Miniseries – Best Practices for the Month-End Close – Closing Revenue
Recently, I was in a meeting with a large nonprofit reviewing the monthly financial statements when the director of development spoke up and said, “That’s not what we have as total contributions for the month!” After an awkward pause, there was an intense discussion about what happened.
Has something like this ever happened to you? We frequently find that closing revenue for the month can be particularly challenging for nonprofits and issues often arise between the development and finance teams.
In our auditing and consulting work, we see several common challenges when it comes to closing revenue:
- Multiple versions of the truth – if development and finance are not in sync, whose version is the right one?
- Double entry to both accounting system and the CRM is both common and inefficient.
- Changes to the CRM after month-end that do not get properly reported to the Finance department.
- Delays in closing revenue caused by poor processes in both development and finance.
- Issues with reconciling electronic contributions to the donor system and the general ledger.
My goal is to provide you with several strategies to meet these challenges. Keep in mind, however, that achieving maximum efficiency and collaboration is a project that will take some time. But it’s absolutely worth the investment.
Planning
Before jumping into a project, it’s always a good idea to have a plan. In this case, I recommend spending some time reviewing how your CRM and general ledger currently are mapped (whether integrated or not). We find that most CRMs still aren’t integrated, and it may have been awhile since you reviewed how these two systems align. Start by laying out all the CRM codes and corresponding GL codes. This is a great exercise that will help you spot inconsistencies. This is also a great time to call a meeting with the development team to share your vision for improved collaboration and streamlining.
Collaboration with development
We often see frustration between finance and development, so making a commitment to collaboration is critical. After your initial conversation, begin to develop plans to coordinate the closing process. Start by developing a closing calendar that both departments can agree on. Ideally, I like to see the CRM closed the first or second business day after month-end. If you get pushback, find a mutually agreeable time and commit to making improvements. Spend time listening to their issues and concerns. Helping development improve their processes over time will support a quicker month-end, expedited delivery of financial information, and “a single version of the truth”.
Methods of posting
Another early decision to make is to determine what is the best posting cycle for your organization – is it daily, weekly, or monthly? Most organizations that we work with have either a weekly or monthly posting process. Recently, I consulted with a nonprofit that preferred a daily but cumulative entry that reversed each day. At the end of the month, a final monthly batch was posted and used for reconciliation purposes. They wanted this daily posting primarily for dashboard analysis by managers to evaluate how revenue was coming in each month. I can’t say I’d recommend this approach for most nonprofits, but it was a clever approach that worked for them.
I also generally recommend the use of two clearing accounts – one for cash and check and the other for credit card/ach donations. When you import from the CRM, the offset to your credits to revenue will debit one of these two clearing accounts. This method facilitates easier bank reconciliation because the accounting team can immediately make debits to cash and credits to clearing (either through CSV import or your accounting software’s bank feed). This also facilitates month-end reconciliation by isolating the different types of transactions. At the end of the month, the balance in your clearing accounts is your in-transit deposits.
Reconciling credit card transactions
Unfortunately, I have no silver bullet suggestion to make this cumbersome process easier. We generally recommend that you look for a unique identifier between the merchant processing system and the CRM and build output files that can be quickly sorted and grouped by deposit using a lookup formula in Microsoft Excel. Additionally, limiting the number of card processing vendors your nonprofit uses is helpful. As more CRMs continue to integrate card processing this reconciling process should become easier over time. If you are struggling, I suggest starting by reaching out to your CRM’s help desk to see if they have any recommendations or user groups that may have information on best practices.
The future – a fast close and better integration
Committing to improving collaboration with development and working together on month-end processes will help you achieve an overall faster close. Additionally, the future will bring even tighter integrations between development and finance. Integrated dashboards that pull data in real time from both the accounting software and the CRM are now readily available. CLA’s Digital team is an excellent resource that can help you harness the power of both systems. We can also assist in helping you design a fast close or assessing your nonprofit’s processes.
I’ll end with a question: What can you commit to in the next two weeks to help your organization achieve a faster close of your revenue cycle?
Previous Posts in this Series:
Series Intro and Closing Checklist: Intro and Closing Checklist
Closing AP, Accruals and Credit Cards: AP, Accruals, and Credit Cards
Jeff loves helping nonprofits achieve financial excellence through improved monthly reporting, cashflow management, strategic planning, and systems design.
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