This month, our focus is on financial complexity. It’s a topic that comes up frequently – we moan about it with finance teams, discuss the system-wide impact of certain requests with donors, work alongside NPO leaders to find ways to answer their pressing questions, and strive to educate the broader community about the unique challenges faced in nonprofit finance. The reality is that no matter how small your budget may be, whether you manage more than one grant, have multiple income streams, or handle any type of designated project funding… financial complexity is unavoidable. In the business world, you might not need to track detailed expenditure categories until you reach a turnover of R20 million. In contrast, an NPO is expected to monitor the same level of detail from as little as R200,000!

I often describe nonprofit financial reporting as a cube. One side represents the management perspective—the information leadership needs for organisational decision-making. Another side reflects the project perspective, focusing on the details relevant to each separate project. The third side is the donor perspective, tailored to what funders want to see. While it’s the same data (the same cube), it is sliced and presented differently depending on the audience. This means that for every transaction, you must categorise it in two or three ways to ensure each stakeholder gets the information they require.

Several years ago, I collaborated with Sage Pastel to enhance their Cost Code functionality, integrating it into the Project module available in Pastel Partner and eventually evolving into the analysis code feature in Sage Online. I travelled across the country for the rollout roadshow and after one of my presentations, I was approached by a businessman who remarked, “So you’re the reason we have so many new project report options.” Yes, we are responsible for this level of complexity in a standard accounting system!

Complexity comes with unrecognised costs that can add up quickly. These include the time staff members spend managing multiple layers of reporting, the investment in software needed to track different funding streams, and the administrative burden of completing extensive paperwork to ensure payments are allocated correctly. Surfacing these costs is important to ensure they are adequately funded.

If you need help understanding and managing the financial complexity in your organisation, please reach out for a chat!