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ASU Lodestar Center Blog

Why should I learn about nonprofit accounting?

Good question. As a nonprofit accountant, I hear this question asked often. Some of the objections to learning about accounting sound very reasonable at first, especially when there's no one around to express a contrary view. So, I'll step up to the challenge and face those objections head on.

“I don’t need to learn that stuff. We have an accountant in our organization who deals with it.”

It's a good thing if you have a knowledgeable accountant on the payroll who knows the ins and outs of nonprofit financial tracking. After all, not every organization has the luxury. If you're one of the lucky ones that does, be kind to that person and tell them that you really appreciate all that they do.

Why? Many organizations need and want an accountant on their payroll. If your accountant feels under-appreciated or undervalued, he or she may head for greener pastures, leaving you without a thorough understanding of the basics of your organization’s financial results. Your remaining staff members may need at least a small knowledge of the basics to link to the new person you hire. So, don’t rely too heavily on your accountant. Attaining good financial management skills will help ensure that your organization moves forward, even without him or her.

“My brain is not designed for numbers. I supervise people that do that.”

Some people have a better understanding of numbers, accounting principles, and so on. Were they born that way? We can’t say with certainty that there is or isn’t a gene for accounting. But most of the math work of accountants is elementary school math: addition, subtraction, etc.

Accounting may include a sprinkling of high school algebra now and then, but the biggest part of successful accounting is looking at relationships between numbers and paying attention to the big picture. Nonprofit management is about thinking and communicating that big picture to make our organizations successful. So, a little knowledge about what the financial statements and projections are telling a nonprofit manager is a great thing. If a manager supervises the finance department personnel, it would be helpful if there were some understanding of what should be expected from that department.

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“We have people on our Board who understand financials, and I rely on them to keep us informed.”

Boards should have members that understand financial statements and the questions that should be asked of the financial report presenters at the Board or committee meetings. After all, the Board has a duty to protect assets and provide financial oversight.

The Board can perform this duty by having knowledgeable Board members who know good financial reporting, but the staff's reliance on the Board to catch errors and trends rather than have a staff member perform the monitoring and reporting would be naïve. The Board usually expects that there are staff members who look to prevent problems in financial matters. Remember, the Board has many duties and included in those duties is paying attention to stewardship. But the Board should never be the first line of defense for financial problems.

“I worry about fulfilling our mission and raising the funds to do so. The process of totaling the numbers is assigned to people who aren't able to relate to the important mission of my organization.”

I recognize that there is some element of truth to this. Some accounting types are not extroverts. Some accountants like to be the naysayer: “The answer to your proposal is 'no,' and I will find a reason later why.” And some financial people aren't as passionate about your mission.

But don’t underestimate the strength of the financial perspective. A good fundraising person should be able to convince a potential donor or grantor that the organization has a plan to use the gifts received in a prudent and efficient manner. Part of that convincing should include a crisp and concise presentation of the stewardship of the managers of the organization — in other words, an expression of the financial position and history of the entity.

If you provide them with this, your accountants may believe in the mission of your organization more than they ever realized. In the end, their contribution to the mission is doing the best they can to provide the rest of the organization with a reliable view of the current and future financial direction of the agency.

Whatever your initial view is about nonprofit accounting — a desire to learn about it or a desire to stay far away from it — I hope this convinces you that knowledge is power. The more you learn about the financial nature of your organization, the more power you have in shaping or influencing the direction of your agency.

If you'd like to learn more, the ASU Lodestar Center is presenting a course on Friday, September 16 and Saturday, September 17 called "NMI 103 - Financial Management Principles for Nonprofit Organizations." I hope to see you there. (Click here for more information.)


ASU Lodestar Center Blog