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Outsourcing financial tasks has become a popular trend in the nonprofit sector. Common reasons nonprofit leaders outsource some or all of their financial management responsibilities include:
In addition to the benefits listed above, retaining an independent, qualified finance or accounting firm may enable a nonprofit to mitigate certain downside risks that arise in financial management, such as:
Fiscal outsourcing can be helpful to a nonprofit that finds itself ill-equipped to manage these and other financial risks alone. But before outsourcing, nonprofit leaders must first prepare to mitigate risks that may arise from outsourcing.
Before turning over access to any aspect of the financial management function to a third-party, it’s important to take the time to choose a vendor whose expertise, business model and pricing suit your needs.
According to Ed Mulherin, CEO and Founder of eCratchit, a Boston-based accounting firm that offers “virtual” financial services, the key to successful fiscal outsourcing is finding the right match. “Collaborating with the right firm is essential for a healthy partnership,” Mulherin said. “Partnering with an inexperienced firm or one that is unfamiliar with your organization is the greatest potential downside risk.”
Planning for a successful partnership begins by understanding your needs. Ask: What specific fiscal tasks should we outsource? What are the pros and cons of outsourcing a few specific financial tasks or activities, versus the entire finance function? Knowing the answers to these questions will help guide you in the search for a firm and enable you to reduce the risk of a costly match. Mulherin also urges nonprofits to seek out firms that carry professional liability insurance.
Once you identify potential partners, interview them as if you were hiring an employee. Some of the questions you might ask include:
The answers to these questions will be invaluable as you narrow down your options. You may discover, for example, that a well-respected firm isn’t in position to assign a go-to account manager; instead, you’ll be working with a different representative every time you call. Or you may learn that the affordable flat fee for services is a baseline only, and weekly or monthly bills are likely to include unpredictable costs, such as fees for work by senior accountants, or fees for custom reports.
As fiscal outsourcing becomes more common in the nonprofit sector, it may be tempting to jump on the bandwagon. Like any other trend, however, it is important to first identify, understand and manage the downside risks associated with any new approach before you can reap all of the benefits.
For information about the Nonprofit Risk Management Center, visit www.https://nonprofitrisk.org/ or call (703) 777-3504.
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