Equity Built on Solid Accounting – Evolving Lessons in Nonprofit Finance
Diverge Finance Cooperative formed three years ago with the goal of developing and advancing emerging Black, Indigenous, and Persons of Color and LGBTQIA-identifying financial leaders, while building equity into nonprofit accounting and finance systems. We began with the idea that we would collectively offer strategy level financial leadership to nonprofits while coaching and mentoring their emerging financial leaders. Our highest ideals were tested immediately by discovering the lack of consistent accounting and financial systems present in many of the nonprofits we served.
Our formative years as a cooperative have been shaped by the reality that good, basic accounting is required to support strategic, value-based decision-making in nonprofit finance. We have come to realize that one of our greatest contributions to the organizations we work alongside is to assess, align, and transform their accounting and financial infrastructure to match their missions. We do that by identifying the right accounting system, efficient processes or effective automation, and useful integrated applications. We design and implement a chart of accounts and set of dimensions (cost centers, classes, fund groups, etc.) that reflect the way a nonprofit most naturally organizes its work. Our accounting teams put these refinements to work amplifying nonprofit mission through strong financial processes and management. The result is each organization gaining a more grounded understanding of their financial picture and ways to share the story of their mission with greater clarity.
Once solid systems are in place, we can then help organizations address deeper equity concerns in their organizations:
· Questions about equity in their compensation practices,
· Attempts to align their investments and endowments with their missions,
· Creating vendor selection policies that target wealth generation in communities of color,
· Collaborative budgeting processes that are inclusive of staff across the organization.
Based on what we have learned from working with a wide range of nonprofit clients, we have purposefully begun to offboard our largest client organizations. During our first three years, we have predominantly been helping organizations with annual budgets between $5 million and $15 million, staff sizes from eight to 80, and balance sheets up to $80 million. While our work redesigning and restructuring the accounting systems for these organizations has been quite successful, in each case we have advised the organization that at their size and level of complexity, they are ready for and need a full-time CFO and accounting team in-house. We are currently in the process of thoughtful, several-month-long journeys with a few of them, transitioning through the hire of a full-time CFO, and then supporting their accounting functions as the new CFO begins to hire their own internal team. It has been powerful to not only help organizations better see what they need to thrive (a dedicated in-house team) but also to acknowledge our truest strengths as a collective and to move towards work that better aligns with those strengths.
In that vein, we are now interviewing, being considered by, and onboarding a wonderful breadth of smaller nonprofits, mostly in the $500,000 to $4 million budget size, with generally three to 20 staff. As with our larger client organizations, these groups share our equity-centered values and embrace the collective way Diverge delivers accounting and finance services.
With each new client, we spend time during the on-boarding process assessing their business model, designing a chart of accounts and accounting system setup that matches the work they do, and configuring the system to produce reports that communicate their work effectively to their diverse audiences. We are artful in how we transform the rows and columns of accounting into a framework that holds and expresses the values each nonprofit is trying to realize in the world.
In the coming weeks and months, we will be sharing a series of blogs, articles, and webinars outlining our approach and the process we use to address these basic elements of nonprofit accounting infrastructure. We will also share examples of how a solid accounting foundation allows organizations to align their values with thoughtful financial strategy. Getting the basics right – a blend of simplicity and sophistication – goes a long way towards placing finance in service of mission. From our beginning, we have aimed to create accounting and finance systems that amplify nonprofit programs, while supporting the development of emerging BIPOC and LGBTQIA-identifying financial leaders across the nonprofit sector.
Curtis Klotz, CPA, co-founder and Chief Learning Officer, Diverge Finance Cooperative
Link to Diverge Team