5 Compelling Reasons Why You Need a Dimensional Nonprofit Chart of Accounts
Over time, traditional accounting systems tend to produce unwieldy charts of accounts (CoA) with thousands—if not tens of thousands—of unique account numbers. That is because most financial solutions use a hard-coded structure for the chart of accounts. For example, to track receivables across 6 locations, with 5 departments each, and 15 projects, you’d need 450 account code combinations—and that’s before you get started with accounts for expenses.
Before long, you end up with a complicated, unmanageable set of codes. Adding a new location, department or program would force the finance team to create dozens or hundreds of additional accounts. Many nonprofit organizations find themselves having to choose between creating a sprawling, difficult-to-manage chart of accounts or not tracking all of the information that they would like. Luckily for today’s nonprofit organizations, a better way exists to organize your data through a dimensional chart of accounts.
A Dimensional Chart of Accounts Reduces Complexity
Modern cloud financial management solutions, like Sage Intacct, use a table-driven architecture to structure your financial and operational data around logic-based “dimensions.” Dimensions offer an entirely new way to manage your general ledger, making it much easier for you to set up and use your chart of accounts.
In Sage Intacct, nonprofit organizations can define up to eight dimensions to use in accounting and reporting, like program, department, location, grant, and project. You can track revenue and expenses for any of these dimensions, while simplifying your chart of accounts.
Multi-dimensional accounting lets nonprofit organizations keep it simple—you only need to set up your primary account codes. As you open new locations, new funds, or new programs, there’s no need to add hard-coded segment combinations to create account numbers. You can use dimensions for any transaction—general ledger, receivables, payables, time, revenue management, fixed assets, and more.
A dimensional chart of account eliminates the need to create so many account numbers. For example, instead of creating fixed asset accounts for each of your locations in the GL, you would simply set up a single fixed asset account and tag each asset with location. You would then use the location dimension to filter assets by location in your real-time reports.
Goodbye Spreadsheets! Tag Transactions to “Twitterize” Your Data
Having a dimensional chart of accounts means you no longer need to pull information out of your accounting system and manipulate it in a spreadsheet to get the report you want. Dimensions let you track performance more closely and search for information instantly.
Think of dimensions within your chart of accounts like hashtags on Twitter—they make it easy to search and sort data for reporting with meaningful context. Simply “tag” transactions with dimensions so you can slice and dice your data later to produce the financial reports you need.
By filtering on dimensions at the time you produce reports, you can show exactly the information you need in the format you need it. You can then save those filters and format settings to repeatedly produce reports that fit your needs.
Before adopting Sage Intacct, Georgetown Visitation Preparatory School couldn’t prepare consolidated reports and the finance team spent at least six hours each month wrestling with Excel spreadsheets. Now, they instantly produce over 100 financial reports–including consolidated reports across their operating, plant, and capital campaign funds, as well as reports for each individual entity, department, project, grant, and endowment.
Dimensions Enable More Insightful Financial Analysis
Because dimensionality lets you organize information by the attributes that matter most to your mission, a dimensional chart of accounts empowers you to perform more meaningful analysis of organizational performance. With multi-dimensional analysis, you can increase visibility by drilling down from a top-level dashboard to see granular transaction details.
Dimensions will help you analyze financial performance across one or more entities in a real-time dashboard. You can tag projects in transactions, then analyze financial performance, project by project. Quickly compare expenses and revenue between programs, locations, and more.
Organizations can rename dimensions to better reflect their structure and mission. Many nonprofit organizations rename the “Class” dimension to a “Fund” dimension and then use it to track revenue and expenses against different funds.
As your organization changes, add dimensions to track new things that become important to your board or donors. For example, the Hilton Foundation used to organize its budget reports by expense categories. Then one board member preferred to monitor budgets by department. Using Sage Intacct, the finance team easily created a report providing budget vs. actuals by the dimension of department.
Added Operational Context Improves Visibility
Sage Intacct offers a statistical account feature that enables you to bring non-financial operational data into your financial reporting. Any traditional GL should contain the financial information needed to create GAAP financial reports. But by enhancing the GL with non-GAAP statistical data, nonprofits can also track and report on operational outcomes.
By applying dimensions to the operational data, you can create more contextually rich reporting that includes critical outcome and performance metrics. This increases overall visibility and provides organizational decision-makers with a more complete picture of performance.
Gateway Church uses statistical accounts to marry financial and attendance data for analysis. The church tracks weekly in-person attendance and online viewers, then adds a statistical journal entry in Sage Intacct. They run the attendance data against weekly revenue to calculate the average amount given per adult attendee and then analyze this metric by location to compare church campuses for budgeting.
Dimensional Reporting Increases Transparency with Donors
Combining financial performance data with real-world outcome metrics produces reports that truly reflect your organization’s success in accomplishing its mission. Multi-dimensional analysis increases your transparency and visibility with your donors by bringing together financial, operational, and impact data that tell donors the complete story of how your organization makes an impact.
As you can see, a dimensional nonprofit chart of accounts offers nonprofit organizations many advantages, including:
- Reduced complexity and higher efficiency in transactional data entry
- Greater ability to slice and dice reports without spreadsheets
- More-informed decision making with real-time analysis
- Wider and deeper financial visibility with greater operational context
- Increased transparency for donors
- Better visibility into missional impact
To leverage the power of multi-dimensional accounting, organizations need to use a modern cloud financial management solution. Not only will dimensionality greatly simplify the lives of your finance team, it will also empower program managers and executives with greater insight and help your organization support a more compelling story for donors.
A native Texan, Joan has over 25 years of experience in the accounting, technology, publishing, and nonprofit fields. Bringing her experience as a nonprofit financial leader to Sage Intacct, Joan has been instrumental in creating solutions, and providing support and best practices that help ensure nonprofits achieve their mission.