FirmKey Solutions blog

Nonprofit Financial Projections: A Guide for Boards and Finance Leaders

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:53 GMT

A budget covers the year ahead. Financial projections look further out. They show your board, funders, and lenders where the organization is headed, whether growth plans are sustainable, and how much cushion you have if revenue changes.

When nonprofits need projections

Applying for multi-year grants or government funding
Planning a capital campaign or new facility
Launching or expanding a program
Applying for a loan or line of credit
Strategic planning with the board
Preparing for a merger or affiliation

What a good projection includes

Multi-year revenue forecast

Project each revenue stream for three to five years, with clear assumptions: grant renewal rates, donor retention, event growth, and program fees. Separate restricted from unrestricted revenue.

Expense forecast

Build expenses from the plan: new hires, salary increases, program expansion, and occupancy changes. Keep the functional breakdown (program, management and general, fundraising) consistent with your budget and Form 990.

Cash flow projection

Nonprofits often run tight on cash even when the year looks balanced on paper. Grants pay on reimbursement, donations cluster at year-end, and events have upfront costs. A monthly cash flow projection shows when you may need reserves or a line of credit.

Statement of financial position

Projecting net assets, reserves, and liabilities shows whether the organization is getting stronger over time, which is a key question for funders and lenders.

Build scenarios, not one forecast

Model at least three cases:

Base case: your most likely outcome
Downside: a major grant isn't renewed or giving drops
Upside: a campaign succeeds or new funding comes in

Scenarios help the board decide in advance what to do if conditions change, instead of reacting mid-year.

What boards and funders look for

Assumptions that are clearly stated and realistic
Diversified revenue, not reliance on one funder
Healthy and growing reserves
Realistic overhead, including finance, audit, and administration
A plan for sustaining programs after one-time funding ends

Keep it current

Update projections at least quarterly, and whenever a major assumption changes. Compare projections to actual results so each forecast gets more accurate.

FirmKey provides fractional CFO support for nonprofits, including projections, cash flow planning, and board reporting. Talk to us about what's ahead.

How to Build a Nonprofit Budget: A Step-by-Step Guide

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:50 GMT

A nonprofit budget is more than a spending plan. It's how your board, funders, and leadership agree on what the organization will do in the year ahead and how it will pay for it. A good budget also makes audits, grant reporting, and board meetings easier.

1. Start with your goals

Begin with the programs and priorities for the year, not last year's numbers. What will you deliver, expand, or wind down? The budget should fund the plan, not the other way around.

2. Plan revenue conservatively

List every expected source and how confident you are in each:

Grants already awarded vs. grants still pending
Individual and major gifts
Events and campaigns
Program service fees and earned revenue
Government contracts
Investment income

Budget pending grants and new campaigns cautiously. It's easier to add spending mid-year than to cut it.

3. Separate restricted and unrestricted funds

Donor-restricted money can only be spent on the purpose or time period the donor set. Track it separately so you know how much unrestricted money actually funds operations, and so restricted grants are spent as intended.

4. Budget expenses by function

Organize expenses into program services, management and general, and fundraising. This matches how you report on Form 990 and in audited financial statements, and it shows funders how much goes directly to your mission.

Personnel: salaries, taxes, and benefits, usually your largest cost
Occupancy: rent, utilities, insurance
Program costs: direct costs to deliver services
Administrative: accounting, audit, technology, professional fees
Fundraising: events, campaigns, donor systems

5. Plan for shared costs

Rent, staff time, and technology often support more than one program. Use a consistent allocation method, such as staff time or square footage, and apply it the same way all year.

6. Build in a reserve

Include a contribution to operating reserves and a contingency line. Many organizations aim for three to six months of operating expenses in reserve over time.

7. Get board approval

Present the budget with clear assumptions: which revenue is secured, which is projected, and what happens if a major source falls short. Board approval should be documented in the minutes.

8. Track budget to actual every month

A budget only works if you check it. Review budget-to-actual reports monthly, explain big variances, and update the forecast when assumptions change. Share a summary with the board at each meeting.

Common mistakes

Counting pending grants as certain
Mixing restricted and unrestricted funds
Underbudgeting administrative and audit costs
Building the budget once and never revisiting it

FirmKey helps nonprofits with budgeting, board reporting, and fractional CFO support. Talk to us about your next budget cycle.

Preparing for a Sale: Shifting from Cash to Accrual Accounting

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:47 GMT

If you're planning to sell your business, few steps matter more than getting your financials in order. One of the biggest adjustments many owners face is moving from cash-basis to accrual-basis accounting. Done early, it supports a stronger valuation and a smoother deal.

Cash vs. accrual: the difference

Cash accounting records income when money comes in and expenses when money goes out. It's simple and shows what's in the bank, but it doesn't track what's owed to you or what you owe.

Accrual accounting records revenue when it's earned and expenses when they're incurred, regardless of when cash moves. It reflects what the business actually earned and spent in a given period.

Why many businesses start on cash

It's simple and inexpensive. No receivables or payables to track.
It shows liquidity at a glance. Owners see available cash immediately.
It's allowed for many small businesses. The IRS lets businesses under a gross receipts threshold (about $30 million, indexed for inflation) use the cash method for tax.
It fits limited resources. Early-stage teams rarely have the staff or systems for accrual books.

Why buyers, lenders, and investors expect accrual

It shows true performance. Matching revenue and expenses to the right period reveals real profitability trends.
It supports valuation. EBITDA and the quality of earnings work behind it depend on accrual results, not cash timing.
It's the GAAP standard. Accrual is the common language of due diligence.
It builds credibility. Clean accrual financials reduce red flags and speed up diligence.

What the conversion involves

Recording accounts receivable and accounts payable
Recognizing revenue in the period it's earned, including deferred revenue
Accruing expenses like payroll, bonuses, and vendor costs
Restating historical periods so buyers can compare trends
Setting up a monthly close that keeps the books on accrual going forward

When to start

Buyers usually want two to three years of history. If you're thinking about selling in the next 12 to 24 months, start the conversion now. You'll go to market with cleaner records, more defensible numbers, and fewer surprises in diligence.

Cash-to-accrual conversion is part of FirmKey's transaction readiness work. Talk to us about your timeline.

Multi-Entity Consolidations: A Guide for Growing Businesses

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:45 GMT

When a business grows through subsidiaries, acquisitions, or multiple operating entities, financial reporting gets harder. Multi-entity consolidation brings everything into one clear view of how the whole organization is performing.

What is multi-entity consolidation?

Consolidation combines the financial results of separate legal entities into one set of financial statements. Intercompany activity is removed so the organization is presented as a single business to owners, lenders, investors, and auditors.

Why it matters

A true picture of performance. Consolidated financials show how the whole organization is really doing.
Better decisions. Leadership works from one set of numbers instead of piecing together separate reports.
Compliance. Lenders, investors, and auditors often require consolidated reporting.

Who needs it

Holding companies with multiple subsidiaries
Businesses that have grown through acquisitions
Companies with separate operating, real estate, or management entities
Nonprofits with affiliated organizations or multiple chapters

Common challenges

Intercompany transactions. Loans, management fees, sales, and transfers between entities must be eliminated so results aren't overstated.
Different systems. Entities often run on different accounting software or charts of accounts.
Inconsistent policies. Accounting methods need to be aligned across entities.
Partial ownership. Noncontrolling interests must be accounted for correctly.
Foreign currency. International entities require accurate translation.

How to get consolidation right

Map and align charts of accounts across entities
Track intercompany balances in every entity, every month
Reconcile intercompany accounts before eliminating them
Standardize the close calendar so all entities finish on time
Use software that supports consolidation as you add entities

Frequently asked questions

What's the difference between consolidated and combined financial statements?

Consolidated statements cover a parent and the entities it controls. Combined statements present entities under common ownership without a parent-subsidiary relationship. Both remove intercompany activity.

How long does a monthly consolidation take?

Without good processes, it can take weeks. With aligned charts of accounts, reconciled intercompany balances, and the right tools, it can take days.

What software supports consolidation?

Common options include NetSuite and Sage Intacct, plus consolidation add-ons for QuickBooks and Xero.

Do small businesses need consolidation?

Once a business owns more than one entity, consolidated reporting usually becomes necessary for accurate financials, especially when lenders or investors are involved.

FirmKey's controller support covers multi-entity close, intercompany reconciliation, and consolidated reporting. Talk to us about your structure.

When Is an ERISA Audit Required? The 401(k) 100-Participant Rule Explained

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:42 GMT

Short answer: an ERISA audit is generally required when an employee benefit plan has 100 or more participants at the beginning of the plan year. At that point the plan files Form 5500 as a large plan, with audited financial statements from an independent qualified public accountant (IQPA).

If your company sponsors a 401(k) or other benefit plan, this is one of the bigger compliance milestones you'll hit as you grow. The best time to prepare is well before you reach it.

The 100-participant rule

Under ERISA and Department of Labor (DOL) regulations, a plan with 100 or more participants at the beginning of the plan year generally must:

File Form 5500 as a large plan
Attach audited financial statements to the filing
Use an independent CPA firm qualified to perform employee benefit plan audits

This most often affects 401(k) plans, 403(b) plans, and employee stock ownership plans (ESOPs). Filing without a required audit can lead to a rejected Form 5500 and DOL penalties.

Who counts as a participant?

This is where companies get caught off guard. For defined contribution plans like 401(k)s, plan years beginning on or after January 1, 2023 count participants who have an account balance at the beginning of the plan year. That generally includes:

Active employees with balances
Former and retired employees who left money in the plan
Beneficiaries with balances

Before 2023, eligible employees counted even if they never contributed. The change helped many plans, but former employees with small balances still push counts up faster than expected. Other plan types may still use the older counting method, so confirm the rule that applies to your plan.

The 80-120 participant rule

If a plan had between 80 and 120 participants at the beginning of the plan year, it may file in the same category (small or large) as the prior year. So a plan that filed as a small plan last year can generally keep filing as a small plan, without an audit, until it exceeds 120 participants.

Two catches: the rule only helps plans that previously filed as small plans, and once a plan files as large, it generally keeps including audits going forward.

What triggers an audit sooner than expected

Rapid hiring and growth
Mergers or acquisitions that add employees to the plan
Former employees keeping balances in the plan
Auto-enrollment, which creates balances for new hires right away

Why to start planning around 80 participants

1. Choosing the right auditor takes time

Not every CPA firm performs employee benefit plan audits, and the DOL closely monitors audit quality. Starting early gives you time to compare firms, understand pricing, and lock in timelines.

2. First audits surface operational issues

Auditors review payroll and contribution processes, eligibility and enrollment, census data, timeliness of employee deferrals, and whether the plan is operated according to its document. Finding issues before the audit year lets you fix them proactively.

3. Documentation needs to be organized

Expect requests for trust statements, participant census reports, payroll data, plan documents and amendments, and service provider SOC reports from your recordkeeper.

4. Deadlines come fast

The audit and Form 5500 require coordination between your finance or HR team, recordkeeper, third-party administrator, and auditor. Starting early keeps the filing on schedule.

Frequently asked questions

Does every 401(k) plan require an ERISA audit?

No. Most plans need one only once they reach 100 participants at the beginning of the plan year, subject to the 80-120 rule and limited exemptions.

What happens if a required audit is missing?

The DOL may reject the Form 5500 filing, which can lead to penalties and required corrections.

How long does an ERISA audit take?

Most take four to eight weeks, depending on plan complexity and how organized the documentation is.

Key takeaways

100 participants at the beginning of the plan year is the main audit threshold.
For 401(k)s, participants with account balances count, including former employees.
The 80-120 rule offers flexibility but shouldn't delay preparation.
Around 80 participants is the right time to start preparing.

FirmKey provides audit services, including employee benefit plan audits, plus the readiness work that makes a first audit smoother. Talk to us if your plan is approaching the threshold.

Technical Accounting Memos for Audits: What Auditors Expect

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:40 GMT

When a company enters into a complex transaction, auditors want to see how management reached its accounting conclusion. A technical accounting memo is that record. For public companies, and for private companies heading into an audit, a sale, or a capital raise, well-prepared memos are a core part of audit readiness.

What is a technical accounting memo?

A technical accounting memo documents management's analysis and conclusion on how a transaction should be accounted for under U.S. GAAP, and where relevant, SEC reporting requirements. It shows the facts, the guidance applied, the judgments made, and the reasoning behind the final treatment.

What auditors expect

A strong memo does more than restate accounting guidance. It should:

Define the issue clearly and narrowly
Summarize the relevant facts, including contract terms
Analyze the authoritative guidance that applies
Document key judgments and assumptions
State a clear conclusion, including journal entry and disclosure impact

Common areas that need a memo

Revenue recognition
Stock-based compensation
Debt and equity transactions, including convertible instruments and warrants
Business combinations and asset acquisitions
Leases
Adoption of new accounting standards

Why it matters

Weak or missing documentation is one of the most common causes of audit delays. When the analysis isn't written down, auditors ask more questions, fieldwork stretches out, and adjustments show up late. For public companies, it can also raise the risk of SEC comments on periodic filings.

Well-prepared memos do the opposite: fewer follow-up questions, a smoother audit, and a defensible position if the treatment is ever challenged.

When to prepare one

The best time is when the transaction happens, not when auditors ask. Writing the memo while the facts are fresh makes the analysis stronger and gives you time to resolve questions before year-end. This matters even more ahead of a sale or capital raise, when buyers and investors will look closely at how complex items were handled.

FirmKey helps companies document complex transactions as part of transaction readiness and audit preparation. Talk to us about what's ahead.

The MSO Model and Healthcare Finance: A Guide for Operators and Investors

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:37 GMT

Healthcare operators and investors use the Management Services Organization (MSO) model to scale practices, work within regulation, and run more efficiently. Understanding how MSOs work, and the finance questions that come with them, is critical to building one that lasts.

What is a healthcare MSO?

An MSO is a non-clinical entity that provides administrative and business services to physician practices. Those services usually include:

Billing and collections
Human resources and payroll
Accounting and financial reporting
IT systems and compliance
Facilities and operations

The clinical entity stays physician-owned. The MSO runs the business side.

Why the MSO model exists

Many states enforce corporate practice of medicine (CPOM) laws, which restrict non-physicians from owning or controlling medical practices. The MSO model separates clinical care from business management, letting investors and operators support growth without violating CPOM rules.

How MSO finances work

The relationship between the practice and the MSO is governed by a Management Services Agreement (MSA). Common fee structures include:

Fixed management fees
A percentage of practice revenue
Cost-plus arrangements

For investors, this creates recurring, predictable cash flow. For practices, it shifts administrative work off the physicians while bringing in capital and operating expertise.

Key finance and accounting considerations

MSOs sit at the center of many roll-ups in dermatology, dental, ophthalmology, urgent care, and behavioral health. The finance issues to plan for:

Valuation. MSOs are typically valued on the EBITDA of the management entity, not clinical revenue.
Revenue recognition. Clinical revenue and management fee revenue need to be separated and accounted for carefully.
Cash flow and intercompany activity. Distributions and intercompany flows between entities must be tracked and reconciled.
Consolidated reporting. Multiple entities often require consolidation for investors and lenders.
Audit and tax. Complex agreements and multi-entity structures raise the bar for audit readiness and tax planning.

Regulatory and operational considerations

Clinical independence. The MSO must not influence clinical decision-making.
Scalable systems. Standardized accounting systems and controls are needed before adding practices.
Investor reporting. Well-structured MSOs give capital providers clear, consistent reporting on margins and cash flow.

Where finance leadership matters most

Strong finance leadership keeps an MSO compliant and ready to grow: building compliant financial structures, designing investor reporting, managing tax strategy and audit readiness, and supporting acquisitions and due diligence.

FirmKey provides fractional and interim CFO support and transaction readiness for growing organizations. Talk to us about where your finances stand.

White Label Tax Services for RIAs and Wealth Advisors

luke@firmkeysolutions.com (FirmKey) — Fri, 16 Oct 2026 12:38:34 GMT

Clients already bring their tax questions to their wealth advisor. Most advisors answer what they can, then send the client somewhere else to get the return prepared. White label tax services close that gap: your firm offers tax preparation under its own brand, without building a tax department.

What are white label tax services?

White label tax services are tax preparation and review delivered under your firm's name. Your clients work with your brand. The preparation, review, and capacity behind it are handled for you, so your team can stay focused on the client relationship and planning.

Why RIAs and wealth advisors add tax

A more complete client experience. Tax becomes part of the financial picture you already manage, instead of a separate relationship clients maintain elsewhere.
A new recurring revenue stream. Most clients need a return every year. That demand already exists in your book.
Better planning context. Seeing each client's return gives you a clearer view of income, deductions, and opportunities, which makes planning conversations more informed.
Client retention. Every outside referral is another relationship competing for your client's trust. Keeping tax in-house keeps the relationship with you.

What gets prepared

A white label program can cover the returns your clients typically need:

Individual returns (Form 1040)
S corporation returns (Form 1120-S)
C corporation returns (Form 1120)
Partnership returns (Form 1065)

That covers most households and the business owners in a typical advisory book.

How it works

Your firm leads the client relationship, the branded tax offering, and client communication. FirmKey delivers the service behind it: tax preparation and review, capacity aligned with your agreed volume, white label service design and pricing, and billing coordination with ongoing support.

What to look for in a white label tax program

Quality control. Returns should be prepared and reviewed to a consistent standard, with a clear review process before anything reaches your client.
Clear workflows. Defined handoffs for documents, questions, and deadlines prevent delays during peak season.
Data security. Client tax data must be handled to regulatory standards.
Capacity that scales. Your program should handle growth in volume without breaking turnaround times.
Credentials. Preparers should hold active CPA or Enrolled Agent credentials and current PTINs.

Is it right for your firm?

White label tax works whether you are introducing tax preparation for the first time, supplementing an existing tax operation, or building capacity for growth. The common thread: your clients already need the service, and you want to be the one providing it.

See how white label tax works with FirmKey or talk to us about your practice.