Dollars and Dreams: A CPA’s Insight into Nonprofit Sustainability

Making sure you have the proper funding and support can help your mission. Letting go of some responsibilities can help the organization grow

LaMichelle Hecht, CPA, MBA is the owner and CEO of Overhead Solutions Group. She brings with her more than nine years of accounting experience, including accounting, audits, grant management cash flow issues, and consulting. She has helped nonprofits both large and small prepare for audits, better plan cash flow, and help with various accounting issues.

The Interview Transcript

Hugh Ballou:
Welcome to the Nonprofit Exchange. This is Hugh Ballou, founder and president of Center Vision Leadership Foundation, where we work with leaders creating synergy around their vision. I got a wonderful guest today, LaMichelle Hecht. She’s a CPA, She’s going to tell us some secrets that we need to know for sustainability and ultimate success. So before we get into the topic today, LaMichelle, tell us, people, a little bit about who you are, a little bit about your background, and your passion for this work.

LaMichelle Hecht:
Hi, yeah. So I am LaMichelle Hecht. I am a CPA. I have a master’s in finance. But what’s most important about me is that I have been practicing full-time as an accountant for about 10 years. And I would say nine out of those 10 years I’ve worked directly in nonprofits, whether I’m auditing the nonprofit, being a financial analyst, outsource CFO services, help applying for grants, etc. I’ve seen just about every part of a nonprofit when it comes to financing and money.

Hugh Ballou:
Financing and money. Money is kind of a, some psychologists call it a shadow, a money shadow. So money is kind of a, for some nonprofits, it’s a taboo topic. Now, let’s go back to the title of your interview today. You gave us a title. dollars and dreams, a CPA’s insight into nonprofit sustainability. So explain that and then let’s delve into what this money shadow people have funny opinions on money. So explain your topic today a little bit. So what are we going to cover?

LaMichelle Hecht:
Um, I think the big things we’re going to cover is financial health and transparency and growth within nonprofits. Being a nonprofit is just, you know, a legal setup, but you’re still a business and you still need money and dollars to be able to grow and really help the community in the way you want and really strengthen and promote your mission.

Hugh Ballou:
I like how you said that. Now, the word nonprofit is sort of a liability, though, isn’t it?

LaMichelle Hecht:
Depends on who you ask.

Hugh Ballou:
Well, if I ask you, what do you think?

LaMichelle Hecht:
I think a nonprofit is great. You just have to be very careful and make sure you keep good records and also be strategic. Just because you’re a nonprofit doesn’t mean you can’t make good moves and have great growth.

Hugh Ballou:
Well, we need to have some business acumen here. It is more of a purpose-driven business than a profit-driven business, but certainly, you’ve got to have some leftovers to do the work that you’re called to do, right? So why should a CPA be my friend? Tell me about that.

LaMichelle Hecht:
A few reasons. Lots of times CPAs, they know the laws and regulations and what you should do just so you can do the bare minimum to keep your nonprofit status. But lots of times as CPAs, especially ones who have been auditors, we’ve seen every grant contract, we’ve seen agreements, we’ve seen applications. So lots of times we know what the grantors are looking for and what they do or don’t like in a nonprofit. And we’ve seen success among other organizations. So we’re really able to share the wealth of information we know about not just compliance, but also for growth.

Hugh Ballou:
Yeah, we’re going to talk about compliance in a minute, but let’s talk about optimizing our financial health. Now, we’re doing good work, and sometimes we want to pile up the papers and work on all the numbers later. But describe what a financially healthy nonprofit is, and how can you help us optimize that.

LaMichelle Hecht:
First and foremost, I would say numbering your numbers is a big deal. And not just knowing your numbers like dollars and cents, but knowing your numbers of impact. Because most people have programs and things they do, and I think you should know, okay, we invested this much in this program, this is how many people would help, this is the impact, and this is how it either helps or hurts our bottom line. And I think as nonprofits, it is important to know your numbers. So, you know, okay, what’s doing impact? What are we putting a lot of energy in that’s not actually, you know, helping a lot of people in the community? And, you know, if we are helping a lot of people, what does our bottom line look like? Are we at a net loss or do we have a cushion, you know, in case of emergencies for the future? And if we don’t, what do we need to do to have that pot or that savings to the side? Because of stuff like COVID-19, anything can happen.

Hugh Ballou:
Anything could happen and we still need to do our work as people still need us. Um, so you mentioned transparency, um, describe what transparency is and why it’s important.

LaMichelle Hecht:
Um, I think transparency is a, when you get dollars saying what you spend the dollars on talking about salaries, talking about what your mission is and what you do. If people were to ask, have your financial statements available, because at the end of the day, as a nonprofit, you’re there to support the public. It’s not like your own personal business. So I think being transparent is very important for the community to believe in your mission and want to invest in your mission.

Hugh Ballou:
So the numbers, the role, one of the roles of the board of directors is to review your financials and make financial decisions, correct?

LaMichelle Hecht:
Yes, that is correct.

Hugh Ballou:
That’s the function of the treasurer to interpret those numbers to the board, provide the numbers, and interpret them. Now, every nonprofit should have a CPA, but that CPA should not be a board member. Is that correct?

LaMichelle Hecht:
That is correct, but there is nothing wrong with having more than one CPA sometimes because I’m a board member of some nonprofits, but I’m not also like the CPA who’s doing their books. So I say it’s nothing wrong with having more than one, party organization.

Hugh Ballou:
So is it better to have somebody that’s not part of the board making decisions, doing the books, and doing the reports, and then somebody that’s on the board interpreting them?

LaMichelle Hecht:
That is correct. I think the person, the board really shouldn’t be responsible for doing your bookkeeping, your accounting, your projections. Really, you should have an outsourced accounting CPA firm or an internal employee working on those things.

Hugh Ballou:
So we’re talking, let’s go back to this financial health. I’ve seen boards look at numbers and everybody gets glassy-eyed. So what are the important indicators that as a board member who does not have the expertise in reading statements, what do they need to see and how important, I mean, what is the importance of that?

LaMichelle Hecht:
One thing they need to see is year over year, right? Let’s say it’s our March board meeting. How do we do March of last year versus March of this year? Did we get better? Did we get worse? Are we bringing in more funding? Are we helping more people? Another thing they need to look at is the bottom line. Are they breaking even? Is it a gain? Is it a loss? And they should really be looking at KPIs compared to other people in their industry as well. You know, what they’re looking like and the cash balance. I believe a good nonprofit should have, you know, in the best situation, at least three months of savings for all expenses in case anything happens or a funder pulls out or anything of that nature. So I would say cash. month over month and year over year comparison, and their bottom line, you know, if they’re, you know, losing money, and will eventually run out of that cash because they’re running a net loss year over year.

Hugh Ballou:
So interpret the business lingo for those in nonprofits, KPI.

LaMichelle Hecht:
So let me break that down. KPI, that’s more just like how other people are doing. So a KPI can be like, you know, how much cash you have compared to how much revenue you have in the bank. And revenue is income, money that comes in. So that’s what I mean by KPIs, how other people in the industry are doing, what their percentages and numbers are in their books.

Hugh Ballou:
It’s your performance indicators. So, we’ve got this over your head and your business name is the word that people struggle with overhead. Funders want to know what’s your overhead. Now, there are a lot of ways to interpret overhead. Like the work that I do all goes directly, we don’t have salaries, all this goes directly to supporting other nonprofits. So, you know, that’s mission-related work. Is that overhead when we spend that money on helping people?

LaMichelle Hecht:
It depends, right? So it depends on what you’re doing. So if you’re doing something specific in a, let’s say you have a program for violence prevention. If what you’re doing is specifically talking about violence prevention, helping in violence prevention, that’s a program. But your stuff generally for the whole nonprofit, that’s overhead. So, if I’m doing grant management and submitting forms and helping you manage a specific grant, then that money is for that program. But if I’m just doing general things like general financial statements for the whole organization, that’s really more general and overhead kind of cost. But they are still needed. So it just depends on what you’re doing, what the time is being spent on.

Hugh Ballou:
Yeah, we, um, and when people ask the question, sometimes they don’t really know what they want, what the answer ought to be. You know, what’s the percentage, you know, that’s just not just a random percentage body complies to. And if you’re actually putting your money back to work, like putting money into marketing, you know, that might be considered overhead, but that’s part of how you get known and what’s going to generate your revenue.

LaMichelle Hecht:
Yes, that is very correct.

Hugh Ballou:
So how can the CPA help the treasurer interpret those finances so the board knows what’s going on?

LaMichelle Hecht:
A good thing you brought up is marketing. I know this is a nonprofit, but another good KPI performance indicator is, you know, your return, you know, your return on marketing, like how much you’re spending in different marketing venues and how that’s bringing, you know, money back to you and back to your organization. And I think that’s another way that we can work with treasurers. One thing I do with treasurers is I just go over the financial statements, go over what we have. I go over what’s in the pipeline. what the expenses look like in the future in the pipeline. And if we have enough, you know, to make it forward and I work on clear goals, like should we focus on having $10,000 a month from individual donations? How much, how much grant funds we should bring in, in a year? I think we should have goals and not just, I want to grow. Like I want to grow by this many dollars. I want to grow by this much percentage. You know, I, you know, I want my net profit to be this much percentage of my total income. you know, things like that. I think if you get tangible numbers, you can actually work towards something and know what you want to do. I think that’s the biggest thing I do with treasurers.

Hugh Ballou:
Oh, pay attention, y’all. She just gave you a summary. Now, by the way, if you go to The Nonprofit Exchange, T-H-E, Nonprofit Exchange, you’ll find not only this interview, but you’ll find the full transcript. So if you couldn’t write all that down, don’t worry. You can go to our website, you can see this interview again, you can see the transcript, and you can take those important sound bullets. She’s given you some critical information. Let’s go back to the CPA’s relationship to the treasurer. Assuming there’s an external CPA you pay to do your taxes, and then there’s a volunteer board member who may or may not be a CPA. A treasurer doesn’t have to be a CPA, correct?

LaMichelle Hecht:
That is correct, no. But they should at least have some baseline knowledge on how to read financial statements.

Hugh Ballou:
Yes, because they’re the ones who are supposed to report to the board and interpret it. So talk about the relationship of the treasurer and the CPA.

LaMichelle Hecht:
Well, I think lots of times in my situation, usually the executive director, lots of times is a part of that conversation as well. So lots of times I interpret the information and explain it to the executive director. And lots of times the executive director is taking it to the treasurer directly. And then we all get together to talk about it. So really my relationship with them is just helping them understand what’s going on in the organization and then helping them to break it down in a way that other board members and other team members like the executive director can understand.

Hugh Ballou:
Love it. Breaking it down. So people understand it because most of the people around there, probably won’t tell you, but they don’t know what they’re looking at. They see the numbers and they might be interpreting it in a different way than intended. Now you said something a minute ago, um, about having enough money in the bank for the future. That would be like a cash flow projection, correct? You look into the windshield. Now, sometimes CPAs provide a cash flow analysis. That’s the rearview mirror. Where did the money go? But we need to look at, okay, suppose you get a big donation. You need to look at, and talk about how we’re prudent with managing that and measuring how long it’s going to last before it runs out. That would be your cash flow projection, right?

LaMichelle Hecht:
Yeah, and one thing I want to say is sometimes organizations get a big grant and sometimes they want to pause everything else because they really want to focus on the money they receive. But I believe you should always stay marketing and knowing your organization. But what’s most important is, OK, these are the funding. You need to know exactly what you expect to spend that on and not just buy things just because you believe it’s going to be a good part of the program. I believe you should make a budget and a plan and make sure you’re staying within that budget. and compare it to make sure you’re on track. Because as you know, some grants, if you don’t spend it, you lose it, and you may have to give it back. So you really need to look at the rules of the grant as well. Make sure you’re not spending too fast, but also a problem I’ve seen is people spending too slow, and then you have to give the money back. So you have to make sure you’re ready to take on the responsibility that the money comes with.

Hugh Ballou:
Yeah, there’s a timeline. You get it here, and you have to spend it by here, and then you have to report by here.

LaMichelle Hecht:
Yeah.

Hugh Ballou:
So keeping good records is critical. We were talking before we came on and some of the tips that you want people to know are like, keep your records, keep everything. Tell me, let’s go over that a little bit. What should we hang on to?

LaMichelle Hecht:
In my opinion, we should hang on to everything. By everything, I mean every receipt, every invoice, every bank statement, everything. And one good tip that I tell my staff is sometimes nonprofits can be huge. Sometimes they have hundreds of employees and volunteers, and a lot of people have access to get things and have receipts. So one thing I suggest is whether you use Google Drive or OneDrive or whatever, make sure that every volunteer, whoever deals with receipts, has it on their phone. So when they do spending or anything, they can immediately take a picture and upload it there. So then when the time comes later and you may need that information, you’ll know where to find it. And you don’t have to potentially hunt down people who maybe aren’t around anymore.

Hugh Ballou:
Let me check for understanding. A digital copy is just as good as the original paper.

LaMichelle Hecht:
Actually, yes. In the past three years, I have not done one audit where I did not provide everything digitally, not one. Whether it’s the IRS or a funder or an external CPA firm doing the audit. So I think digital maybe even more important because then you may have to sit around and scan all this stuff in to provide it to them.

Hugh Ballou:
Wow. That’s handy. So let’s talk about putting your reports into your corporate record book. So your binder that you keep your record. So you make a report to the board as treasurer. And then you sign that and you put it in, put it in your notebook, talk about that and how important that is.

LaMichelle Hecht:
Are you talking about the report, like a CPA would give to the treasurer to report the treasurer?

Hugh Ballou:
The treasurer in the board meeting is going to make an official financial report. So we may want to write the minutes of the meeting while the treasurer gave the report, but we also want to include that report in the minutes. And we put it in our corporate record book. Correct.

LaMichelle Hecht:
Correct. Correct. And in that report, I think we should have some key things like what’s the bank balance. what income we have coming in. And another thing is, what have we applied for? So what are we, you know, working towards for the future? So I think those are some really important things to put in there, just so the board knows what’s going on in an organization and its financial health. Or if we have a big expense we plan to spend on, I feel like that should be in there as well, especially if it’s significant, just so people know what’s coming down the pipeline.

Hugh Ballou:
Yeah. And building a budget. We’re looking at what’s coming. So building a budget and forecasting our cash flow. Because most of the time, you’re not spending the same amount of money every month because there are ups and downs in expenses like there are ups and downs in income. So talk about budgeting and forecasting and how important that is for the board to look at.

LaMichelle Hecht:
Oh my gosh. Budgeting and forecasting is almost the most important. I think the first thing people should do before they spend any money is put a budget together and make sure what they’re doing is in line with the budget. As we all know, money is very easy to spend and it can go very fast. especially if you’re not intentional with how you spend it and how you set it up. And you need to be realistic, right? So even if you’re looking at the future, you still need to look at the past and say, okay, in the past, if I served this many people, or if I’ve done this activity, this is how much it usually costs me. So what happened in the past can be a great indicator of what you can do and how you can grow and help the public in the future.

Hugh Ballou:
Love it, love it, love it. So we’ve hit on a few areas of how a CPA brings value to nonprofits. Just kind of run-down, just give us a summary, of the ways that we would expect value from a… So we want to say, oh, it’s tax filing time, let’s call the CPA, and that’s the only time we think of it. Well, there’s more to it than that, right?

LaMichelle Hecht:
Yes. One thing I help my clients with is, A, they want to, they’re applying for a grant and they want to put the budget together. You can use the CPA to look at that budget and make sure it’s in line with the words and things you put in the grant application so you’re more likely to get awarded that. If you have complex transactions and you don’t know how to record them, you’re getting a lot of money and you want to figure out how to budget and what’s the best way to use those funds. Those are some great ways to incorporate a CPA And, you know, as you know, you know, a lot of nonprofits, once they get over the threshold, they have to hire a CPA to do an audit. So another way is, you know, don’t just wait to talk to a CPA during your audit, maybe have a CPA throughout the year to help you get ready so you can have a nice, clean audit and transparent books. So that could be an easier process for you.

Hugh Ballou:
Love it. Love it. Love it. This is all so practical. You know, we want to skip to the ethereal stuff instead of you giving us day-to-day practical tips. Now, let’s talk about compliance. We talked about this before we went live. There are various aspects of compliance. So talk about federal, state, and then grant compliance. There’s different, and maybe there’s more.

LaMichelle Hecht:
Yes, um, yeah, there’s, there’s a lot of compliance when it comes to nonprofits one, you have to have to have to file your 990 now some people potentially don’t have to do it like religious organizations, but I would say the majority if you aren’t, you know, like a church or something that nature. You need to fire 990 even if you have $0 in income and expenses, or you will be you will be on a revocation list. And it’s pretty easy to file one if you have nothing so that’s big compliance for you know with the federal government and with the state government usually you have to file your annual reports. Depending on the state usually have to file your 990. tax return with the state as well. And then there’s another compliance aspect, which usually comes from funders, especially if you’re getting grants from the local, federal, or state government. They usually require you to keep your receipts, and they could potentially do an audit, and by audit where they say, okay, for April 2024, give me every single receipt and transaction your organization has. So that’s another way because lots of times if you’re not able to provide them with all of that, A, they can ask for their money back for those expenses, and then B, they can potentially open up your books and want to see every single expense and receipt from the whole period of that grant, which even if you have everything, it is a headache to provide thousands of documents to a grantor. So I think, you know, compliance, I think all the compliance is very important, but especially the one with the IRS. Make sure you’re filing that 990 every single year. Because the revocation list can be easy to be added to. If you don’t do that, top step.

Hugh Ballou:
Top step. So talk about the state compliance. You have to register for the state to be able to raise money. And there’s 41 that require it. I’d have a fee and require it, and there’s some that don’t. So is that a function the CPA helps with?

LaMichelle Hecht:
It depends. It could be the CPA or an attorney. if you need to do your article, because usually with the state, you have to do your articles of organization. Usually, you have to apply to get your sales tax exemption and things of that nature. So it depends on what you do, whether your CPA is helping you with it, or if it’s like articles of organization, bylaws, things. Some states require you to file those things. Some of those things should go directly through an attorney.

Hugh Ballou:
Great. Somebody knows how to do it and how to stay off the bad list.

LaMichelle Hecht:
Correct.

Hugh Ballou:
The way we interpret numbers helps us to find our impact. Talk about that a little bit. You talked about it earlier, but specifically, money listens for impact. And if people want to donate, how do the numbers help them understand how their dollars are going to be used wisely?

LaMichelle Hecht:
So for example, if you run a food pantry and you say, you know, we help 100,000 families a year or 20,000 people, that’s the way to show where their dollar’s going. Or, you know, for every dollar spent, you can buy, you know, 20% of a meal for a family or whatever your numbers are. I say just explaining to people what that money would be spent on and not just dollar size, like the impact of the people, how many people you serve how many books you buy for a school or just depending on the mission of your nonprofit.

Hugh Ballou:
Love it, love it. Well, you know, LaMichelle, this is very helpful stuff and you’ve got it in a very concise, understandable form. So, I’m going to share your website with people who are listening and don’t see it. It’s called overheadsolutionsgroup.com. There are no breaks or dashes. And so we’re going to go there, and the people that are watching the video will get to see this. So when they go to your website, what will people find?

LaMichelle Hecht:
What will people find? Well, they’ll find that I am an expert when it comes to nonprofit organizations and that I have a lot of blogs and information to help them. And they can also reach out to me directly through my website. So if you go to services, you can see exactly what I do for nonprofits. You click on nonprofit, which is my top service because my main niche is working with nonprofits. Then I talk about what I do. And I also have a free e-book. All you have to do is click the link, and they will give you a free e-book. And then they’ll list out the services and what I can help you with.

Hugh Ballou:
The free ebook is called seven financial mistakes. Nonprofits make that jeopardize their tax exempt status and funding. I think people ought to get that right now. So right here, it’s free, right?

LaMichelle Hecht:
Yes. It’s completely free. You just press the link, putting your info and then they email you the book.

Hugh Ballou:
Nice, clean website. It’s got a lot of useful information in there. So, LaMichelle Hecht has been our guest today. So, before we end this wonderful, helpful, informative interview, Michelle, what do you want to leave people with? A thought or a challenge or a tip?

LaMichelle Hecht:
Yes. One thing I want to leave you with is knowing what’s coming in and out of your organization. So if someone approached you tomorrow with an opportunity, but you had to know your numbers, you should have confidence that you can pull that information and get it to them so you can get that opportunity.

Hugh Ballou:
That’s great. So you heard it right here on the Nonprofit Exchange. LaMichelle Hecht, thank you so much for being our guest today on the Nonprofit Exchange.

LaMichelle Hecht:
Thanks for having me.