The decision-making that flows from your strategic planning is only as good as the information upon which it is based. Managers work hard to develop systems for accounting and financial reporting that are compared to the key performance indicators of their organizations.
For entities in the for-profit realm, it may be simple: Are the resources used to make the items adding up to the number of items produced? For entities in the nonprofit sector, this consideration may not be quite as black-and-white: Are our efforts contributing toward our mission? Regardless of the sector your entity occupies, the goal is the same: you want to utilize information to help management make better decisions.
Accounting systems are notorious for being able to generate … accounting data. After all, that’s what they’re designed to do. When inputs and outputs can be condensed down to quantifiable units, be they raw materials, labor hours or something else, costs can be assessed and compared against industry and/or historical benchmarks to determine if operations are being conducted in as efficient or effective manner as planned.
But when the output of your organization is an intangible, like better research, higher literacy or a cleaner environment, how do to gauge your effectiveness with the financial statements? At first blush, my answer is: You don’t.
That’s not to say that the product generated by your accounting department is for naught; it simply needs to be utilized in a somewhat different manner. As noted, accounting systems generate accounting data. This is of great benefit to accountants. But there are legions of managers out there who need something other than accounting data; they need management information.
Accounting data and management information are not that disparate in their composition. The two largely stem from the same source, the results of operations as recorded in the general ledger of the organization. The difference results in their application.
Keep the debits and credits to themselves and (hopefully) they will behave quite nicely in your books of record. Take the data away from the summarizations that are inherent in the financial statements – the totals used in the statement of financial position (balance sheet) may not be what you need. Strip the data down to its component pieces, choose the appropriate items to couple with your performance indicators or business drivers, and then you can see their utility to the management process.
While there may be no direct correlation to the intangibles inherent in your mission, there are doubtless steps that your entity has taken in heading toward your goal. Comparison of the details in your payroll postings to the results of your membership drives may reveal inefficiencies in your association’s outreach initiative. Tracking sponsorship costs by a particular demographic may highlight disparities in your efforts. Identifying those steps and determining which financial parameter is the appropriate monitor is often a joint effort between managers and the accounting professional – either inside your organization or from a qualified external consultant.
That accounting professional can then work within the confines of your systems to generate a management reporting structure to augment the accounting reports and provide decision makers with the information needed to plan, assess and evaluate the forward momentum of your nonprofit.
Raymond J. Jacobi Jr., CPA, is a partner with Mengel, Metzger, Barr & Co. LLP and can be reached at Rjacobi@mmb-co.com.