. Revenue forecasting—A budget forces you to think through how you will bring in revenue and what it will cost to generate that revenue.
  5. Expense management—A budget requires you to itemize your expenses and understand your real cost of doing business, which helps you make sound choices on expenditures.
  6. Securing financing—A budget (and a business plan) will be needed for banks and other lenders to give you a loan.
  7. Capital spending—A budget will help you understand whether or not you can afford to invest in new equipment or other assets.

How do I create a budget?

  1. Revisit previous budgets—If you have created a budget in the past, use it as a model and adjust the numbers as needed. If your organization is a new venture and has no past financial records, rely on your own experience and knowledge of the industry to estimate revenues and expenses.
  2. Review past history—You can export your Profit and Loss statements from QuickBooks to Excel to use as a starting point for the budget.
  3. Use a spreadsheet—A spreadsheet (like Excel) is the easiest way to prepare a budget and it can be imported into QuickBooks when it’s finished.
  4. Budget monthly—You can make a budget using any time intervals (weekly, monthly, quarterly, annual), but it’s usual to create a monthly budget so you can compare the actual results to the budget each month.
  5. Revenues—Revenues are the cornerstone of a budget. It’s crucial to estimate revenues as accurately as possible, based on past history.
  6. Fixed Costs—Some costs, such as rent and loan payments, are fixed (they don’t fluctuate regardless of revenue). Find your fixed costs from the pertinent loan, lease or other documents.
  7. Variable Costs—Some costs, like utilities and supplies, are variable (they fluctuate with the level of activity). Estimate the variable costs by adjusting past expenses for the forecasted changes in activity.
  8. Semi-variable costs—Costs such as salaries, wages and telephone expenses, have both variable and fixed components. For budgeting purposes, you may need to break semi-variable costs into two components. The fixed element represents the minimum cost of supplying your good or service. The variable element is that portion of the cost influenced by changes in activity.
  9. Personnel costs—Be sure to match the level of staff to the anticipated changes in revenues.
  10. The master budget—For organizations with several departments or work functions, the annual budget may be a master budget comprised of several separate but interconnected budgets.

Tips & Hints

  1. Start Early—The budget should be approved at least 1-2 months prior to the start of the new fiscal year. For this to happen, planning will need to start 3-6 months before the new fiscal year.
  2. Keep it simple—There is no need to list your expenses in great detail—accounting for supplies and utilities should be sufficient, without breaking it down into paper clips and light bulbs.
  3. Set Goals—Everything about the budget should point towards the strategic plan the organization has adopted.
  4. Be conservative—To be safe when budgeting, many organizations overestimate expenses and underestimate revenue, which builds in a margin for error.
  5.  Budget a cash reserve—Consider setting aside a cash reserve. Even though your budget will be tight, you will be glad you did this if there is a sudden economic downturn or a big unexpected expense.
  6. Show restraint but not rigidity—Your budget should help restrain you from unnecessary spending. But, if an opportunity arises, don’t ignore it because it isn’t in your budget. There are times to “bust” your budget to take advantage of valuable opportunities.
  7. Review your results every month—Too many organizations make up a budget every year and then stick it in a drawer and forget about it. Budgets only help your organization if you use them. Look over your actual results versus budget every month.
  8. Question expenses—Once you have all of your expenses detailed in your budget, reevaluate each one and look for ways to save.
  9. Watch your cash flow—Cash flow problems kill many small organizations. Watch your cash flow monthly to be sure you maintain sufficient cash.
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