Ok, I know I haven’t posted in a long time… I’ve actually been waiting to post, purposely! However, this one couldn’t wait. It’s a great article…
The current economic situation has only intensified the ever-present need of executives of small and mid-sized nonprofits to find cost-effective ways to reduce overhead costs. According to a new report released by the Meyer Foundation and the Management Assistance Group (MAG), outsourcing is a promising strategy for these nonprofits to meet their back-office needs, but there are many barriers that prevent outsourcing success.
The study, “Outsourcing Back-Office Services in Small Nonprofits: Pitfalls and Possibilities,” is based on a survey of grantees of the Foundation, interviews with grantmakers, consultants, and a range of back-office service providers, and a review of current literature on the subject. The goal for the collaboration was to survey and identify alternative back-office services that could strengthen operations, relieve the pressures on executive directors, and lead to greater efficiencies, particularly in this difficult economic climate.
Key findings include:
Outsourcing may not offer short-term cost savings but can offer significant long-term benefits and cost savings.
Current business models for outsourcing are often not well suited for serving small to mid-sized organizations, many of which are complex and have significant unmet needs.
There is a significant opportunity for business entrepreneurs with a deep knowledge of and sensitivity to the nonprofit sector and innovative new business models.
Areas most in need of better solutions include human resources, marketing and communications, and financial planning.
Barriers that prevent nonprofits from outsourcing back-office services include the inability to find specialized skills at a reasonable cost, lack of time to find and contract with providers, and negative past experience.
The 48-page study offers ideas for grantmakers, back-office service providers, nonprofit executives, and business entrepreneurs as they consider how to better meet the back-office needs of nonprofits and proposes a framework for evaluating outsourced back-office services.
Since we’ve been talking a bit about banking, the economy, how money flows, who does what with your money, etc. I figured this video would help explain all this a little better and from a bit of a different angle.
So, I always know when it’s time to talk about a specific subject on here. Usually, several (ie. more than 2 or 3) of our customers have the same question, around the same time. So here we go… This isn’t going to be a fun topic, but, if you get to the bottom of the post, there will be a nice reward for you. Read this though, and you’ll never have to question it again… You’ll just remember!
In my opinion, the banking business is in the top 10 most confusing systems in the world. It’s so hard to understand, yet we trust these people with ALL of our money, ALL of our credit and ALL of our investments. We take cash to this building, hand it to a person behind a desk and miraculously it shows up as a number on our bank statement. Most of the time, we never see that cash again, but we trust that when we write a check, the numbers show up on someone else’s bank statement and not ours anymore. CRAZY… REALLY, we trust that it just all works, but most of us have no idea what goes on behind the scenes. So, let me give you a 30 thousand foot overview of what’s going on here.
First, when you write a check to someone, you’re basically giving them an “IOU” and promising that your bank will transfer the money to them… Somehow. Now, if that person takes that check to YOUR bank to cash it, then your bank will take the cash directly out of your bank account and give it to them. Simple, right? But, if that person takes that check to THEIR bank (or any other place that will cash the check) then several things need to happen. First, THEIR bank will usually want to know that they have enough money in their own bank account to cover the amount of the check. So, if the check is written for $200 and they have $500 in their bank account, then the bank will typically cash the check. However, if there the check is written for $200 but they only have $100 in their bank account, then the bank may put a “HOLD” on a portion of that money until the check clears the system. So, the bank may “HOLD” $100 of the $200 check.
What happens next? Well, the processing time actually depends on the time you make the deposit at the bank. Typically, if you make a deposit before 2:00pm, then the check will be processed that day. If you deposit it after 2:00pm, then it may not be processed until the next BUSINESS day. Remember, if you make a deposit at 3:00pm on Friday, that check usually won’t be processed until MONDAY. Then, you have to consider the next step in the process.
Each day, after the “Cut-off” time, the bank sends a listing of all the checks that they’ve cashed for the day to what’s called an “Intermediary Bank”. There are really 3 types of intermediary banks, but the Federal Reserve Bank handles about 60% of all these transactions, so let’s just talk about that one. The Fed is really the link between all financial institutions. Money that you deposit at your bank, is ultimately taken to the Federal Reserve and then distributed from there. If everyone who banks at your branch, came in on one day and tried to withdrawal all of their money, the branch wouldn’t have enough cash to give them. That’s because, most of the money is sitting in the Federal Reserve bank (or, other places that we can talk about later. Hence our current financial crisis!) So, the federal reserve looks at the routing # (ABA#) on your check and finds the bank that the check was written off of. They then send a request to your bank, asking them to send the Federal Reserve the $200 that the check was written for. If there is enough money in your bank account, then your bank debits your account and sends the money to the Federal Reserve. The Federal Reserve then sends the money to the bank the person made the deposit at and everyone is happy.
Now, what if there isn’t enough money in your bank account, but you write the check anyway? Well, when the Federal Reserve requests that money from your bank, your bank says “Sorry, “Insufficient Funds”. The federal reserve then sends a message back to the depositing bank saying, “Insufficient Funds – Don’t cash that check!” If the bank had already given the person the money, then they’re stuck and you’ve run off with their money! This is why banks won’t cash a check unless you have an account with them. They want to make sure that you’re going to be responsible for that money, just in case the federal reserve comes back saying “Insufficient Funds”.
So, it takes time for all of this to happen. Years ago, it used to take longer, but now that Check 21 is in effect, everything is done electronically and it’s a much quicker process. BUT, it still takes 24 to 48 hours (sometimes longer) for all of this to take place. This time frame makes up PART of the term “FLOAT”. The float is really the time between when the check is printed to the time the funds are available. You can figure mail time, how long it takes someone to open the mail and actually get it to the bank to make the deposit and then how long it takes for the banks to negotiate the funds. ALL this time makes up the float and there are literally 50 different things you can do with that “Float Time” to actually make money before the checks clear. (ie. Zero Balance Accounts, Funds sweep, etc. Again, different topics for a different day BUT, if you want more info now, just ask!)
This float time can work in your favor (sometimes) OR it could kill you! For example, if you know that payroll is hitting tomorrow and you make a deposit today, then the bank might put a hold on that deposit to wait for the Federal Reserve to do their thing… This hold could take 2 days, in which case, your payroll won’t go through and checks would likely bounce! Just because you make a deposit today, doesn’t mean that the money will be available tomorrow! This is very important!
So, in a nutshell, the Federal Reserve Bank is the middle man between all the other banks. All the money supposedly goes in and out of the Federal Reserve. So, A couple questions…
1. What if your bank decides to take your $200 and invest it rather than sending it to the Federal Reserve? What if your BANK plays the “Float”?
2. What happens if a bunch of people withdrawal all (or a lot) of their cash out of their bank accounts at one time and the Federal Reserve doesn’t have enough cash to distribute to everyone because the BANK played the float?
3. What if the bank barrows money (from another bank) to send to the Federal Reserve and then invests YOUR money, trying to make a profit?
4. What if the stock market sucks and the bank loses your money and can’t pay back the loan they took out to send to the Federal Reserve?
So, I always know when it’s time to talk about a specific subject on here. Usually, several (ie. more than 2 or 3) of our customers have the same question, around the same time. So here we go… This isn’t going to be a fun topic, but, if you get to the bottom of the post, there will be a nice reward for you. Read this though, and you’ll never have to question it again… You’ll just remember!
