<![CDATA[Counterpart CFO - Blog]]>Thu, 04 Jan 2018 15:13:29 -0500Weebly<![CDATA[Nonprofit Sustainability MythBusters]]>Tue, 19 Dec 2017 22:32:50 GMThttp://counterpartcfo.com/blog/nonprofit-sustainability-mythbustersPicture
I recently had the pleasure of leading a workshop, “Nonprofit Sustainability MythBusters,” sponsored by the Gulf Coast Community Foundation.  With a small group of nonprofit executives, board members, and community leaders, we spent a few hours dispelling the myths of nonprofit sustainability.

Often, I find that my workshop participants understand, on an academic level, the myths that hold them back. Yet in practice, these myths are so deeply ingrained in the nonprofit world that they drive the way organizations operate.

Here’s an example --

Myth: Nonprofits are supposed to break-even.

I spend enough time around nonprofits to realize striving for break-even is the standard operating procedure for the vast majority of organizations.  It is at least a step in the right direction when nonprofit executives will acknowledge that nonprofit doesn’t have to mean “break-even.”A surplus, of course, is the only way to generate reserves -- that is, a “rainy day fund.” Without reserves, an organization is at the mercy of bad luck. That’s a bad place to be, because bad luck is right around the corner.

This is where the objections begin to fly. “Our funders don’t want to see a surplus.” To this objection, I mostly say, “Hogwash.” I simply don’t see nonprofit funders who object to a modest surplus. If the question arises, say the following: “Our board adheres to best practices of sustainability by maintaining a modest ‘rainy day fund’. In doing so, we are better-positioned to avoid disruptions in our operations.”

If you don’t have six months of cash expenses in the bank, you won’t be faulted for working to build your reserves. It is more likely that your challenges will be in educating your internal stakeholders (i.e., board and staff) rather than funders. The natural corollary of the first myth is this one --

Myth: A budget should break-even.

A budget should provide a roadmap for how we want our finances to play out. If we understand that a surplus is desirable, why would we follow a map that falls short of that?

Again, I’ll hear, “Our funders don’t want to see a budget with a surplus.” Refer to the explanation above -- “Our board adheres to best practices of sustainability…”

I understand that there will be certain grants that have strict rules about your budget breaking even. For these, you will need to show a break-even budget; however, that doesn’t prevent you from having internal management targets beyond break-even. If that sounds difficult, it’s because of another commonly held belief --

Myth: Nonprofit finance is simple.

Sometimes it is. Other times, not so much. There are situations where a deeper understanding of finance is critical to getting the entries right, ensuring accurate and useful financial reporting, and avoiding embarrassing and costly mistakes. 
Have you avoided all of these myths?  Do you think I’ve missed something?  Please share your thoughts.

Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s specializing in nonprofits.  To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.

<![CDATA[Meeting the Deficit Challenge]]>Tue, 14 Nov 2017 21:19:06 GMThttp://counterpartcfo.com/blog/meeting-the-deficit-challengePicture
Take it to the bank -- an organization that has more expenses than revenues won’t survive indefinitely. Eventually, cash will run out, because there are practical limits on reserves and borrowing.

When expenses exceed revenues, it’s worth considering the relative simplicity of the problem. Since there are only two inputs -- revenues and expenses -- a solution must focus on one or the other, or both.

Often, philosophical sides will form to fix the problem --
  • “We need to cut expenses to balance the budget!”
  • “We’ve already cut expenses!  The problem is revenue; we just need to raise revenue!”

The timing behind these philosophies is often the “devil in the details” that will determine management’s success.

Expense cutting is relatively easy.  It just requires (1) a decision (albeit a difficult one) and (2) action.

Raising revenues is much more difficult. After a decision, and strategic actions, revenues may not increase as desired. This is actually a very common result, and I‘ve seen many an organization pursue the revenue route for years without success. This can dig a deeper hole, or worse.

One common strategy for raising revenues involves additional investment. "You've got to spend money to make money," someone will say. The words make me cringe, because those who say this are usually talking about spending someone else's money rather than their own.

I appreciate the value of investment, and I don't discount it. However, this trite phrase is typically trotted out to justify an imprudent expenditure.

If your organization has deeply rooted structural issues, like insufficient or poorly-trained staff, these problems should be targeted to fix over time. But you don’t throw more expenses at a deficit. It will only accelerate the decline.

“Revenue diversification” and “social enterprise” are popular buzzwords to solve deficits.I support both in the right circumstances, but neither is a magic bullet. Raising prices, which seems unpalatable, is usually a more practical short-term solution.

When we think of cutting expenses, it undoubtedly includes the level of staffing, which is the largest expense for most organizations. It’s easy to justify that everyone is already overworked and that it’s not practical to reduce staffing. On the other hand, this notion that the level of business activity should define the level of staffing can be self-defeating. A more effective approach is that revenue should dictate staffing. This may require refocusing on high-return activities, cutting out some low-return activities, and perhaps even doing less, overall.

In the end, a combination of cutting expenses and raising revenues is often the best strategy to counter a deficit. My advice for managers -- buck up. Don’t spin your wheels by avoiding the difficult decisions. Take short-term expense-reducing actions while also taking long-term revenue-increasing actions. Doing both will give you the best chance of improving your financial position.

Do you see this issue in a different light?  Please share your thoughts.

Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s serving nonprofits and for-profit businesses. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.

<![CDATA[Should Nonprofit Employees Contribute Cash to the Cause?]]>Tue, 01 Aug 2017 17:41:32 GMThttp://counterpartcfo.com/blog/should-nonprofit-employees-contribute-cash-to-the-causePicture
Eventually, this issue comes up at every nonprofit. Should employees be expected to support the mission of the organization through their own cash giving? My conclusion is an unequivocal “no.”

The idea to solicit employees is borne out of the belief that employees will want to financially support the organization’s cause. While the desire is almost always there, the reality is more complicated.

The Employment Relationship
Employment is a complex relationship, and it shouldn’t be distorted by other relationships, including family, friendship, love, borrowing, or cash giving. While the value of teamwork can’t be overstated, the most effective supervisors maintain an “arm’s length” connection to subordinates.  This means avoiding other entanglements.

Legally, employment is a “master-servant” relationship. Without getting into the philosophical debate about what fuels philanthropy, it’s easy to argue that there is an inherent conflict between a servant’s obligation and altruism.

Employees, by definition, commit their “work lives” to the mission of the organization. Yes, they are paid, and that is the “bargain” entered into by both employers and employees.  Any expectation that part of that payment should be funneled back to the employer -- in most cases, after-tax -- is counterintuitive.

Practical Ability to Give
For numerous reasons, nonprofit employees are often paid below market wages of the local private sector.  Asking employees to contribute part of their wages back to the organization is inequitable.  Even if employees consistently give (either because they are asked or because of peer pressure), this will be a breeding ground for resentment.

The Counterarguments
“We can’t ask donors to give if our own staff isn’t supporting us.”
This is a false equivalency. Your staff supports your organization every day with its blood, sweat, and tears. You need committed donors to fund the work. You need committed staff to get the job done. These are two very different roles.

“Our board members give. Our staff gives. It’s just part of our culture.”
The board relationship is different than the employment relationship. Board members are volunteers who make a commitment to the oversight and direction of a nonprofit. Not all board members have the same ability to provide financial support; however, the expectation to do so is typically a prerequisite commitment to board service. Conversely, I haven’t seen an organization ask for employee giving as part of the hiring process. I have seen it as part of the onboarding process, which has the potential to be an unwelcome surprise to a new employee.

“We have employees who can afford it and want to give.”
Provided it’s not solicited, it’s fine if a highly-compensated employee (e.g., an Executive Director) voluntarily donates to the organization. Still, it shouldn’t be publicized in a way that will make other employees feel an expectation to give.

When it comes to employee giving, my advice is simple -- don’t ask.  If you’ve been asking, stop.  If anyone wants an explanation for why you’ve stopped, tell them you’ve rethought the issue, and you appreciate your staff’s work too much to ask them to do more than they already do. Do you see this issue in a different light?  Please share your thoughts.

Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s serving nonprofits and for-profit businesses. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.

<![CDATA[4 Keys to Financial Sustainability]]>Fri, 21 Oct 2016 04:00:00 GMThttp://counterpartcfo.com/blog/4-keys-to-financial-sustainabilityPicture
On Wednesday, October 19th, I was privileged to lead a nonprofit workshop, “4 Keys to Financial Sustainability,” sponsored by the Gulf Coast Community Foundation.  Our varied mix of participants included board members, executive directors, finance directors, and development directors. This mix was both enlightening and challenging based on the different perspectives represented by each of these roles.  Because, let’s face it, board and staff are not always transparent with each other.  It worked because each participant had a commitment to sustain their own organization and a willingness to share valuable insights with the entire team.

So what are the 4 Keys?  They are --
  1. Partnerships
  2. Budgeting
  3. Mission
  4. Expectations

1. Partnerships

We’ve all heard the persistent whispers -- the negative things “business people” say about “nonprofit people” and the negative things “nonprofit people” say about “business people.”  It’s a self-gratifying downward spiral with no possible positive outcome.  This “mutual superiority complex” only solidifies the misunderstanding and distrust keeping nonprofits and businesses from partnering together to do great things. Breaking this cycle requires, first, the recognition that nonprofit success is dependent on these partnerships and, second, the leadership to change the pattern of negativity.

2. Budgeting

A budget is a powerful tool as a roadmap for organizational success. And the proper use of a budget requires these two important components.

  1. Nonprofits need to structure themselves to provide for a reasonable, supportive level of overhead.  So often, organizations find themselves in “starvation” mode, failing to invest in people, technology, compliance, and other necessary forms of infrastructure to support their missions.  Changing the world requires an investment in the tools to make it happen.
  2. Nonprofits need to build operating reserves that will carry them through the difficult times ahead (yes, they’re coming -- again).  “Saving for a rainy day” is sage wisdom, yet most nonprofits don’t even try.  A surplus is necessary to create a reserve, and that won’t happen without a plan for it.  That’s why failing to budget for a surplus is the number one thing holding back nonprofits.

3. Mission

Nonprofits have a propensity for mission and program “creep” -- a tendency to naturally expand in order to do more good.  It’s laudable, but it can stretch the funding model beyond capacity.  One of the surest warning signs of “creep” is when the board members find it difficult to understand and explain the full extent of the organization’s activities.

4. Expectations

Nonprofits are at the front-lines of the world’s most important issues, so they need high aspirations and high expectations.  Strained funding will make it harder to attract and retain the best staff, and management will rationalize reduced expectations because the staff is “underpaid.”  This vicious cycle leads to mediocre performance, which won’t go very far toward solving the world’s problems.


Even with these 4 Keys, you might be frustrated.  “Yes, but how do we make it happen?”

There is no magic bullet for financial sustainability.  It’s not about finding one more big donor.  Sustainability comes from a culture shift.  

A culture shift requires thinking differently about things that are deeply ingrained.  It requires all of the stakeholders to embrace it.  It requires education, reinforcement, thoughtful strategy, and commitment.  It’s difficult and it takes time.

Are you convinced of the value and importance of these 4 Keys?  Do you think there’s something missing?  Are you up to the challenge, and how will you proceed?  Please share your thoughts.

Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s serving nonprofits and for-profit businesses. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.

<![CDATA[W-9 and 1099-MISC Compliance Check-Up]]>Wed, 07 Sep 2016 17:58:30 GMThttp://counterpartcfo.com/blog/w-9-and-1099-misc-compliance-check-upPicture
If your organization doesn’t have a strict W-9 and 1099-MISC policy, it’s time to put one in place, and it’s simpler than you think.

Let’s start at the beginning. You are required to issue a Form 1099-MISC to any non-employee to whom you’ve paid $600 or more, annually, for goods or services. This requirement is generally thought to apply to “independent contractors,” but that’s an overly restrictive definition. Many of your vendors should be included, as well.

A W-9 is the form a vendor (or independent contractor) uses to provide you with its tax identification number, which is what you need to issue a 1099-MISC. In simple terms, these two IRS forms work hand in hand.

You are not required to issue a 1099-MISC to a corporation or an LLC taxed as a corporation. This complexity is often the trap that leads to non-compliance.

How do I know whether my vendor is taxed as a corporation?

Simply, you don’t. You could assume the vendor’s legal status based on its business name. This is tricky, because companies often operate with fictitious names. "Acme Anvils" could be a sole proprietorship owned by Wile E. Coyote.

You could check your state’s online business records, typically maintained by the Secretary of State. But while this may indicate corporate status, it won't tell you whether an LLC is taxed as a disregarded entity, a partnership, or a corporation.

Before you throw up your hands and decide W-9 compliance is completely unmanageable, remember, it’s simpler than you think.

What should the process look like?

  • Collect a Form W-9 anytime you prepare to pay a new vendor. Download the form here.
  • In your accounting software, record the vendor’s tax identification number and designate the vendor as one that should receive a 1099-MISC (note: for proper internal control, vendor setup should be done by someone other than the person who prepares checks).

Don’t make the mistake of issuing a payment to a vendor and then asking for a W-9. The incentive to provide you with a W-9 ends as soon as your check is cashed, and you’ll likely give up after a few attempts to chase it down.

Simple, right? Here are some follow-up thoughts --

If I ask for a W-9, will my vendor’s representative even know what I’m talking about?

Unless it’s someone who is just starting out in business, yes, they’ll know. Even though non-compliance is fairly common, it’s likely another customer has asked your vendor for a W-9 in the past. Since the W-9 is not individually tailored to each customer, your vendor probably has an already-completed form.

I pay utilities every month. Do I really need a W-9 from each utility company?

You may be assured that your local utility provider is taxed as a corporation; therefore, you don’t need a W-9. On the other hand, if you ask for one, you’ll get it.

What if I don’t pay a vendor more than $600 annually? Isn’t the W-9 a waste of time in that case?

Theoretically, yes. If you prefer, you may decide to only request a W-9 when you know a vendor will be paid more than $600 annually. That will require you to keep track of cumulative payments and request a W-9 at the right time. Arguably, it’s easier to request a W-9, in advance, from every vendor.

What if I don’t issue 1099-MISC’s? After all, I haven’t been, and the IRS hasn’t questioned it.

Through the power of technology, the IRS is getting better all the time at tracking unreported income. An IRS examination of any of your vendors can easily lead back to your organization. The fine of $100 for each unissued 1099-MISC will add up quickly.

What if we don’t have W-9’s for our current vendors?

Then you have some work to do. First, you will want to identify “dead” vendors -- ones in your accounting software that you are no longer using. Deactivate them, which has the added benefit of cleaning up your records.

Second, send a letter to each of your active vendors, requesting a W-9 by mail or fax within thirty days. If you don’t have a vendor’s W-9 by the deadline, withhold further payments to that vendor until you get one.

Are there security concerns?

Since a W-9 contains a vendor’s tax identification number, you have a legal responsibility to maintain the confidentiality of that information. Your accounting software and your digital records must be secure from intrusion by anyone without a need to access them, both inside and outside the organization. The same goes for your paper files.


Do you see the value of this simple and dependable W-9 and 1099-MISC process? Will you implement it as a new process? Will you modify it to meet the needs of your organization? Can you remedy what you may have overlooked in the past? Please share your thoughts.

Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s serving nonprofits and businesses. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.