Jen: This is PKF Texas The Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Danielle Supkis Cheek, a director on our Entrepreneurial Advisory Services team, as well as our not-for-profit team. Danielle, welcome back to the Playbook.

Danielle: Thank you again.

Jen: I know there have been some pretty big changes on how not-for-profits present their financials. What do you know about that and what can we tell our audience?

Danielle: So right now is… Actually if you’re on a calendar year, the financial statement rules changes are effective right now, 2018. What it really goes down to is that you have, in the past three different groups of net assets for nonprofits, that’s now taking it down to two, which is with donor restriction and without donor restriction. I can get into a long, technical deals with it, but really what it’s taking is that temporarily restricted and permanently restricted and putting that into one category to say with donor restriction.

This actually helps if anybody has an underwater endowment; this helps clean up the accounting. A couple of other changes – a statement of functional expenses is going to be a required disclosure now and statement, which if you had yourself set up to have those in the past no big deal, no change. But if you’re not being able to track how you’re spending your money with the natural classification of expense as well as within that admin fundraising program, you may need a system change now depending on your year end. And then a couple other more nuance topics – probably the most problematic for a lot of nonprofits may be the liquidity disclosures and liquidity disclosures about how much cash they actually have access to, as unrestricted or not.

Jen: Now what size not-for-profit does this impact? Everyone?

Danielle: Everyone that follows US GAAP.

Jen: That sounds really important, especially for those smaller ones.

Danielle: It does and actually there are more standards changing coming right now that will help align some of the nonprofit rules with the new revenue recognition rules and how to handle exchange transactions where you’re actually providing a service for, let’s say, a government entity versus just receiving donations.

Jen: Wow, well we’ll definitely get you back to talk about some of that revenue recognition stuff.

Danielle: Of course.

Jen: Perfect, thank you. For more about this topic, visit PKFTexas.com. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook, tune in next week for another chapter.

If your not-for-profit relies heavily on a few funding sources — for example, an annual government or foundation grant — what happens if you suddenly lose that support? The risk may be compounded if you generally spend every penny that comes in the door and fail to build adequate reserves. Bottom line: If your nonprofit hopes to serve its community many years into the future, you need to think about financial sustainability now.

Information, please

No organization can accurately evaluate its sustainability without timely, comprehensive and accurate financial reporting. In addition to providing a current picture of your standing, financial reports should compare actual figures with historical and projected numbers. Some nonprofits use “dashboards” that give real-time financial data, ratios and trends in easily understood graphic form.

It’s not enough for the board to review financial statements. Board members must provide true fiscal oversight and not leave major financial decisions to staff, no matter how trusted and loyal. The finance committee should report regularly to the full board and engage in dialogue about their reports and the organization’s financial health. Most importantly, your board shouldn’t merely take a backward-looking view but should also consider the future — for example, how current trends and developments might affect future plans for funding your nonprofit’s mission.

Lower costs, more revenue

Holding expenses down and continually searching for new revenue sources are critical to long-term financial sustainability. Many nonprofits forge formal partnerships with other organizations to share costs. Look into partnering with organizations that share your missions and serve similar populations. Such collaboration may enable you to make better use of limited resources while reducing competition for funding. By joining forces, you can more quickly scale up high-demand programs or services.

If you’re seeking new revenue ideas, consider expanding fee-based service offerings to new locations or populations. For example, an organization that provides services to children with disabilities in schools also could offer the services to children with disabilities in foster homes.

Funds in reserve

Finally, maintaining adequate reserves is a key component of financial sustainability. If you don’t have a reserve fund — or have one but no formal policy for determining the appropriate amount, maintaining it and allocating funds when necessary — make developing such a policy a priority. Contact us for help.

The first step to smart timing is to project your business’s income and expenses for 2015 and 2016. With this information in hand, you can determine the best year-end timing strategy for your business.

If you expect to be in the same or lower tax bracket in 2016, consider:

Deferring income to 2016. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.

Accelerating deductible expenses into 2015. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

If you expect to be in a higher tax bracket in 2016, accelerating income and deferring deductible expenses may save you more tax over the two-year period (though it will increase your 2015 tax liability).

For help projecting your income and expenses or for more ideas on how you can effectively time them, please contact us.