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Blog – Full Posts

The Key to Overcoming Nonprofit Accounting Challenges

Earmark Team · November 13, 2024 ·

Nonprofit accountants face a tough situation: they must meet strict demands from donors while not overloading their organizations with overhead. Donors want detailed tracking and reporting for restricted funds but also want to keep administrative costs low. This creates a challenge for CPAs who help these nonprofits.

During a recent webinar, Srikar Chinam, CEO of KarmaSuite, shared how accountants can assist nonprofit clients in alleviating the administrative burden of grant management with the right technology.

The Nonprofit Accounting Challenge

Traditional financial models fail in the nonprofit sector. Srikar explains, “In the nonprofit world, you can’t just calculate revenue minus expenses equals profit or loss because your revenue is restricted and might not align with your spending plans.” 

This mismatch leads to three primary challenges:

  1. Labor-Intensive Grant Management: Each donor has unique budget categories and terminology. For example, one might separate “staff salaries” and “staff benefits,” while another labels it “personnel.” Finance teams spend countless hours manually adjusting data to fit each donor’s requirements.
  2. Optimizing Fund Usage: Program teams may overspend or underspend without clear visibility into grant restrictions, causing constant reallocations. Nonprofits often scramble to spend grant money before it expires while lacking funds in other areas.
  3. Difficulty in Forecasting: Restricted revenues that don’t align with operational needs make forecasting nearly impossible. This leads to fundraising teams overfunding certain programs while underfunding others, thus resulting in unrestricted funds being used up sooner. 

These issues can lead to serious consequences. If you don’t track and document your expenses properly, you may have to return grant money. This is often accompanied by word spreading around on how your nonprofit was the reason why the donor couldn’t meet their impact goals for the year.

Transforming Grant Management with Technology

By using systems like KarmaSuite, nonprofits can simplify their compliance processes and make tracking expenses and reports much easier and more efficient.

Centralized Fund Repository

A centralized system acts as a main reference point for all information related to grants. Instead of setting up complicated sub-accounts, organizations can connect categories specific to donors with standard accounts. Srikar highlights that many government grants need clear explanations on how the money will be spent. The system automatically ensures that these guidelines are followed, making sure that funds are used correctly.

Real-Time Compliance Monitoring

Automated systems can quickly spot mistakes. In a demonstration, Srikar explained how an expense, which was mistakenly linked to a City of Oakland grant, was flagged right away because it didn’t match the related program. This kind of immediate detection helps avoid expensive errors that could be noticed later during audits.

Streamlined Reporting

Automated reporting takes the hassle out of handling data by removing the need for manual changes. This means organizations can quickly create reports tailored for individual donors, and those involved can easily access current information without changing anything, which lightens the workload for finance teams.

Automated Allocations

The only way to show the donor you’ve been compliant with grant restrictions is to manually allocate each expense to a funding source. This is extremely tedious and complex due to grant restrictions and grant expiration dates. KarmaSuite translates all grant restrictions into mathematical equations, understands the context of each expense, and allocate 100’s of expenses in seconds.  

With this automation, accountants can shift their focus from managing details to providing strategic advice. This helps their clients improve the way they manage grants and make the most of their available funds.

Enabling Strategic Decision-Making

The real benefit of these solutions is that they help people make better decisions based on data.

Quick Scenario Modeling

Imagine a board meeting where someone brings up the possibility of a $1 million grant from the county for a new location. “Previously, you’d have to get back to them in weeks,” Srikar says. “Now, you can add expenses for the new location, include the pending grant, create a scenario, run the allocations, and see your funding gap—all during the meeting.”

Visual Indicators for Funding Gaps

KarmaSuite uses color-coded indicators to highlight areas needing attention:

  • Red: Funding gaps
  • Yellow: Expiring excess funds

This level of detail helps organizations see where they have extra resources or where they might be lacking, even within the same program, due to specific rules tied to their funding.

Strategic Fundraising and Planning

Organizations can explore different future scenarios, from cautious to hopeful, helping them plan for a range of possible outcomes. This ability changes how they approach fundraising, allowing teams to focus on specific needs instead of vague targets. When they need to ask donors for adjustments, they can use clear data to explain exactly what changes are needed and why.

These tools also help accountants become better advisors, guiding their clients on how to make the most of their funds and ensure that their financial activities align with their mission.

Turning Compliance into a Strategic Advantage

By using comprehensive financial management tools, nonprofit organizations can turn the challenges of managing grants into a valuable opportunity for growth.

Benefits for Nonprofits

  • Improved Compliance: Centralized management ensures adherence to all donor restrictions.
  • Reduced Administrative Overhead: Automation eliminates manual tracking and reporting.
  • Enhanced Decision-Making: Real-time data supports strategic planning and resource allocation.

Opportunities for CPAs

  • Strategic Advisory Role: Shift from compliance monitoring to providing strategic insights.
  • Optimized Fund Usage: Help clients make data-driven decisions to maximize impact.
  • Mission Alignment: Support clients in aligning financial practices with their core mission.

Watch the Webinar for More Insights

Excited to see how KarmaSuite can change the game for you? Check out the complete Earmark Expo webinar! Learn how you can assist nonprofit organizations in managing their grants more effectively.

Why Traditional Tools Fail Under ASC 842—and What CPAs Can Do About It

Earmark Team · November 13, 2024 ·

Are your lease accounting tools holding you back? Here’s how to bridge the gap and streamline your financial close process.

CFOs, Certified Public Accountants (CPAs) and finance teams are facing unprecedented challenges in lease accounting, especially with the complexities introduced by ASC 842 and IFRS 16. Traditional tools like spreadsheets are no longer sufficient for managing the intricate details of modern leases. Imagine trying to generate a journal entry report for 2,000 leases and it takes five hours—every single month! This is not just an inconvenience; it’s a crisis that threatens the efficiency and accuracy of financial reporting.

To help CPAs navigate these complexities, Greg Kautz shared his insights on an Earmark webinar. Here is a summary of the key takeaways:

Recognizing the Limitations of Traditional Tools

Before 2019, lease accounting was straightforward—track the general ledger coding, payment amount, and vendor. However, with the implementation of ASC 842, CPAs now have to manage an expanded scope of data, transforming lease accounting into complex asset management.

“Now, you’ve got to start tracking the lease name, commencement date, date of return, classifications, and payment schedules,” says Greg. Each lease requires meticulous tracking of multiple data points to ensure compliance and maintain audit-ready documentation.

Spreadsheets and basic software can’t keep up with:

  • Complex Payment Structures: Leases may have multiple payment components requiring different accounting treatments.
  • International Operations: Multi-currency leases introduce foreign exchange complexities.
  • Consistent Application of Key Inputs: Inconsistent incremental borrowing rates across leases can compromise financial statement accuracy.

Navigating Modifications and Reassessments with Confidence

Modifications and reassessments under ASC 842 are particularly challenging. CPAs must maintain accurate audit trails and ensure that changes apply to the correct periods—all while meeting tight month-end deadlines.

“Some companies have deferred so many modifications they’re approaching materiality thresholds,” warns Greg. This situation is even more complicated for organizations dealing with both IFRS and US GAAP requirements.

Key challenges include:

  • Updating Incremental Borrowing Rates: Ensuring rates apply to the correct period without affecting past calculations.
  • Retroactive Adjustments: Making accurate entries for closed periods without reconstructing entire datasets.
  • Audit Scrutiny: Auditors are increasingly focusing on lease modification processes and documentation.

Embracing Scalable Lease Accounting Solutions

The limitations of outdated tools become glaringly apparent as organizations scale. Waiting hours for journal entries is not sustainable from legacy lease accounting systems.

“Companies recognize their systems are inadequate but hesitate to change due to perceived implementation complexity,” notes Greg. However, modern lease accounting solutions can be implemented quickly and efficiently.

Essential features of scalable solutions include:

  • Rapid Processing: Handle large lease portfolios without delays.
  • Accurate Retroactive Adjustments: Process changes affecting closed periods correctly.
  • Multi-Currency Support: Manage international leases seamlessly.
  • Robust Audit Trails: Maintain clear documentation for compliance.
  • Scalability: Grow with your organization’s expanding lease portfolio.

Practical Steps for CPAs to Overcome Lease Accounting Challenges

To effectively overcome these challenges and enhance your lease accounting practices, consider implementing the following strategies:

  1. Centralize Your Lease Inventory: Maintain a centralized database accessible to all stakeholders.
  2. Be Proactive with Modifications: Update lease changes as they occur, not just at month-end.
  3. Leverage Automation: Utilize advanced software to reduce manual errors and save time.
  4. Standardize Discount Rates: Ensure consistent application across all leases.
  5. Plan for Reassessments: Regularly review leases for upcoming modifications or renewals.
  6. Stay Audit-Ready: Keep documentation organized and accessible for auditors.
  7. Invest in Training: Provide ongoing education for your team on lease accounting standards and tools.

Transform Your Lease Accounting Process Today

The technology gap in lease accounting is a significant risk to financial reporting accuracy and efficiency. CPAs can’t afford to rely on inadequate tools that jeopardize compliance and drain valuable time.

“There’s always a hard way and an easy way to do accounting,” says Greg. “Sometimes it’s achieved through technology, sometimes through better data, sometimes through better processes, and most times it’s a combination of all three.”

Don’t let outdated systems hold you back. By embracing modern solutions and proactive strategies, CPAs can bridge the technology gap and master the complexities of modern lease accounting.

Watch the full webinar featuring Greg Kautz’ expertise and practical demonstrations for more in-depth insights.

Is Your Expertise Holding Back Your Accounting Firm’s Growth?

Earmark Team · November 13, 2024 ·

What if the expertise that makes you a great accountant is actually what’s holding your firm back from reaching its full potential? It might seem surprising, but many owners discover that their strong technical knowledge can actually make it harder to grow their firms into successful, large-scale businesses.

In a recent webinar, Mark Ferris, Chairman and CEO of Panalitix, shared important tips on how owners can break away from being stuck in their own expertise to create more successful and scalable businesses. Drawing from his experience with many different firms, Ferris highlighted some surprising ways that being highly skilled can sometimes hold back growth. 

Ferris offered simple strategies to help owners turn their practices from just a job into a valuable business. He challenged common ideas about what makes an accounting practice successful and provided a clear guide for firm owners who want to grow their businesses while also gaining more personal freedom.

The Hidden Barrier: When Expertise Limits Growth

Accountants are recognized for their strong knowledge, dedication to helping clients succeed, and commitment to doing their best work. These traits are crucial for building good relationships with clients. However, they can also create ways of working that make it harder for businesses to grow and expand.

Ferris, who has spent many years working with accountants, points out that the biggest challenge to growing an accounting firm isn’t a lack of technical skills or difficult market conditions. Instead, it’s the belief that being personally productive is the same as achieving success in business.

 “The promise of professional services was that you train yourself, gain unique skills, and enjoy a long, lucrative business life deriving good fees,” says Mark. “But would we say that today to young people entering the profession?”

The main issue is that while accounting education teaches valuable technical skills, it doesn’t really help future business owners understand how to grow and manage a company. As a result, many owners find themselves trying to expand their business by simply working longer hours, taking on more clients themselves, and keeping a tight grip on every part of their service. This approach can be overwhelming and may not lead to sustainable growth.

The result is that the profits of the business are constrained by the owner’s time and energy. Even though they deliver great value to their clients, they might feel unappreciated and overworked. Instead of pushing themselves harder within the same old way of doing things, it’s time to rethink how an accounting practice can work for everyone involved.

Shifting Mindsets: From Doing the Work to Building the Business

The main difference between a traditional accountant and a business builder is how they view their work. While traditional accountants focus mainly on managing numbers and financial records, business builders see their role as helping to grow and improve a business. A traditional accountant might say, “I work to complete tax returns,” whereas a business builder says, “I work to build a business that completes tax returns.” This small change has a big impact on business value and personal freedom.

Think about celebrity chef Gordon Ramsay. He began his career as a talented chef, but he found true success when he shifted his focus to creating restaurants and systems that ensure top-notch service, even when he wasn’t personally in charge. This kind of change can also happen in the field of accounting.

Business builders take a unique approach when it comes to planning and making decisions. Rather than just looking at short-term earnings and financial reports for the next year, they focus on creating long-term plans that span three to five years. This allows them to build valuable and successful companies that can thrive over time.

This involves creating systems, processes, and teams that reliably provide great service, whether or not the owner is directly involved. 

“Successful businesses do not depend on the owners for much if anything,” Mark notes.

It’s not about choosing between being a great accountant or being a great business owner; it’s about gradually transitioning from handling all the tasks yourself to establishing a business that can operate effectively on its own. One CPA’s experience shows how this change can take place over time.

Case Study: A $550K Practice Transforms into a $10M Enterprise

Transitioning from a technical specialist to a business leader is possible with the right change in perspective. Take, for example, a certified public accountant (CPA) from Tampa. Over the span of ten years, he grew his small practice, which started at $550,000 in 2011, into a thriving business worth $10 million.

At first, he stuck to a conventional approach, putting in long hours and managing everything on his own. By 2015, he was working over 2,500 hours a year, taking care of all parts of the business while also trying to keep up with a growing number of clients. The big change happened in 2016 when he took a surprising step: he decided to spend $155,000 to hire a chief operating officer, even though it would hurt his profits in the short run.

“That was arguably a very bad decision if you’re focused on the short term and on the P&L,” Mark explains. “But he decided to invest in that and get a lot more things off his plate.”

The owner of the business made a choice to delegate responsibilities, which started a major change for the company. He slowly moved away from handling daily operations, production tasks, and finding new clients. Now, he acts as the chairman, concentrating only on providing valuable advice to six chosen clients, while the business continues to do well on its own.

The transformation wasn’t instant or easy—he “messed it up a couple of times”—but the result is what the business builder mindset promises: a valuable business that generates wealth without the owner’s constant involvement. 

Your Path to Transformation

Transitioning from being a technical expert to becoming a business architect can be challenging, but the benefits of creating value for a business and gaining personal freedom make it a journey worth taking. The process starts with a change in how you think about your role. Instead of just viewing yourself as a talented accountant, start seeing yourself as someone who designs a system for the business. This system should be capable of achieving great results even when you’re not constantly overseeing everything.

The story of the Tampa CPA shows that it’s possible to change and improve how an accounting business operates. This change involves rethinking traditional ideas about what leads to success in this field. The outcome is a more valuable business, happier clients, a more satisfied team, and a sustainable work style that doesn’t rely on the owner being involved all the time.

Ready to Transform Your Practice?

Are you interested in turning your practice from a job into a valuable business? Check out the full webinar recording to learn about the changes in thinking and practical actions you can take to create a more sustainable accounting practice. Plus, by participating, you’ll earn free continuing education credits while discovering how to make your work better suit your life.

How an Engineer’s Approach Is Transforming AP Automation for CPAs

Earmark Team · November 12, 2024 ·

An accounts payable solution now exists that seamlessly processes complex, multi-page invoices, interprets various formats, and applies intricate accounting rules without human intervention. For decades, this has been a distant dream for accountants. Traditional software often struggles with irregular documents and requires endless manual corrections. However, an unexpected innovator—a manufacturing engineer—has made this dream a reality.

In a recent Earmark Expo webinar, we explore how treating accounts payable automation as an engineering challenge enables CPAs to achieve truly hands-off processing of complex financial documents with confidence in their accuracy.

From the Manufacturing Floor to Back Office Revolution

How does someone who builds glass-dimming technology for Boeing aircraft revolutionize accounts payable automation? The answer lies in a fundamental frustration many manufacturing companies face: despite sophisticated engineering capabilities, they struggle to track and understand their costs accurately.

“Though it sounds kind of trite,” explains Charley Howe of MakersHub, “when he reduced down what the ultimate limitation was, it was back office and finance related.” Charley’s co-founder, Phong Ngo, had built a successful manufacturing company producing advanced equipment for major OEMs yet couldn’t scale the business as expected. The limiting factor wasn’t engineering capability—it was the inability to truly understand cost structures and bid competitively.

This challenge led to a crucial insight: while manufacturing processes were optimized through engineering principles, back-office processes were stuck with traditional accounting software approaches. The engineering mindset—breaking down complex problems into solvable components and building systematic solutions—had never been adequately applied to accounting automation.

Engineering Solutions for Real-world Complexity

The actual test of any AP automation solution comes when it faces the messy reality of real-world documents. Consider processing a 68-page document from Home Depot containing 63 separate bills and credits, many with faded text or handwritten notes. Traditional OCR tools would find this impossible. For MakersHub, it’s a 60-second task.

“Invoices are like snowflakes—they’re all a little different. It’s hard to do it perfectly,” says Charley. MakersHub’s engineering approach has cracked this challenge by building intelligence into the system. Rather than just looking for numbers on a page, the system understands context—distinguishing between list prices, multipliers, and net prices; recognizing when items don’t align with descriptions; and automatically validating that line items sum to totals.

What previously took hours of manual data entry and verification can now be accomplished in minutes. Users report time savings of up to 95% on complex document processing tasks. When line items don’t sum to totals or required fields are missing, the system flags these issues automatically, preventing incorrect entries in the accounting system.

A System That Learns and Adapts

Perhaps MakersHub’s most powerful aspect is how the system learns and improves over time. Unlike traditional OCR tools, which require users to draw boxes around fields and hope future documents maintain the same layout, this system uses artificial intelligence to understand document context and learn from user corrections.

Take the example of processing invoices from a glass company. When the system initially missed a surcharge field, teaching it the correct location took seconds. “That one-time fix took five seconds. And now, for the perpetuity of using MakersHub, that problem is fixed,” Charley explains. The system doesn’t just memorize field locations—it understands what the field means and can find similar information even when documents change.

Users can use an integration mapping tool to capture rules for how different purchases should be coded. Whether routing office supplies to one account and manufacturing materials to another or handling multiple expense categories from the same vendor, the system learns and applies these rules. For accounting firms handling various clients, this means maintaining different rules for each client while ensuring consistent treatment across all transactions. And if an employee leaves or is reassigned, the knowledge of how to categorize transactions stays in the system, making it easier to train their replacement.

The Future of AP Automation Is Here

Applying engineering principles to accounts payable automation represents more than an incremental improvement—it’s a fundamental shift in how we approach accounting automation. By treating AP automation as an engineering challenge rather than just an accounting problem, MakersHub has achieved what traditional software solutions couldn’t: hands-off processing of complex financial documents with confidence in their accuracy.

For accountants, this breakthrough means finally delivering on the promise of automation to clients while shifting focus to higher-value advisory services. The system’s ability to handle complex documents, learn from experience, and maintain consistent accounting treatment creates a competitive advantage in an increasingly automated profession.

See the Revolution in Action

Want to see this revolutionary approach to AP automation in action? Watch the entire Earmark Expo webinar to learn how engineering principles could transform your practice’s approach to document processing and free your team to focus on what matters most: serving clients.

Unlocking Capital: How CPAs Can Lead the Small Business Lending Revolution

Earmark Team · November 11, 2024 ·

By Blake Oliver & David Leary

As a CPA, have you ever watched helplessly as a promising small business client struggles to secure the capital they need to grow? You’re not alone. In today’s complex financial landscape, many entrepreneurs are trapped in a maze of loan applications, high interest rates, and opaque decision-making processes. But what if you could guide them through this labyrinth?

Enter Lendflow, a groundbreaking platform revolutionizing the small business lending ecosystem. In a recent Earmark Expo webinar, Jon Fry, founder and CEO of Lendflow, unveiled how this innovative technology is changing the game for borrowers and opening up new horizons for CPAs.

Lendflow’s platform empowers accounting professionals to streamline small business lending. By offering efficient processes, enhanced security, and expanded revenue opportunities, it enables CPAs to provide clients with better access to capital. This isn’t just about facilitating loans; it’s about positioning yourself at the forefront of fintech innovation and adding significant value to your client relationships.

Get ready to discover how you can evolve your practice, better serve your clients, and play a pivotal role in their financial success. The future of small business lending is here, and CPAs are at its center.

Revolutionizing the Lending Process with Technology

At the heart of Lendflow’s innovation is its embedded lending infrastructure—a central hub that connects credit bureaus, lenders, banks, and factors. This interconnected network allows for a seamless flow of information, dramatically simplifying the loan application process.

This technology translates into a revolutionary experience for small businesses. Instead of submitting multiple applications to different lenders, businesses can now apply once through Lendflow. This single application is then matched with multiple lenders, increasing the chances of approval and often resulting in more competitive offers.

Consider a client who needs a line of credit to manage cash flow during seasonal fluctuations. With Lendflow, you can guide them through a single application process that connects them with multiple potential lenders. As Jon noted, “We have several options for instantaneous decisions where the client can see offers immediately.”

This unified, efficient process saves time and reduces frustration. No more juggling multiple applications or comparing disparate offers; Lendflow brings clarity and efficiency to what was once a chaotic process.

Empowering CPAs with Advanced Tools

Lendflow provides CPAs with powerful tools to enhance their advisory roles. Jon demonstrated how the dashboard offers a bird’s-eye view of all your clients’ deals, including their stages and progress. “You can click in to see available offers, review rates and terms, and help clients upload any necessary documents,” he explained. This visibility lets you proactively guide your clients, offering timely advice and ensuring all documentation is in order.

With robust customization and integration capabilities, you can tailor the lending experience to your practice and clients’ needs. You can create a custom lending marketplace, selecting which loan products to offer based on your clients’ requirements.

Integration is seamless. As Jon pointed out, “With one line of code, you can embed it anywhere.” This means you can easily incorporate Lendflow’s functionality into your existing website or client portal, providing clients with a smooth, branded experience.

Communication is key in any financial advisory role, and Lendflow includes integrated communication tools and notifications to ensure you’re always in the loop. Additionally, the platform prioritizes security and compliance. Lendflow undergoes annual SOC 2 compliance audits and regular penetration tests, ensuring your clients’ sensitive financial information is protected to the highest standards.

Expanding Revenue Opportunities

Enhancing client services is a significant benefit of Lendflow, but the platform also opens new revenue streams for CPAs. Jon explained, “You’ll be able to earn a percentage of the success of the program, and you’ll have full insights into what’s being earned.”

In practice, for every loan funded through your Lendflow platform, you’ll receive a portion of the origination fee. For example, if you help a client secure a $100,000 loan with a 2% origination fee, and your agreement with Lendflow allocates 20% of that fee to you, you’d earn $400. Over time and across multiple clients, this can add up significantly.

This model allows CPAs to monetize their role in the lending process without compromising their advisory integrity. As Jon emphasized, the incentive structure aligns with client interests. It’s not about pushing high-interest loans but about finding the best fit for each client’s needs.

Looking ahead, Lendflow has plans for expansion. “We’re seeing this being popular in a number of different industries,” Jon shared. This expansion into industry-specific solutions opens more opportunities for CPAs to specialize and add value.

Imagine offering tailored lending solutions for clients in construction or specialized financing options for tech startups. As Lendflow develops these niche offerings, CPAs can further position themselves as industry-specific financial experts.

Conclusion: Embracing the Future of Small Business Lending

Lendflow is transforming small business lending by streamlining the process, empowering CPAs with advanced tools, and opening new revenue streams. By embracing this platform, you can become an indispensable financial partner, helping clients secure capital quickly and efficiently.

This evolution allows you to offer more comprehensive services, from traditional accounting to sophisticated lending advisory, enhancing client relationships and boosting revenue. As the lending landscape changes, those who adopt innovative solutions like Lendflow will thrive.

Ready to lead the revolution in small business lending? Watch the Earmark Expo webinar to learn how Lendflow can transform your practice and empower your clients. Gain deeper insights into the platform’s capabilities and see firsthand how you can make a significant impact on your clients’ financial success.

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