We had the opportunity to talk with Stephen King, CEO of Growthforce, about the unique challenges non-profits have in their accounting systems.
Please excuse any typos in this hasty transcript.
Matt Register: Hey guys, welcome back to Texas Business Radio. Texas Business Radio. Get your calls in 844-814-8144. Is our 24 hour call on line, get questions in and we’re going to get the folks, the experts on here to get them answered. I’m your host Matt Register. Jay Curry was here. He’s go to step out for a second. He’ll be back and join us in just a minute. Now, friend of the show, longtime friend of the show, Stephen King, CEO of Growthforce. There at growthforce.com. Stephen welcome to the show.
Stephen King: Thanks Matt.
Matt Register: So you want to talk about nonprofits. We love nonprofits.
Stephen King: Yes, so do we.
Matt Register: We love nonprofits. And if you listen to the show for any length time you know that nonprofits and charities specifically better be a significant part of your company. To whom much is given much is expected. And we have nonprofits on here all the time. Now you guys being the numbers guys that you are, the book keepers extraordinaire that you are, you guys work with a lot of nonprofits.
Stephen King: Yeah. About a third of our clients are nonprofits.
Matt Register: Tell me a little bit about that because it’s different, right. It’s a it’s a different animal than a for profit in some respects, in some respects it’s identical.
Stephen King: Yeah, I was… at age 29 I got to be the chief financial officer of $20,000,000 a nonprofit called Amnesty International. And I did it right after Bruce Springsteen and Peter Gabriel and U2 did their human rights now tour. Amnesty went from 6 million to $18 million in a year and a half.
Matt Register: Oh, wow!
Stephen King: They’re an Ernst Young client. They needed a whole set up. I was at Ernst and Young. I ended up taking the greatest job of my life and I realized that a nonprofit needs to run the same as a for profit. Except you’ve got to put the money back into the program and it’s harder to run a nonprofit because there’s no room for error. There’s no extra cash, there’s no one investor you can throw in some extra money. And when you really run it with management accounting and get your fingers on financial intelligence. What you can do is use that to make sure you stretch the dollars as far as you can. Your budget manager, your program managers, know exactly how much they need. They have available. But you really are able to raise more money because you can tell the donors what you did with the cash you gave them.
Matt Register: Exactly, you have some now some ammunition with which to go hit those donors. And give them enough data to know that one their money was spent wisely, and two with that what their donated dollar is going to buy. Because at the end of the day your competition is every other opportunity to spin that donated dollar, correct?
Stephen King: That’s right. And the more that you can connect that emotional heartfelt feeling with a number. If you can go in there and say it costs us $17 a day to do for transportation services and we, your are villagers, are our clients only pay us $12. If you can give us $100, you can cover 20 days of transportation. That’s what people want to see. An ROI from my charitable contribution.
Matt Register: So, Growthforce being the Quick Books experts and the guys, know a lot of these nonprofits run off Quick Books and should run off quick books. Now that is a very viable and a big part of y’alls businesses the nonprofit sector, correct?
Stephen King: Yeah, we’re one of the biggest experts in the country on how to unleash the power of Quick Books. And Quick Books is really good for nonprofits because most nonprofits are service businesses. And when you, that means that you really need job costing. You need to management. You understand where your money is going and Quick Books was designed for that. But it’s also got a whole series of reports that are specifically designed for a nonprofit and nonprofit accounting is the hardest accounting there is to do. And the reason being is the executive directors are typically not finance people. They’re program people.
Matt Register: Sure.
Stephen King: They don’t know how to supervise the function. How to recruit and make sure that person is doing their job. Yet at the same time the board of directors scrutinizes those books more carefully than any for profit I’ve ever seen. Why? Because they’re personally liable for that public money. And then when you get to a million dollars in revenue in most states, you’ve got to go through an audit. I don’t know many for profit businesses that get audited when there are a million dollar company, a 15 employee company. And then that tax return the 990PF. It’s the most complicated tax return there is because the IRS wants to make sure that you’re not stealing from the IRS.
Matt Register: Because in exchange for favorable tax treatment you are now partners with the government. So they now have a stake in your operation.
Stephen King: They’ve created so much bureaucracy to track the cost of program and fundraising and office in the … It’s ridiculous. So what we do is set up the system to deliver that, those reports for the board, for the budget managers, for the director of development and for the CPA doing the tax return, with the click of a button. But the single biggest reason why I think clients, nonprofits outsource to us is there’s a big risk of fraud in nonprofit.
Matt Register: Sure there is.
Stephen King: And it’s because you can typically only afford one person to do the books. And so the person who’s paying the bills is also the one reconciling the bank account and then producing the statements. The person who is receiving the mail is the one who’s going into Quick Books and entering the billing. So if they got cash, they can delete the invoice and there’s no internal controls. And so by using our automated back office system you can pay bills on your iPhone and have workflow. So that if the Treasurer has to sign a check over $5000, he just gets an email instead of having to go into the office and physically sign.
Matt Register: Well it is, it makes it easier and streamline. And if you don’t have enough personnel to have good separation of duties. It’s just bad business, right? And it just becomes more important when it’s not your money, you’re dealing with public money, right?
Stephen King: That’s right.
Matt Register: So talk to me a little bit about nonprofits as it relates to their benefit of… Because you guys are experts at helping people measure things in their company, of coming up with metrics that will allow them to really grow and take their company the next level. How does that apply on the nonprofit side?
Stephen King: So we look at nonprofits the same as we do for profits, right? We look at them as the only difference is you reinvest those profits.
Matt Register: You just don’t have shareholders to distribute profits to. That doesn’t mean you’re not allowed to make a profit. Right?
Stephen King: And but most of our clients aren’t making a profit. What they’re doing is they are fundraising to subsidize the amount of money that they’re not getting from their clients and their villagers, their patients. And what you… in order to run the company as effectively as possible you have to have a PNL for each program. PNL for each department. You’ve got to be able to look and see what is your actual expenses against the budget. By department, by program, by whatever way you’ve organized the the organization.
Matt Register: Well and you guys can come in there and not only give them a hand but help them execute that as well. Correct?
Stephen King: Yeah. We outsourced bookkeeping, accounting and controller service is entirely menu based. So that means is that you can pick and choose what you want us to do and what you keep in-house. Most of our nonprofit claims they keep a bookkeeper in-house but we become their supervisor, we’re the controller. Will come in and make sure that they’re coding things right in the first place and they’re there. They they won’t reconcile the bank account because that’s our job and we build a custom solution based on the skills of the person they have.
Matt Register: Well not only does that give them a better level of skills that they may have in-house. It also gives them some CYA as well, right? They have an own affiliated third party that is… that has oversight of the, of the numbers, in something that you know, historically is right for the opportunity for something nefarious going on. Correct?
Stephen King: Yeah. You’re going to end up actually saving money on your audit and preparation the tax return because we produce audit ready work papers every month of the year. So when the auditor wants to do their work it’s there. We designed it in the format that they want and when the board of directors wants to be able to review all the checks that were written, it’s on an iPhone. They can see it on their app instead of having to worry about does that one bookkeeper, that’s supervised by a person that knows nothing about accounting. Know what they’re doing or am I looking at a financial statement that you could look at it and know it’s garbage.
Matt Register: Yeah, and that’s bad business. You want to avoid that. So if… what kind of non-profits are you actually looking for? In our audience we have folks that run nonprofits. Draw me a picture of what the perfect nonprofit is that you can help the most.
Stephen King: Sure. We’ve got clients ranging from you know big churches like Fallbrook churches. We’ve got Houston Public Media. We’ve got community service organizations, social service organizations, arts and entertainment. We’re the accountant for the orange show. So Art Car Parade, Growthforce staff are at it. Volunteers are at every booth and we are making sure that that Art Car ball money is all accounted for correctly. So it goes across that anybody who’s helping others because we’re passionate about our nonprofit clients. And one of the reasons why our staff don’t quit. We have three less than three percent turnover because you get passion from accounting because we’re accounting for nonprofits.
Matt Register: Hey! There you go and everybody has a passion. Their’s happens to be accounting. God bless them. Stephen King, Growthforce, growthforce.com. Thank you very much for joining.
Stephen King: Thanks for having me Matt.
Matt Register: Hey guys. We’re going to go to break. Go ahead and go to the website Texasbusinessradio.com to see the entire thing. Beautiful, high definition video. Go and get your calls in a 844-814-8144 and we get the experts on here to answer them. We’re going to go to break. We’ll see you on the other side.
Sponsored in part by:
In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.