Outsourced accounting: A complete guide for businesses
For businesses of all types, sizes, and scales, accounting and financial excellence is paramount to success. But as you’re in …
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INSIGHT
March 20, 2025
Services: Outsourced Accounting
Nonprofits play a vital role in our communities. They address critical social issues and provide essential services to people in need. But managing a nonprofit’s financials can be challenging, especially considering that many organizations have limited resources.
This is where outsourced accounting for nonprofits comes into play. The right partnership can transform how mission-driven organizations manage their finances and focus on their core objectives.
Partnering with an outsourced accounting team like BPM gives nonprofits access to expert knowledge and advanced tools without the overhead of maintaining a full-time, in-house accounting department. This allows them to ensure financial accuracy, compliance, and strategic financial management, so they can allocate more resources toward their mission-critical activities.
Learn to make financial management a breeze in our outsourcing your accounting free guide.
Before getting into the specifics of outsourced accounting, we need to understand the distinct financial challenges that nonprofits face. Unlike for-profit businesses that focus on maximizing shareholder value, nonprofits must carefully manage their resources to further their mission while maintaining transparency and accountability to donors, grantors, and regulatory bodies if they want to stay tax-exempt and publicly supported through grants, contributions and other funding sources.
Fund accounting is central to nonprofit financial management. In fund accounting, organizations track resources based on restrictions placed by donors or grantors, ensuring that funds are used as intended and reported accurately.
Fund accounting involves:
For example, a nonprofit might have a general operating fund for day-to-day expenses, a restricted fund for a specific program funded by a grant, and an endowment fund for long-term sustainability. Each of these funds must be managed and reported on separately, adding complexity to the organization’s financial management, and fund accounting allows them to keep all those funds aligned with their purposes.
Nonprofits must track expenses in multiple ways and for different reasons, such as:
The need for nonprofits to track the same dollar of expense six or more ways for different users and stakeholders requires thoughtful planning ahead when designing the structure of the accounting system.
Nonprofits face stringent reporting requirements from various stakeholders. Key stakeholders include:
Each stakeholder imposes different requirements on a nonprofit organization, complicating the financial reporting process. To succeed, the team needs a deep understanding of nonprofit accounting principles, tax regulations, and industry-specific reporting standards.
For many nonprofits, especially smaller organizations, maintaining this level of expertise in-house can be challenging and resource-intensive, making outsourcing an attractive alternative.
Given the unique financial landscape of nonprofits, outsourced accounting offers several compelling benefits that can significantly enhance their financial management. This can result in a clearer view of available resources, and a more secure financial foundation from which to pursue the organization’s mission.
Outsourced accounting firms that focus on nonprofits—like BPM’s own nonprofit accounting team—bring a wealth of sector-specific knowledge and experience. This expertise is crucial for navigating the complexities of fund accounting, compliance, and strategic financial management.
Benefits of specialized expertise include:
For example, an experienced outsourced accounting team might help a nonprofit properly allocate indirect overhead costs across programs, ensuring accurate reporting of program expenses. This can make an enormous difference when it comes to maintaining donor trust and meeting grant requirements.
For many nonprofits, particularly small to medium-sized organizations, hiring a full-time, in-house accounting team with comprehensive nonprofit expertise can be prohibitively expensive. Outsourced accounting can provide nonprofits with access to a team of experts at a fraction of the cost of maintaining an in-house department.
Potential cost benefits of outsourcing include:
By outsourcing accounting functions, a nonprofit can redirect financial resources towards program delivery and mission fulfillment, potentially increasing its impact and effectiveness.
Donors and grantors increasingly demand transparency and accountability in how their contributions are used. Outsourced accounting can significantly enhance a nonprofit’s ability to provide clear, accurate, and timely financial reports, building trust with stakeholders.
Transparency benefits include:
For example, BPM’s outsourced accounting team might help your nonprofit create detailed reports showing how specific donations were used to further the organization’s mission, providing donors with concrete evidence of their impact.
Outsourced accounting firms typically offer a comprehensive suite of services. These can generally be tailored to the unique needs of the nonprofit in question. For example, one organization might need fractional leadership in addition to day-to-day bookkeeping, while another might need audit support and additional hands to help with reporting.
Understanding which services are potentially available can help organizations determine which aspects of their financial management could benefit from external expertise.
Outsourced accounting firms can manage day-to-day financial transactions, ensuring that all income and expenses are properly recorded and categorized. This could include:
For instance, an outsourced bookkeeping team can ensure that all grant expenditures are properly coded to the correct restricted fund, facilitating accurate reporting to grantors and simplifying the audit process. This can help the nonprofit remain grant-eligible, ensuring that future projects can be funded.
Regular financial reporting is crucial for informed decision-making and stakeholder communication. Outsourced accounting firms can prepare a variety of financial reports tailored to the needs of different audiences within the nonprofit.
Common financial reports include:
Beyond just preparing these reports, outsourced accountants can provide valuable analysis and insights. For example, they might identify trends in donor giving patterns or highlight areas where expenses are outpacing budget projections, allowing the nonprofit to make timely adjustments to its financial strategies.
Many nonprofits are required to undergo annual financial audits, either due to regulatory requirements or as a condition of grant funding. Preparing for these audits can be time-consuming and stressful, especially for organizations with limited internal resources.
For nonprofits, outsourced accounting teams can provide crucial support in audit preparation, including:
By leaning on the expertise of outsourced accountants, nonprofits can streamline the audit process, potentially reducing audit costs and minimizing disruptions to regular operations.
Maintaining tax-exempt status requires careful adherence to IRS regulations and timely filing of Form 990. Outsourced accounting firms with nonprofit expertise can ensure that these critical compliance tasks are handled accurately and efficiently.
Tax-related services often include:
For example, an outsourced accounting team can help a nonprofit properly allocate expenses between program services and management/general categories on Form 990, ensuring accurate representation of the organization’s efficiency to potential donors and regulators.
When selecting an outsourced accounting provider for your nonprofit, consider the following:
With careful consideration, nonprofits can partner with an external accounting team that not only manages their finances effectively but also supports their mission and growth.
Outsourced accounting for nonprofits offers a powerful solution to the unique financial challenges faced by charitable organizations. By leveraging external expertise, nonprofits can enhance their financial management, improve compliance, and ultimately focus more on their core mission.
As you consider this strategic move, remember that the right outsourced accounting partner can be a game-changer for your nonprofit’s financial health and long-term success. And BPM can help. With a wealth of experience helping mission-driven organizations thrive—not to mention being a Certified B-Corp ourselves—the BPM team is well-positioned to help you navigate the complex nonprofit landscape.
Contact BPM today to transform your nonprofit’s accounting and financial management.
Looking for a team who understands where you’re headed and how to help you get there? Whether you’re building something new, managing growth or preserving success, let’s talk.