Monthly Archives: January 2021

ERP System Implementation

ERP System Implementation 
Importing a Phased Plan, Exporting Complexity

Mindy Barker | Barker Associates

Transitioning to updated, automated systems that support growth and infrastructure is crucial to the long-term success of an organization. As part of this transition, the value of an Enterprise Resource Planning (ERP) system cannot be underestimated. Despite some challenges due to the complexity of automating several functions at once, implementation increases both productivity and efficiency. Through the integration of various functions, including financial reporting, human resources, and sales, the organization inevitably performs at a higher level.    

While the entire process may seem complex, as with most transitions, proper planning has a direct correlation to its successful conclusion. We often recommend to start not at the beginning, but at the end. In other words, what is the desired outcome? Knowing where you are going sets the tone for how you are going to get there. Examining what processes can be automated, the investment of resources (including time) needed for implementation, assignment of roles, including who can assume the project manager role, and the restraint on resources in the day-to-day demands being met simultaneously with implementation demands are just a few of the initial considerations. 

Once buy-in and support of company executives are achieved, the more complex process of implementation and execution can begin. A phased plan that clearly defines the requirements, objectives, and steps is crucial for a company’s successful navigation of an ERP system implementation. Best practices mandate that the plan be divided into two primary phases: Initial Planning and Implementation. 

Initial Planning Steps 

  • Review the current data structure and system to identify gaps. Rank the gaps in order of importance so you can determine what you need in the new system. 
  • Make a list of all the functions that are in the current system that are critical to the operation’s success.  Make sure those functions will be in the new system. 
  • Gather information about the organization, the day-to-day management of financial reporting, and any limitations of the existing reporting structure. 
  • Prepare a list of all reporting needs to ensure the proposed structure meets the requirements.  
  • Provide all information to make a decision and assist the organization with compliance. This review and analysis should cover the general ledger, development, and day-to-day operations. 
  • Review the process necessary to retrieve the data from day-to-day operations to make certain there is minimal (or no) double entry of data. 
  • Determine how all historical data will be kept and maintained once the current systems contracts are terminated.  
  • Determine the amount of time the products will remain live during the integration process.   
  • Determine the extent of historical information (timeframe and detail) to bring into the new software. 
  • Present the structure, outputs/reports, and plans for implementation to Executive Management to receive approval prior to moving forward with implementation. 

Implementation Steps 

  • Map all current general ledger accounts to the proposed structure, making sure each detail transaction has a location in the new set-up. This mapping is tedious and critical for the success of the new system.  It should be carefully prepared and reviewed. 
  • Document all newly created processes for the new system, carefully reviewing each to ensure proper controls are maintained and no essential functions are excluded from the new system set-up. 
  • Export data from the current systems to preserve detail historical data that may be required for research after conversion.  
  • Export data from the current system and, using the mapping created, move it into the new system.   
  • Do this month-to-month, and run basic reports to review against the current system information. This review will result in some changes to the set-up. Make these changes in coordination with Executive Review and approval. 
  • Ensure consistent and clear communication has been provided throughout the organization, and that key stakeholders will be able to obtain the information they need to do their jobs. 
  • Perform extensive testing in compliance with professional standards. 
  • Train staff who will be working with the new system. 
  • Make sure data is reconciled between all systems. For example, sales agrees with the sales and customer systems, contributions in a non-profit agree with the development data, and accounts payable agrees with the subledger. 

Following these phases and steps will help to ensure not only a smooth transition, but a successful process overall. Barker Associates has extensive experience with ERP system implementation plans, assisting organizations achieve increased productivity and efficiency. Use this link to my calendar to choose the best time for your free 30-minute audit consultation. 

You Have Unity of Purpose, but What about Unity of Numbers?

You Have Unity of Purpose, but What about Unity of Numbers? 
The Importance of Financial Due Diligence in Non-Profit Mergers 

Mindy Barker | Barker Associates

Last week, we talked about the initial considerations of a non-profit merger. Once you’ve reflected on the relevant issues and made the decision that a merger aligns with your goals, donors, board members, and mission, it is time for the next phase of the process – engaging in due diligence.  

In the scenario of a non-profit merger, due diligence has three primary functions: 

1. Minimizing the risks associated with joining two separate organizations to further a common mission; 

2. Providing clear insights into each organization’s interests; and 

3. Improving the timeframe of the merger by reviewing the relevant documentation and processes, and identifying any challenges sooner rather than later.  

Due diligence is conducted by thoroughly inspecting all aspects of the organization with which you plan to merge your own non-profit. The entire due diligence process consists of numerous categorical reviews, including legal, contractual, employment, operational, financial, tax, real property, physical property, intellectual property, and human resources, among others. However, for our purposes, we will focus only on financial due diligence. 

Financial due diligence provides an opportunity to analyze potential savings with regard to the overhead of the combined organizations.  With this full and complete knowledge, the approving Board Members will have the ability to examine the overall benefits of the merger. 

The Financial Audit Checklist 

Before you can merge with another non-profit, you must possess a clear understanding not only of its current financial status, but also of its financial history. You must have the ability to answer questions such as: What resources will be available moving forward? And what obligations will remain? 

Financial due diligence will include a review of the following: 

  • Audited Financial Statements for at least three years 
  • Annual Budgets, Projections, and Strategic Plans for at least three years 
  • Debt and any Contingent Liabilities 
  • Grant level financial results 
  • Accounts Receivable 
  • Accounts Payable 
  • Fixed and Variable Expenses for at least three years 
  • Depreciation/Amortization Schedules and Methods for at least three years 
  • Outstanding Liens 
  • Accounting Methods and Strategies 
  • Any Investment Policies 
  • Account Standings 
  • Employee listing with position and annual salary 
  • Organization Chart 
  • Detail list of larger donors 

While non-disclosure agreements must be executed prior to any due diligence occurring, many organizations have valid confidentiality concerns as they relate to financial reviews of internal documents. As one possible solution, some organizations choose to move forward in a phased approach. In doing so, they leave the disclosure of the most sensitive data and documents to the end of the process.  

While each situation will be different, and financial due diligence may vary slightly, it is essential to build a foundation for success. Not only are you protecting the non-profit itself, but also the individual board members and donors involved. Each non-profit should conduct its own independent due diligence, as well as joint due diligence to maximize information and minimize risks. By taking both a historical approach and a forward-looking approach, you will gain an incredible amount of knowledge. And with more knowledge, comes the empowerment to make the best decision for your non-profit. 

Barker Associates has extensive experience working with non-profit organizations as they prepare for, and go through, a merger. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.

It May be Time for Non-Profits to Consider a Merger

It May be Time for Non-Profits to Consider a Merger  
A Possible Solution During Impossible Times  

Mindy Barker | Barker Associates

The profound effects of the COVID-19 pandemic will be felt for years to come in all aspects of our lives and businesses. However, non-profit organizations have faced, and will continue to face, their own set of unique challenges. Overall closures, increasing unemployment, a lack of feasible projects, and the cancellation of fundraising events have combined to result in sizeable shortfalls with regard to funding. 

To navigate through these trying times and ensure success moving forward, non-profits need effective solutions. One possible solution they may consider in 2021 is a merger with another non-profit. And the time to consider this course of action is now – prior to it being needed. Too often, there is an inclination to only consider mergers reactively because, for example, the organization needs financial help. However, the best time to consider it is proactively, as an effective growth strategy. When considered proactively, the advantages and disadvantages can be examined on a more rational, analytical basis instead of an emotional, biased one. 

As with any transition, challenges will be present. Questions to explore may include: 

  • Do you have enough knowledge about mergers and the due diligence required to effectuate one?  
  • Is there enough funding for the process?  
  • Do you know a facilitator to help explore merger options?  
  • Does either non-profit have government contracts in their name for a specified amount of time? 
  • Do you have too much of a personal connection to the non-profit mission and vision to examine the option clearly? 
  • Do you perceive a merger being a failure? 
  • Are you concerned about losing employees? Or the organization’s culture? 

There is no doubt that these are valid questions and considerations that must be examined. Yet, they should not undermine the significant advantages of mergers for both organizations involved, including: 

  • Increased resources – Instead of purchasing new equipment, leasing new space, or hiring new employees, a non-profit can gain all the resources needed through a merger. 
  • Decreased expenses – Each organization has its own expenses, many of which will be duplicative. Once merged, those expenses will decrease. 
  • The ability of each to meet the needs of the other – Each organization has its own strengths that will often compensate for the other’s weaknesses. 
  • Effective growth strategy – Combined resources coupled with decreased expenses will result in an increased probability of growth. 
  • Furthering mission – Oftentimes, with a merger, the reach of the non-profit will expand due to the increased resources, enabling its mission to have a more significant effect. 
  • Better positioned to achieve goals – With more resources and further reach, the organization will have the ability to focus on, and work toward, reaching its goals.  
  • Greater probability of long-term sustainability – With a more effective growth strategy, there will be a higher chance of long-term sustainability and success.

After thoroughly examining the challenges and the advantages of a merger, the following questions should be considered:  

1. Can you look at a similar organization as a resource, and not as competition?  

2. Can you determine the ways in which you are similar and the ways in which you are different? 

3. Can you envision what working together would look like? 

4. Could combining resources, leadership, and operations work in both your favors? 

5. Which name should survive (considering government contracts, if applicable)? 

6. Are you prepared for extensive due diligence? 

Mergers are viable solutions for non-profits, whether due to funding needs or the desire for an effective growth strategy. In either case, through a merger, the strengths of each can be leveraged for a common goal. Over the next several weeks, we will explore a variety of topics related to non-profit mergers, including due diligence, closing items, and integration considerations.  

Barker Associates has extensive experience working with non-profit organizations as they prepare for, and go through, a merger. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.

What is an Audit and Why do I Need One?

Mindy Barker | Barker Associates

In all my years as a CPA and a CFO, I do not recall anyone (ever) who has gotten excited about a financial audit.  No one wants to pay for an audit (in money and time), prepare schedules for the auditors, or answer the millions of questions they ask. Who has time for all of that? I get it – they’re only thinking of the pain. In fact, most would likely prefer to have root canal without a pain killer rather than go through another audit. 

The sad truth though, is that most financial records are not maintained in a proper manner. And, as such, they are not ready to be audited, causing increasing frustration, and yes, increasing work. This can be the result of –  

1) Early-stage businesses trying to save money. These organizations look only at immediate cashflow and expenses, and not at the long-term needs of the organization. This limited view is very short-sided and often results in trouble down the road. Proper accounting records help you make the right decisions now. And the cost overages from a first-year audit due to the company not having the proper records can far exceed the savings incurred. 

2) Lack of acquisition integration. This requires the auditors to audit several systems, requiring extra work and time, and thereby increasing the fees. 

3) Changes in personnel. This often results in a disarray of the financial information, as there are generally issues with training new personnel and maintaining continuity in the financial process. Continuity is essential for consistency in accounting, as well as a strong foundation of GAAP (Generally Accepted Accounting Principles). 

4) A system conversion occurred in the current fiscal year and the historical information is not easily available to audit. 

Often, the reason any relationship does not go well is a lack of understanding and respect for the other party.  This is no different than with an audit. Once you understand the purpose of an audit and the rules and constraints under which an auditor must operate, you will be more apt to lean into the process, prepare your company more thoroughly, and have a far better experience with the audit and auditors. 

While there may be many reasons for a financial audit, they all have the same two main objectives – to answer the following questions:  

1) Are the financial statements for the period audited prepared in accordance with GAAP? 

2) Is the company a going concern and able to remain a viable business? 

Affirmative answers to these questions are keys to an organization’s financial success.  

It is important to note that the auditor cannot prepare the financials and audit them. Doing so would be a violation of the independence rules, and is unethical. Through an audit, you receive an independent fresh set of eyes looking at the financial books and process.  As a result, the auditors may:  

a. Recommend improvements in processes that save time or enhance controls, or 

b. Find potential fraud.   

After understanding the types of audits and the benefits, it is important to understand why an organization is required to have an annual financial audit. In most instances, the audit will fall under one of the following:  

1) Some lending institutions/banks require it. 

2) Some investors, private equity, or other types of investors may require it. 

3) The company is publicly traded. 

4) The company has undergone a public offering, which includes crowd-funding. 

Although financial audits are the most commonly referred to audits, you should be aware that there are other types. For example, a forensic audit is used to determine if fraud is present within an organization or under other sets of circumstances, such as a high-profile divorce. If you suspect fraud, you should request and pay for an audit of this nature, and NOT rely on a financial audit. As discussed above, detecting fraud is not one of the primary objectives of the financial audit. 

It’s a new year – time for reconciled accounts, fresh books and records, and even a fresh perspective. It’s time for the perception of audits to shift from only thinking of the work involved in preparing for them to the enormous benefits that can be uncovered from the audits themselves. In essence, it forces an organization (and its officers and directors) to stay organized and honest about its financial well-being. With this frame of mind, maybe more will choose an audit over a root canal after all. 

Do you need help preparing for an upcoming audit? If you are either preparing for a first-year audit and/or you have had some significant changes in the organization over the past year, let’s work together to set you up for success by ensuring you are prepared. Barker Associates has extensive experience working with organizations to prepare the many schedules and memos required for an audit, helping them keep the costs under control. Use this link to my calendar to choose the best time for your free 30-minute audit consultation.