We passed a milestone this week at Nonprofits Assistance Fund when we approved our 50th loan to a Minnesota charter school. We work with nonprofits in every field of service, but when I tell people that we work with charter schools I often get responses like, “Isn’t that really risky?” or “I’ve heard that charter schools have really weak financial management. Can they pay the loan back?”
Our experience with charter schools has been interesting, and largely positive. We have made 50 loans totaling $5.7 million to charter schools in the last eight years. So far, we have written off $5,000. That’s all we’ve lost. I say that our experience has been interesting, though, because at least half of the schools we’ve worked with were facing pretty serious financial problems when we made the loan. That would suggest that I might agree with the comments that schools aren’t well managed. But I don’t agree – I think that’s the myth. Nonprofits Assistance Fund’s mission is to build financially healthy nonprofits and we often work with organizations at a time when a bank is not able to approve a loan within bank lending policies. We take some extra risk and then work closely with the nonprofit, schools in this case, to help them improve. I attribute our success in lending to schools to the combination of the school leaders’ commitment and determination to make the school succeed and Nonprofits Assistance Fund’s expertise in school finance and financial management. The fact that most of the schools have emerged from their financial problems is the positive part of our experience and the reality of charter school management.
The reality is that the management quality of most charter schools in Minnesota is on par with the management of nonprofit organizations overall. It’s hard work to start a new enterprise, and charter schools tend to start and grow pretty quickly. Ask a small business owner what it’s like to manage rapid growth – they’ll tell you that it’s challenging. Most of the serious problems with schools have been in the first few years of operation, and charter schools are a new industry. Minnesota was the first state to authorize charter schools, and the first schools opened just 15 years ago. There has been an unusual amount of attention given to financial problems in charter schools because they operate with public money (since they are public schools). You can learn all about Minnesota’s charter schools from the Minnesota Association of Charter Schools. Minnesota has 131 charter schools in operation and at least another 19 approved to open in the next year or two. Combined, they serve 23,500 students by offering a variety of approaches to curriculum and teaching and learning environments. Since each child has individual needs, charter schools offer an option for families. There has been positive news about schools as well, highlighting the educational innovations for which these schools were created. A bigger question for charter schools will be the long-term measure of their success in raising student achievement and engaging with families and communities. Reports are a mix so far, but this is a young field with a very big job.
You can also read about Metro Deaf School, one of the charter schools we’ve had the pleasure of working with.
In the last two months I have heard too many stories of nonprofits who have installed accounting software that was recommended as the “perfect” system for them by a consultant or their accountant. It then turns out that no other software was even considered, and it just happens to be the accountant’s preferred system, which of course is always “perfect” for any nonprofit. Since many of these nonprofits don’t have expertise or even comfort talking about accounting, they trust the professional and plunge in with the purchase. Unfortunately, in many cases the software is far too complex for the organization, requires extensive accounting knowledge, or is simply a bad fit. The software will probably work for them as long as the experienced accountant is in place to manage it, but I can predict, based on experience, that within two years these organizations will either need to spend some money to fix an unwieldy system or change their accounting software again.
We are upgrading our accounting software next month to a newer version of the program we’ve been using for over eight years. We’d hit he point where reports were less efficient and there’s an ongoing technical glitch that can only be solved with the upgrade. Before we took this step I asked for a review of some other accounting packages to make sure that we’re using the “right” software. That begs the question of what is the “right” software for nonprofit organizations. The answer, of course, depends on what you need. The tough part is how to find that answer for an individual organization. Since Nonprofits Assistance Fund is a nonprofit focused on financial management we are fortunate to have a lot of experience and expertise within our staff to complete our own accounting review. For all the nonprofits that don’t have this expertise and rely on other resources to help, the help that’s available is pretty spotty, unfortunately, and complicated with hidden agendas.
Even without accounting expertise, an executive director or board treasurer can complete a basic assessment of accounting needs and insist that this review be used as a selection guide. Here are the basic questions:
- Start with the end in mind – what kind of reporting will be needed? This includes reports for management and the board, for individual programs and grants, and for audit preparation.
- Do you receive restricted grants or donations? It’s important to be able to maintain separate restricted and unrestricted balances, but you may not need a full “fund accounting” system. Many organizations, even large ones, use Excel spreadsheets for some of this detail.
- Do you need extensive program, project, or grant-based income and expense tracking?
- What other financial functions do you need to include in the system – such as billing for services, accounts payable, payroll, and fixed assets and depreciation?
- Are there any external factors (like a significant government contract) that require you to maintain a specific list of accounts, codes, or report formats?
- Who will make regular accounting entries and what training or experience is needed?
- What reports are standard with the software and how easy is it to create new reports
- Does it take a CPA or equivalent accounting knowledge to produce regular monthly financial reports?
- The last question to ask a consultant – what is the simplest system available that will meet these needs? The most frequent error I see is selecting accounting software that’s much more than the organization needs or knows how to manage. Keep it simple.
