Cryptocurrency businesses face increasingly complex compliance and risk management challenges. As blockchain technology transforms how companies conduct business globally, the need for robust compliance frameworks has never been more critical. 

As regulatory scrutiny intensifies across jurisdictions, organizations dealing with digital assets must develop comprehensive strategies to navigate compliance requirements while managing unique operational risks. The complexity of these challenges requires a thoughtful, proactive approach that combines technological solutions with sound governance practices. 

Understanding the crypto compliance landscape in 2025 

The cryptocurrency regulatory framework moves at different rates across global jurisdictions. For U.S.-based crypto businesses, compliance demands have grown significantly with the finalization of Section 6045 regulations in late 2024, which impact reporting requirements for digital asset transactions. In addition, given the current administration’s support of the crypto industry, we can expect greater focus on compliance for US based companies in the coming years.  

DeFi brokers, often referred to as “trading front-end service providers,” were included in these regulations, requiring them to file information returns and report gross proceeds from digital asset sales or exchanges. However, the regulatory landscape remains dynamic, with potential changes under the current administration that could alter reporting burdens for exchanges and wallet providers. 

Crypto businesses must also navigate anti-money laundering (AML) and know-your-customer (KYC) requirements while addressing accounting and valuation issues unique to digital assets, such as impairment testing, fair market value determination, and revenue recognition. These challenges create a compliance environment that demands specialized knowledge and careful attention to regulatory developments. 

Developing risk management frameworks for crypto operations 

Effective risk management for cryptocurrency operations begins with identifying and categorizing the specific risks facing your organization. Digital asset businesses should develop frameworks that address: 

1. Operational risks: Including wallet security, private key management, and transaction validation protocols 

2. Financial risks: Covering asset valuation, volatility management, and liquidity considerations 

3. Compliance risks: Encompassing regulatory reporting, tax obligations, and cross-border requirements including AML and KYC verification and monitoring 

4. Reputational risks: Addressing potential public perception issues and industry relations 

When implementing risk frameworks, organizations should focus on preventing significant vulnerabilities such as fraud through inadequate segregation of duties, financial reporting inaccuracies, regulatory compliance failures, and inadequate asset safeguarding against security breaches. Each category requires tailored mitigation strategies that reflect your organization’s specific activities and risk tolerance. 

Implementing robust internal controls for digital assets 

Strong internal controls form the cornerstone of effective crypto risk management. When establishing controls for digital asset transactions, organizations should implement several critical elements that address the unique challenges of blockchain operations. Key control components include: 

1. Segregation of duties: Distribute responsibilities for initiating, approving, and recording crypto transactions among different team members to prevent any single person from having excessive authority 

2. Access control protocols: Implement strict controls for wallets, private keys, and transaction systems, using multi-signature requirements for high-value transactions 

3. Transaction validation and verification: Create procedures for validating transactions before execution, including checking recipient addresses and confirming transaction amounts 

4. AML and KYC verification: Develop customer eligibility criteria policies with procedures to validate during onboarding and throughout the business relationship 

5. Documentation and evidence collection: Maintain comprehensive records of all crypto transactions and control activities 

Technology solutions can significantly enhance control effectiveness. Consider implementing automated monitoring tools that track blockchain activity across chains, exchanges, and custodians in real-time. Control dashboards can centralize your framework, highlighting controls that require testing while ensuring proper segregation of duties. Testing and evidence management systems create comprehensive audit trails that demonstrate your control environment’s effectiveness to auditors and regulators. 

Navigating tax compliance for crypto businesses 

Tax compliance is one of the most challenging aspects of crypto risk management due to evolving regulations and the complexity of digital asset operations. Organizations must stay current on several key considerations: 

• For crypto funds operating in asset management, clarity continues to emerge around the applicability of specific Internal Revenue Code sections to digital assets. Investment managers should understand provisions like IRC § 475 mark-to-market election, which provides the benefit of characterizing market-to-market downswings as ordinary losses rather than limited capital losses. 
• Digital asset lending, tokenized real estate, and DeFi operations create additional tax complexities. Lending arrangements executed on smart contract-based platforms, for instance, raise questions about whether IRC § 1058 securities lending rules could apply when a transferor of a digital asset receives an identical digital asset and only recognizes yield on the transaction. 
• For businesses involved in tokenized real estate, understanding the tax implications of fractional ownership is crucial. These arrangements may involve considerations around IRC § 1031 tax deferrals and IRC § 704(c) built-in gain provisions that impact how gains and losses are allocated and recognized. 

Future-proofing your crypto compliance program 

In an industry as dynamic as cryptocurrency, building adaptable compliance systems is essential. Future-proofing your program requires the ability to adapt to changing market conditions, advocate for responsible growth, and establish trust with stakeholders. Whether navigating tax implications, exploring tokenized assets, or engaging with DeFi platforms, informed decision-making is key to unlocking the full potential of digital assets while managing risks effectively. 

Organizations should monitor emerging regulatory trends, including: 

1. Expanded reporting requirements: As governments seek greater visibility into cryptocurrency transactions 

2. Cross-border compliance frameworks: With increasing coordination between jurisdictions 

3. DeFi-specific regulations: As decentralized finance continues to grow in importance 

4. Private and public company reporting regulations: Increased requirements for greater transparency for investor communities that includes attestation and control standards 

5. Tokenized asset classification: Including the treatment of fractionalized real-world assets 

A regulatory monitoring function that tracks these developments can help organizations anticipate and prepare for compliance changes before they impact operations. 

Taking proactive steps toward crypto compliance excellence 

Developing effective compliance and risk management strategies for cryptocurrency operations requires specialized knowledge and a commitment to ongoing improvement. Working with advisors who understand both blockchain technology and financial controls provides a significant advantage in this complex landscape. 

For organizations seeking to enhance their crypto compliance frameworks, partnering with experienced professionals can help design, implement, and test the internal controls necessary for digital asset transactions. The right advisors bring both technological understanding and regulatory knowledge to help your organization thrive in this evolving financial landscape. 

BPM is an early mover in blockchain technology, offering comprehensive services for businesses at all stages—from startups preparing for strategic events to mature companies expanding into new markets. By combining knowledge in digital assets with deep knowledge of compliance requirements in state jurisdictions and public company standards, BPM helps organizations navigate the complex challenges of cryptocurrency operations while building frameworks that support sustainable growth. 

Looking to strengthen your cryptocurrency compliance and risk management framework? Contact BPM to explore personalized solutions for your digital asset operations. 

When companies join forces through mergers or acquisitions, they can reshape their financial landscape—especially when it comes to taxes. Whether you stand on the buy-side or sell-side of a transaction, understanding the tax implications is crucial to achieving your strategic and financial objectives.  

This article explores the essential tax planning considerations for M&A transactions and how proper advisory services can optimize your outcomes. 

Key tax structures in M&A transactions 

The structure of an M&A transaction fundamentally determines its tax treatment and consequences for all parties involved.    

Asset purchase 

In an asset purchase, the buyer acquires specific assets and liabilities of the target company. This structure allows the buyer to “step up” the basis of the acquired assets to their fair market value, leading to future tax benefits through higher depreciation or amortization deductions. However, sellers may face higher taxes due to the potential for some of the gain to be treated as ordinary income as opposed to capital gains. 

Stock purchase 

When a buyer acquires the stock of a target company, they purchase the entire business, including its assets and liabilities. The tax basis of the assets typically remains unchanged. While this may not provide the same depreciation benefits as an asset purchase, a stock purchase can be more favorable for sellers, as it may allow them to qualify for capital gains treatment.  

Buyers typically prefer asset purchases since with a stock purchase, all the history of the company, including any historical tax liabilities, comes along with the stock of the company. 

Tax-free reorganizations 

A merger or acquisition may qualify as a tax-free reorganization under IRC §368, allowing shareholders to defer recognition of gain. This approach can provide significant benefits when immediate liquidity isn’t the primary goal, preserving capital that would otherwise be paid in taxes. 

Critical tax considerations for successful transactions 

Income tax implications 

Based on the structuring of the M&A transaction, the deal can have current tax consequences or potentially qualify for tax deferral. Additionally, the characterization of any gain on the sale between ordinary versus capital gain depends on how the transaction is structured. 

This distinction can create substantial differences in after-tax proceeds, making transaction structure a central element of tax planning for M&A transaction advisory. 

Preservation of tax attributes 

The treatment of tax attributes, such as net operating losses (NOLs) and tax credits, is a crucial consideration in M&A transactions. These attributes can be valuable to the acquiring company, but their use may be limited under certain tax rules, such as the Section 382 limitation in the U.S on NOLs. 

Comprehensive tax planning for M&A transaction advisory includes identifying strategies to maximize the preservation and utilization of these valuable tax attributes. 

State and international tax considerations 

In addition to federal taxes, M&A transactions may have implications for state and local taxes. Different states have varying rules on how mergers and acquisitions are taxed, which can affect the overall cost of the transaction.  

For cross-border M&A transactions, companies must consider international tax implications, such as withholding taxes, transfer pricing and the potential application of double taxation treaties. These factors can significantly influence the structure and financial outcome of the deal. 

Transaction cost recovery 

The tax treatment of transaction costs represents another critical area where proper tax planning for M&A transaction advisory delivers value. Determining which costs can be deducted immediately versus those that must be capitalized impacts cash flow and return on investment calculations. 

Comprehensive approach to tax planning in M&A 

Effective tax planning for M&A transaction advisory requires a holistic perspective that balances tax efficiency with business objectives. This approach includes: 

1. Pre-transaction tax due diligence 

2. Modeling alternative transaction structures 

3. Identifying tax risks and opportunities 

4. Developing integration strategies that maintain tax efficiency 

5. Creating post-closing tax compliance plans 

“The biggest tax planning mistakes happen before the deal even starts. Too many companies treat tax strategy as a checkbox item during due diligence, but by then, you’ve already locked yourself into suboptimal structures. The smart move? Start planning years ahead of a potential transaction. This gives us the runway to stress-test different deal structures, uncover hidden tax advantages, and position your company to capture maximum value when opportunity knocks. When tax planning is woven into your long-term strategy from day one, you’re not just reacting to deals—you’re architecting them for success.” – Bob Houston – M&A Leader 

Working with BPM for your M&A tax planning needs 

BPM brings decades of transaction advisory experience to companies navigating the complexities of M&A tax planning. Our team understands that each transaction presents unique challenges and opportunities, requiring customized tax strategies aligned with your business objectives. We work closely with your leadership team to develop tax-efficient structures that maximize after-tax value while minimizing risk. 

To schedule a consultation with our M&A transaction advisory team and discover how strategic tax planning can enhance your deal value, contact us.  

Running a business demands your attention on growth, client relationships and strategic planning—not getting bogged down in financial paperwork. Many business owners find themselves struggling with accounting tasks that consume valuable time and resources. Outsourced accounting offers a solution that allows you to focus on what you do best while financial professionals handle the numbers.  

This article addresses the most common questions business owners ask about outsourced accounting services, from basic definitions to implementation strategies and cost considerations. 

What is outsourced accounting? 

Outsourced accounting occurs when a business hires an external, third-party company to handle its finance and accounting functions. These functions can include managing payroll, accounts payable, accounts receivable, monthly bank reconciliations, tax prep support, legal compliance and financial reporting, among others. 

When you choose to outsource, the accounting firm essentially serves as your financial department, providing comprehensive support tailored to your specific needs. This approach gives you access to professional financial management without the overhead of a full in-house team. 

How does outsourced accounting differ from in-house accounting? 

In-house accounting involves hiring and training internal staff to handle financial tasks. Outsourced accounting relies on external professionals who are already equipped to manage a business’s financial operations. 

The differences extend beyond personnel. In-house accounting employees typically require a full-time salary and employee benefits, while outsourced accounting services can be tailored to the specific needs of a company. This flexibility allows you to scale services up or down as your business requirements change. 

Additionally, outsourced accounting teams often bring specialized knowledge across various industries and regulatory environments that a single in-house accountant might not possess. 

What types of businesses benefit most from outsourced accounting 

Outsourced accounting can benefit a wide range of business types and sizes, from small startups to mid-size companies. Regardless of industry or rate of growth, companies can find value in hiring an external firm to handle accounting services and improve financial reporting. 

Growing companies with increasingly complex financial needs may benefit from outsourcing, as can small businesses that may lack the internal skills and resources needed to effectively manage their bookkeeping and financial reporting requirements. 

What benefits will I gain from outsourced accounting? 

Outsourcing can provide several benefits, including cost and time savings, as you will no longer need to oversee the hiring and training of in-house accounting employees. This allows businesses to redirect internal staff and resources to support higher-value, core business operations and boost productivity. 

When you work with an outsourced accounting provider, you gain: 

• Access to advanced financial technologies without additional investment 
• Reduced risk of fraud through improved financial controls 
• Consistent financial reporting even during staff transitions 
• Scalable services that grow with your business 
• Proactive compliance management 

How do I select the right outsourced accounting provider? 

Finding an outsourced accounting service provider that fits the unique needs of your company doesn’t have to be a daunting task. An ideal third-party solution will offer extensive industry experience, certified professionals and proven methods for success. 

Look for a provider that demonstrates: 

• Specific experience in your industry 
• Clear, responsive communication 
• Technology solutions that align with your business 
• Strong references from similar businesses 
• Transparent pricing models 
• Customizable service packages 

What costs should I expect for outsourced accounting services? 

Outsourced accounting service costs vary based on the scope of the services needed and the size of the business. Costs may be charged on a flexible, hourly basis or structured within a fixed monthly package. Additional costs or fees may be incurred for additional services throughout the duration of service. 

Most providers will work with you to create a service package that addresses your specific needs while respecting your budget constraints. Remember that outsourcing often eliminates hidden costs associated with in-house accounting, such as recruitment, training, benefits, software and continuing education. 

How is data security handled with outsourced accounting? 

Reputable outsourced accounting firms prioritize data security and the protection of sensitive financial information. Many companies that offer outsourced accounting utilize cloud technology platforms that provide the highest levels of security available in the industry. 

When evaluating providers, ask about: 

• Encryption practices for data transmission and storage 
• Multi-factor authentication requirements 
• Regular security audits and testing 
• Business continuity protocols 
• Employee background checks and training 

Working with BPM 

Outsourced accounting services offer a strategic advantage for businesses looking to improve financial management while focusing on core operations. By partnering with BPM, you gain access to a dedicated team of professionals who understand your industry challenges and provide customized financial solutions that grow with your business. 

To schedule a consultation and discover how our outsourced accounting services can help your business thrive with streamlined financial processes and actionable insights, contact us.

Cybersecurity threats are everywhere today, putting businesses at risk. Many companies don’t have the time, people or skills to protect themselves properly. This is where Managed Security Service Providers (MSSPs) step in. Think of an MSSP as your company’s security guard – they watch for threats, respond to attacks and keep your data safe so you don’t have to.  

This article will discuss what MSSPs are, how they benefit organizations, their key services, how they differ from MSPs and why partnering with BPM for your MSSP needs makes strategic sense. 

Defining a MSSP 

A MSSP is a third-party organization that offers specialized security services designed to protect your network, systems and data. By outsourcing security management to a MSSP, companies gain access to dedicated security professionals who focus exclusively on identifying, preventing and addressing cybersecurity threats. MSSPs employ advanced technologies and methodologies to defend organizations against increasingly sophisticated attacks. 

Key MSSP services 

MSSPs provide a comprehensive range of services tailored to strengthen your security posture: 

Managed firewall protection 

MSSPs implement and monitor sophisticated firewall solutions that act as your first line of defense. These managed firewalls continuously analyze network traffic patterns to establish security parameters and immediately respond when suspicious activity occurs. This constant vigilance helps prevent unauthorized access to your critical systems. 

Intrusion detection and prevention 

Unlike traditional security approaches that only protect the perimeter, modern MSSPs employ advanced intrusion detection that scrutinizes all components within your network. This approach considers every device, user and application as a potential security concern, protecting systems from both external threats and internal vulnerabilities. 

VPN management 

A MSSP configures and maintains secure virtual private networks that significantly reduce your attack surface. By restricting VPN access to only necessary users and implementing robust authentication protocols, MSSPs create a protected environment for remote work and sensitive operations. 

Vulnerability scanning and management 

MSSPs conduct regular, thorough vulnerability assessments across your entire network. This proactive approach identifies weak points before malicious actors can exploit them. Security professionals examine obvious targets like workstations and data repositories but also search for vulnerabilities several degrees removed from critical assets that could serve as entry points. 

Antiviral and anti-malware protection 

With the constantly evolving landscape of viral threats, MSSPs develop customized antiviral strategies that address the specific risks facing your organization. They implement different protection measures based on your infrastructure, creating distinct solutions for on-premises servers, cloud environments and endpoint devices. 

MSSP vs. MSP: Understanding the difference 

While both Managed Service Providers (MSPs) and MSSPs deliver outsourced services, they serve fundamentally different purposes: 

• Security focus: MSPs primarily ensure your IT systems operate efficiently and remain available to employees and customers. In contrast, MSSPs concentrate exclusively on security, working to prevent unauthorized access to your systems and data. This dedicated security focus makes MSSPs particularly valuable for organizations with sensitive information or regulatory compliance requirements. 
• Primary objectives: An MSP’s main goal involves smooth IT administration and operational efficiency. While they may offer basic security features, their solutions emphasize functionality over protection. MSSPs prioritize security above all else, implementing robust measures that sometimes introduce additional steps for users but significantly enhance protection. 
• Specialized tools and methodologies: MSSPs employ specialized security tools and methodologies designed specifically for threat prevention, detection and response. Their proactive approach includes continuous monitoring, threat hunting and incident response capabilities that go well beyond the basic security measures typically provided by MSPs. 

Top 4 benefits of working with a MSSP 

Organizations gain several advantages when partnering with a MSSP: 

1. Access to specialized skills: The cybersecurity talent shortage makes it challenging and expensive to build an in-house security team. MSSPs provide access to security professionals with specialized skills and current knowledge of emerging threats. 

2. Cost-effective security solutions: Establishing and maintaining an internal security operations center requires significant investment in both personnel and technology. MSSPs distribute these costs across multiple clients, making advanced security solutions more affordable. 

3. 24/7 monitoring and response: Cyber threats don’t follow business hours. MSSPs provide round-the-clock monitoring and response capabilities, ensuring your organization remains protected at all times. 

4. Enhanced compliance posture: MSSPs help organizations meet regulatory requirements by implementing security controls and generating documentation needed for compliance audits. 

Why choose BPM as your MSSP 

When selecting a MSSP partner, the right choice makes all the difference. BPM brings industry-leading security capabilities, personalized service and a proven track record of protecting organizations across various sectors. Our team understands the unique security challenges facing your business and develops tailored solutions that address your specific needs.  

With BPM managing your security functions, your team can focus on core business activities while enjoying peace of mind knowing your digital assets remain protected by dedicated security professionals using state-of-the-art technologies and methodologies. To learn how we can help you strengthen your security posture and protect what matters most to your organization, contact us.  

Real Estate Investment Trusts (REITs) are a way to invest in real estate without directly purchasing, managing, or financing properties. These investment vehicles open doors to real estate markets that might otherwise be inaccessible to average investors, combining the potential for both income and growth in a regulated structure. 

With the $4 trillion U.S. REIT industry now reaching more than 170 million Americans through retirement accounts and investment funds, these specialized investment vehicles have become an essential component of many diversified portfolios. What began as a way to democratize real estate investment has evolved into a sophisticated market driving innovation across the built environment—from sustainable building technologies to digital transformation. 

How REITs work 

REITs operate under a specific set of rules that differentiate them from other investment vehicles. To qualify as a REIT, a company must meet several requirements established by Congress. 

Structure and legal requirements 

To qualify as a REIT, a company must: 

• Be structured as a corporation, trust, or association. 
• Have at least 100 shareholders (widely held). 
• Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries. 
• 75% income test: At least 75% of gross income must come from real estate-related sources (rents, mortgage interest, gains from real estate sales, etc.).  
• 95% income test: At least 95% of gross income must come from qualifying sources, which include all sources that satisfy the 75% test plus dividends, interest, and gains from sales of stocks or securities. 
• Pay at least 90% of taxable income to shareholders as dividends each year. 
• Be managed by a board of directors or trustees. 

These requirements help ensure REITs remain focused on real estate investment and maintain their primary function: providing returns to shareholders through income generated from their property portfolios. 

Tax advantages and dividend requirements 

One of the most significant benefits of the REIT structure is its special tax status. Unlike typical corporations that pay taxes on their profits before distributing dividends, qualified REITs can deduct dividend payments to shareholders from their corporate taxable income. This effectively eliminates corporate-level taxation for REITs that distribute all their taxable income. 

In exchange for this tax advantage, REITs must distribute at least 90% of their taxable income to shareholders annually. This requirement creates a reliable income stream for investors but also means REITs retain less capital for growth compared to traditional corporations. 

Types of REITs in today’s market 

The REIT universe has expanded well beyond its traditional boundaries, offering investors access to diverse property types and investment strategies. Understanding these different REIT categories can help investors identify opportunities that align with their investment goals. 

Traditional sectors 

Many REITs focus on established property types that form the backbone of the real estate market: 

• Residential REITs: Invest in apartment buildings, single-family rentals, and manufactured housing communities. Major players include AvalonBay Communities and Equity Residential. 
• Retail REITs: Own shopping centers, malls, and freestanding retail properties. Simon Property Group and Kimco Realty are prominent examples. 
• Office REITs: Focus on office buildings in urban and suburban locations. Boston Properties and Alexandria Real Estate Equities are leading office REITs. 
• Industrial REITs: Invest in warehouse and distribution facilities, which have gained prominence with the rise of e-commerce. Prologis and Duke Realty are examples in this sector. 

Emerging segments 

As technology and society evolve, REITs have expanded into specialized property types that reflect changing economic priorities: 

• Data center REITs: Own facilities that house servers and networking equipment essential for cloud computing and digital services. Examples include Equinix and Digital Realty Trust. 
• Cell tower REITs: Invest in communications infrastructure that supports mobile networks. American Tower and Crown Castle are major players. 
• Healthcare REITs: Own medical facilities including hospitals, medical offices, and senior living communities. Welltower and Healthpeak Properties are prominent in this sector. 
• Gaming REITs: Specialize in casino properties, separating real estate ownership from operational management. VICI Properties and Gaming and Leisure Properties are examples. 

Investment structure options 

REITs can also be categorized by their investment structure: 

• Equity REITs: Own and operate income-producing real estate, deriving revenue primarily from property rents. 
• Mortgage REITs: Provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities. 
• Hybrid REITs: Combine strategies of both equity and mortgage REITs. 
• Publicly traded REITs: Listed on major stock exchanges with shares bought and sold like stocks, offering high liquidity. 
• Public non-traded REITs: Registered with the SEC but not listed on exchanges, typically with limited liquidity. 
• Private REITs: Not registered with the SEC and only available to institutional or accredited investors. 

Benefits of investing in REITs 

REITs offer several distinct advantages that have contributed to their growing popularity among both individual and institutional investors. 

• Portfolio diversification: REITs provide access to real estate, an asset class that historically has shown low correlation with stocks and bonds. By adding REITs to a traditional portfolio of stocks and bonds, investors can potentially reduce portfolio volatility while maintaining or improving overall returns.  
• Income generation through dividends: The requirement that REITs distribute at least 90% of taxable income creates a reliable income stream for investors. These dividends can provide steady cash flow for retirement income or be reinvested to compound returns over time.  
• Liquidity and accessibility: Unlike direct real estate investments, publicly traded REITs offer daily liquidity through major stock exchanges. This liquidity allows investors to adjust their real estate exposure without the transaction costs and time delays. 

Key considerations for REIT investments 

While REITs offer numerous benefits, investors should understand several important factors that can affect REIT performance before adding them to their portfolios. 

• Interest rate sensitivity: REITs are sensitive to interest rate changes for two reasons: higher rates make bonds more competitive with REITs for income-seeking investors, and REITs rely on debt financing, so rising rates increase their borrowing costs and reduce profitability. 
• Property-specific risks: Each REIT sector faces unique challenges – retail deals with e-commerce, office with remote work, healthcare with policy changes, and residential with employment trends. Understanding these sector-specific risks is crucial for REIT investment decisions. 
• ESG factors and sustainable growth: Many REITs now incorporate sustainable building technologies and energy efficiency improvements that can affect both operating costs and property values. Investors should review a REIT’s ESG initiatives and green certifications, as these factors can influence long-term returns and risk profiles. 

How BPM supports REIT success 

REITs face complex regulatory and operational challenges that require specialized experience. BPM, a leading accounting and advisory firm, provides comprehensive support tailored to the REIT industry’s unique needs. 

• Strategic Growth BPM helps REITs navigate acquisitions, digital transformation, ESG initiatives, and performance optimization to support data-driven growth decisions. 
• Tax Compliance Maintaining REIT status requires strict adherence to qualification tests and distribution requirements. BPM provides REIT qualification testing, tax compliance, TRS structuring, and international tax services to preserve tax-advantaged status. 
• Operational Excellence BPM offers data analytics, cost segregation studies, ERP implementation, and outsourced accounting services to maximize operational efficiency and maintain strong financial controls.  

Looking to optimize your REIT strategy or need help to ensure compliance with evolving regulations? Contact BPM to explore tailored solutions for your real estate investment trust. 

Cost accounting can do a lot for your product-based business. It can help you determine the costs to produce your goods or services, price your products appropriately, forecast profit margins, detect operational inefficiencies, and identify strategic growth or investment opportunities.  

But it can’t do it all. What about your financial statements? Reporting documentation? P&Ls? That’s where financial accounting comes in.  

So, what’s the real difference between cost accounting and financial accounting (and why your business will benefit from both)? Let’s find out.  

What is cost accounting? 

Cost accounting is a system designed to analyze and manage the expenses associated with producing goods or delivering services.  

Unlike financial accounting, which adheres to standardized regulations for external reporting, cost accounting is an internal process tailored to a company’s specific needs.  

Its primary goal is to provide actionable insights that help you optimize business operations, control costs, and improve profitability. 

With cost accounting, you typically track the following: 

• Variable costs: Expenses that fluctuate with production levels, such as raw materials. 
• Fixed costs: Costs that remain constant regardless of production volume, like rent or equipment depreciation. 
• Direct costs: Costs directly tied to production, such as labor and equipment. 
• Indirect Costs: Overhead expenses like utilities and administrative salaries. 

Depending on your industry, company size, and overall goals, there are several methods for adopting cost accounting into your business. For wineries, cost accounting can track the cost of raw materials like grapes, labor involved in fermentation, and overhead expenses such as storage facilities.  

And there are a few different systems they may use to keep track of it. One could be job costing—tracking costs for individual projects (jobs)—a great way to forecast expenses and profits on a per-case basis.  

Another could be standard costing, which uses predetermined costs to measure efficiency and identify variances. Similarly, food manufacturers can use process costing to monitor packaging costs or activity-based costing to analyze energy consumption during production runs. 

By leveraging cost accounting systems, businesses gain precise data that supports strategic pricing, budgeting, and operational efficiency improvements. 

What is financial accounting? 

Financial accounting is the process of recording, summarizing, and reporting a company’s financial transactions to provide a clear picture of its financial health.  

Unlike cost accounting, which focuses on internal decision-making, financial accounting is geared toward external stakeholders such as investors, creditors, and regulatory agencies. 

Its primary purpose is to help ensure transparency and compliance with established accounting standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). 

At its core, financial accounting revolves around the preparation of three key financial statements: 

• Income Statement: This document outlines the company’s revenues, expenses, and profitability over a specific period. For manufacturers, it includes cost of goods sold (COGS), operating expenses, and net income.  
• Balance Sheet: The balance sheet provides a snapshot of the company’s financial position at a given moment. It lists assets (like inventory and machinery), liabilities (such as loans or supplier credits), and equity. For manufacturers, this often includes inventory categories like raw materials, work-in-process, and finished goods. 
• Statement of Cash Flows: This report tracks the inflow and outflow of cash within the business across operating, investing, and financing activities. Manufacturers use it to help ensure liquidity for covering operational costs and managing debt obligations. 

Financial accounting is indispensable for product-based businesses for building trust with external stakeholders and remaining compliant with industry standards and regulations.  

For instance, a retail brand might rely on these reports to attract investors by showcasing stable revenue growth or efficient cost management. By maintaining precise records and adhering to regulatory standards, businesses can make informed decisions that drive long-term success. 

Key differences between cost accounting and financial accounting 

Cost accounting and financial accounting are both important components of a business’s financial function, but in different ways. 

At the heart of it, cost accounting focuses on internal efficiency and cost control, whereas financial accounting is externally oriented, providing a snapshot of the company’s overall financial health to stakeholders.  

Let’s explore their differences in depth. 

Purpose and focus 

Cost accounting focuses on internal decision-making, helping managers analyze production costs, control expenses, and identify inefficiencies. It provides granular insights into areas like variable costs, fixed costs, and overheads, enabling businesses to optimize operations.  

For example, a construction company might use cost accounting to monitor labor, materials, and equipment costs for individual projects, enabling them to stay on budget and improve profitability. 

On the other hand, financial accounting focuses on external reporting. It adheres to standardized principles such as GAAP or IFRS to prepare financial statements like income statements, balance sheets, and cash flow statements.  

These documents are essential for demonstrating the company’s financial health to investors, creditors, and regulatory agencies.  

Regulation standards 

Financial accounting is governed by strict regulatory frameworks like GAAP or IFRS. These standards help to ensure consistency and comparability across businesses, making financial reports reliable for external stakeholders.  

Cost accounting, however, is not often bound by such regulations. It is flexible and tailored to a company’s specific needs, allowing managers to design systems that align with operational goals. 

Keep in mind that some companies may be subject to the Cost Accounting Standards (CAS), such as government contractors. 

Reporting frequency 

The timing of reports also sets these two functions apart.  

• Financial accounting operates on a periodic basis—typically quarterly or annually—providing a retrospective view of the company’s performance during specific fiscal periods. 
• Cost accounting generates reports more frequently (daily, weekly, or monthly) to support real-time decision-making. For example, a production manager might rely on daily cost reports to monitor labor efficiency on the factory floor. 

With cost accounting, you have more control over the proper reporting cadence for your business. Since financial reporting answers to key regulatory bodies, there’s less flexibility.  

Level of detail 

Both types of accounting are detail-oriented—but the details they track differ.  

Cost accounting dives deep into production processes to identify cost drivers and eliminate redundancies that can lead to more expedited operational decisions and cost reductions.  

Financial accounting aggregates companies’ financial data into broader categories like total revenue or operating costs to provide a high-level overview suited for external audiences. 

Time horizon 

Financial accounting focuses exclusively on historical data from completed reporting periods to evaluate past performance.  

Cost accounting extends beyond historical analysis by incorporating projections and forecasts.  

For instance, a winery might use cost accounting to forecast how bulk purchasing grapes could lower the finished costs of wine next season. 

Audience 

The intended users of these systems further highlight their differences.  

Cost accounting serves internal stakeholders like managers and department heads who need actionable insights for operational decisions.  

Financial accounting targets external stakeholders such as investors, creditors, and regulatory bodies who require transparent reporting to assess the company’s financial position. 

By understanding these distinctions, businesses can leverage both cost and financial accounting effectively – using cost accounting for day-to-day operational improvements and financial accounting for long-term strategic planning and compliance.  

Together, they provide a comprehensive framework for managing business performance and growth. 

How cost accounting and financial accounting intersect 

Although cost accounting and financial accounting serve distinct purposes, they are deeply interconnected and mutually reliant.  

Together, these systems create a comprehensive view of a business’s financial and operational health, enabling informed decision-making and strategic planning. 

Inventory valuation 

One key area where the two intersect is inventory valuation. Cost accounting provides detailed data on production costs, including raw materials, labor, and overhead expenses, which feed directly into financial accounting processes.  

Accurate inventory valuation is critical for preparing financial statements like the balance sheet and income statement, ensuring compliance with GAAP or IFRS standards. For example, a winery might use cost accounting to calculate the per-bottle cost of wine production, which financial accounting then incorporates into its inventory valuation for external reporting. 

Profitability analysis 

Another point of connection is profitability analysis. Cost accounting breaks down expenses at a granular level—such as variable costs tied to production volume or fixed costs like facility rent—helping businesses identify areas to reduce waste or improve efficiency.  

Financial accounting complements this by summarizing overall profitability in the income statement, providing external stakeholders with a clear picture of the company’s financial performance. Together, these insights allow businesses to assess whether operational changes are translating into improved margins. 

Technology integration  

Many businesses benefit from both cost accounting and financial accounting, so it’s important to have the proper technology to help ensure they’re talking to each other.  

ERP systems and accounting software can streamline the integration between cost and financial accounting by providing a unified platform for managing data. These systems automate the flow of information, ensuring accurate and consistent reporting across both functions.  

For example, ERP systems can allocate production costs (captured through cost accounting) directly into financial reports, such as income statements and balance sheets, reducing manual errors and improving efficiency.  

Make the most of your accounting function with BPM 

Ultimately, cost and financial accounting are not isolated functions—they work in tandem to provide businesses with a holistic understanding of their operations and finances. This integration empowers product-based businesses to control costs effectively while maintaining transparency and trust with external stakeholders. 

For all its benefits, the truth is that cost accounting can be complex and labor-intensive. That’s why many businesses seek support from specialized cost accounting professionals. If you’re interested in maximizing profits and minimizing inefficiencies as you scale, reach out to the BPM team.  

Our cost accounting specialists can help. Contact us today. 

Running a nonprofit organization comes with unique financial challenges. Unlike for-profit businesses focused on generating profits for shareholders, nonprofits must demonstrate accountability to donors, stakeholders, and government regulators while advancing their mission. Effective accounting practices aren’t just about compliance—they’re essential to your organization’s sustainability and impact. 

8 nonprofit accounting best practices 

We understand that you likely chose the nonprofit sector to make a difference, not to spend hours navigating financial complexities. Yet proper accounting serves as the foundation that enables your mission to thrive. Let’s explore eight best practices that can strengthen your nonprofit’s financial management. 

1. Implement a structured chart of accounts 

Your chart of accounts (COA) serves as the backbone of your accounting system. This organized directory categorizes all financial transactions and provides a clear framework for reporting. 

A well-designed nonprofit COA typically includes these five key categories: 

• Assets: Everything your organization owns (cash, property, accounts receivable) 
• Liabilities: Everything your organization owes (debt, deferred revenue, accounts payable) 
• Net Assets: Your nonprofit’s worth (total assets minus total liabilities) 
• Revenue: All incoming funding (donations, grants, earned income) 
• Expenses: All outgoing funding (program costs, administrative expenses, fundraising) 

While the Unified Chart of Accounts (UCOA) offers a standardized template, many small to mid-sized nonprofits benefit from a customized COA that aligns with their specific needs and reporting requirements. 

2. Maintain clear financial statements 

Regular, accurate financial statements provide critical insights into your organization’s financial health and help inform strategic decisions. The four essential statements for nonprofits include: 

• Statement of Activities: Similar to a for-profit income statement, this document tracks revenue, expenses, and changes in net assets over a specific period. 
• Statement of Financial Position: Often called a balance sheet, this snapshot shows your assets, liabilities, and net assets at a specific point in time. 
• Statement of Cash Flows: This reports how cash moves in and out of your organization through operating, investing, and financing activities. 
• Statement of Functional Expenses: Unique to nonprofits, this statement categorizes expenses as program, administrative, or fundraising costs to demonstrate how your spending advances your mission. 

Reviewing these documents regularly helps identify trends, anticipate challenges, and make informed budgeting decisions. 

3. Diversify and track revenue sources 

Financial stability requires more than just raising funds—it demands strategic diversification. Categorizing your revenue sources provides visibility into your funding model and helps identify areas for growth or potential risks. 

Consider organizing your revenue into these categories: 

• Individual donations (one-time gifts, recurring donations, event revenue) 
• Corporate support (sponsorships, matching gifts, employee campaigns) 
• Earned income (membership dues, merchandise, service fees) 
• Investment returns (endowments, stocks, bonds) 
• Grants (government, private foundations, family foundations) 

By tracking these categories separately, you can easily assess your funding mix and make strategic adjustments to increase your organization’s resilience. 

4. Understand and manage overhead expenses 

The term “overhead” has historically carried negative connotations in the nonprofit world. However, these administrative and fundraising expenses are essential investments in your organization’s capacity and effectiveness. 

While conventional wisdom suggested limiting overhead to 35% of total expenses, today’s more nuanced approach recognizes that optimal ratios vary by organization size, mission, and stage of development. Instead of fixating on arbitrary percentages, focus on: 

• Ensuring overhead expenses directly support your mission 
• Communicating transparently with donors about how administrative costs strengthen your impact 
• Finding efficiencies where possible without compromising effectiveness 
• Directing as much funding as possible toward programs while maintaining necessary infrastructure 

Remember, responsible overhead spending builds capacity that ultimately expands your organization’s reach and impact. 

5. Properly manage restricted funds 

When donors place restrictions on their contributions, honoring those intentions becomes both an ethical and legal obligation. Your accounting system must clearly track these different funding categories: 

• Unrestricted funds can be used for any legitimate organizational purpose. 
• Temporarily restricted funds are designated for specific programs or time periods. 
• Permanently restricted funds, such as endowments, provide ongoing support through investment returns rather than the principal. 

Establish clear processes for tracking these restrictions, reporting on their use, and releasing them when conditions are met. This attention to detail builds donor trust and supports compliance with accounting standards. 

6. Invest in nonprofit-specific accounting software 

As your organization grows, spreadsheets quickly become inadequate for managing complex financial data. Nonprofit-specific accounting software offers specialized features that improve accuracy, save time, and enhance reporting capabilities. 

Look for platforms that offer: 

• Fund accounting capabilities for tracking restricted contributions 
• Grant management features 
• Integration with your CRM or donor management system 
• Customizable reporting that aligns with nonprofit standards 
• Multiple user access with appropriate permission levels 

While platforms like QuickBooks can be configured for nonprofit use, solutions specifically designed for the sector may offer additional advantages for complex organizations. 

7. Stay current on tax compliance requirements 

Although nonprofits enjoy tax-exempt status, they still face significant filing requirements. Maintaining compliance protects your organization’s status and reputation. 

Key tax considerations include: 

• Timely filing of the appropriate Form 990 (990-N, 990-EZ, 990, or 990-PF) 
• State-specific filing requirements, which vary by jurisdiction 
• Employer tax obligations (W-2s for employees, 1099s for contractors) 
• Proper handling of unrelated business income tax (UBIT) 
• Documentation of donor acknowledgments for substantial contributions 

Missing filing deadlines or requirements can result in penalties or, in extreme cases, loss of tax-exempt status. Working with an accounting partner experienced in nonprofit compliance can provide valuable protection. 

8. Engage professional accounting partners 

As passionate as you may be about your mission, financial management requires specialized experience. Whether through hiring, outsourcing, or a combination approach, professional accounting support offers significant advantages: 

• In-house accountant: Provides dedicated attention but requires substantial investment in recruitment, salary, and benefits. 
• Outsourced accounting services: Delivers guidance from professionals who specialize in nonprofit accounting, often at lower cost than full-time staff. 
• Fractional CFO services: Offers strategic financial leadership on a part-time basis, ideal for organizations that need high-level guidance without the expense of a full-time executive. 

The right approach depends on your organization’s size, complexity, and budget. Many nonprofits find that outsourcing provides the best balance of insights and affordability, especially when working with a firm that understands the nonprofit sector’s unique challenges. 

Strengthen your financial foundation with BPM 

Effective accounting practices do more than satisfy compliance requirements—they provide the financial clarity that empowers your mission. At BPM, we’ve helped countless nonprofit organizations strengthen their financial systems and make more strategic decisions about their resources. 

Our nonprofit specialists understand both the technical requirements and the mission-driven perspective that make nonprofit accounting unique. Whether you’re establishing basic systems or looking to enhance sophisticated financial operations, we’re here to help. 

Ready to take your nonprofit’s financial management to the next level? Contact BPM today for a consultation with our nonprofit accounting team. Together, we can build the financial foundation that will sustain your mission for years to come. 

Download the e-book, “Realizing the potential of outsourced accounting” to help your business maximize efficiency and transform your financial operations.

Every day, medical facilities handle thousands of sensitive patient records while trying to deliver quality care. HIPAA compliance is at the center of these efforts, providing the framework that safeguards protected health information (PHI).  

This article explores what HIPAA compliance means for your organization, its key components and how proper implementation protects both patients and providers. 

Defining HIPAA compliance 

HIPAA compliance refers to adhering to the requirements outlined in the Health Insurance Portability and Accountability Act of 1996. This federal law establishes national standards for protecting patient health information, ensuring that PHI is kept private and secure while still enabling efficient healthcare administration. 

The Department of Health and Human Services (HHS) regulates HIPAA compliance, with enforcement handled by the Office for Civil Rights (OCR). Through routine guidance and investigations of violations, these agencies maintain the integrity of healthcare data protection nationwide. 

HIPAA compliance isn’t just a one-time achievement but an ongoing culture that organizations must integrate into their operations.  

Who must maintain HIPAA compliance?

HIPAA regulations identify two primary categories of organizations required to maintain compliance: 

• Covered Entities: These include healthcare providers, health insurance companies and healthcare clearinghouses that collect, create or transmit PHI electronically.
• Business Associates: Any organization that encounters PHI while performing contracted services for a covered entity falls into this category. Examples include billing companies, practice management firms, IT providers, cloud storage services and many others. 

The three core rules of HIPAA compliance 

HIPAA compliance centers around three fundamental rules that organizations must follow: 

1. The HIPAA Privacy Rule: Sets national standards for patients’ rights regarding their PHI. This rule primarily applies to covered entities and addresses patients’ rights to access their information, providers’ rights to deny access in certain circumstances and requirements for disclosure forms and privacy notices. 

2. The HIPAA Security Rule: Establishes standards for the secure maintenance, transmission and handling of electronic PHI (ePHI). Unlike the Privacy Rule, this applies to both covered entities and business associates. It outlines necessary physical, administrative and technical safeguards for protecting ePHI. 

3. The Breach Notification Rule: Requires covered entities and business associates to follow specific protocols when reporting data breaches involving PHI. The reporting requirements vary based on the scope and size of the breach. 

Essential HIPAA compliance requirements 

Achieving and maintaining HIPAA compliance requires organizations to implement several key measures: 

• Self-audits: Conduct annual audits to assess administrative, technical and physical gaps in your HIPAA compliance. A Security Risk Assessment alone is insufficient—it’s just one component of the required auditing process. 
• Remediation plans: Develop and document plans to address compliance gaps identified during self-audits. Include specific timelines for resolving each issue. 
• Policies and procedures: Create comprehensive documentation that aligns with HIPAA standards and reflects your organization’s operations. Update these regularly and conduct annual training for all staff. 
• Documentation: Maintain thorough records of all compliance efforts, which become crucial during OCR investigations or audits. 
• Business associate management: Document all vendors with whom you share PHI and execute Business Associate Agreements before any data sharing occurs. 
• Incident management: Establish clear processes for documenting breaches and notifying affected patients as required by the Breach Notification Rule. 

” Self assessments are tricky. They should be documented by an individual with subject matter expertise. You want to know your gaps before further audits reveal such.” – Sarah A. Lynn – BPM Advisory Partner, IT Security & Compliance Subject Matter Expert       

Understanding HIPAA violations and consequences 

A HIPAA violation occurs when there’s a breach in an organization’s compliance program that compromises PHI or ePHI. Violations differ from data breaches—not all breaches constitute violations, but breaches resulting from incomplete or outdated compliance programs do. Many individuals are not clear on what constitutes PHI and ePHI. This is key to the underlying foundation of HIPAA. 

Penalties for non-compliance fall into two categories: civil and criminal. Civil fines can reach up to $1,919,173 per violation, while criminal penalties can include fines up to $250,000 and/or imprisonment for up to ten years. These penalties compound, meaning organizations can face multiple fines for different violations. 

Working with BPM for your HIPAA compliance needs 

Navigating the complex landscape of HIPAA compliance requires specialized knowledge and dedicated resources that many organizations struggle to maintain internally. BPM provides comprehensive HIPAA compliance services tailored to your organization’s specific needs, helping you develop robust policies, implement effective safeguards and maintain ongoing compliance through regular assessments and training. 

Our team will work with you to identify potential vulnerabilities in your current program and develop pragmatic solutions that protect both your patients’ information and your organization’s reputation. 

“Our team has assisted many companies in their HIPAA and Privacy related assessments, to further protect the customer or employee data.” – Sarah A. Lynn 

To schedule a confidential HIPAA compliance evaluation, contact us.  

From AI-powered property valuations to blockchain transactions, PropTech innovations are transforming real estate operations and investment strategies. Mark Leverette, head of the firm’s Real Estate Industry Group and Managing Partner of Client Accounting and Advisory Services at BPM, takes a closer look at these developments. 

Q: How is technology changing the landscape for real estate firms, particularly in financial operations? 

Mark: The real estate sector is experiencing a remarkable technological transformation. PropTech innovations are at the forefront, bringing AI-powers to valuations or rental rates, blockchain transactions, and immersive virtual tours that completely change how properties are marketed and managed. 

What’s exciting is how these technologies are enhancing operational workflows and decision-making capabilities. AI can now handle routine property management tasks that once required significant human hours. Predictive analytics now give us unprecedented foresight into market trends, and blockchain can provide that extra layer of security and transparency that builds trust. 

The real magic happens when firms leverage these technologies to inform investment strategies while simultaneously reducing operational costs. But I always emphasize to our clients that the foundation of all these innovations is high-quality data. Success ultimately depends on how well organizations systematize their workflows and refine their data management processes from initial collection through to final reporting. 

Q: What are the most significant challenges facing the real estate industry today from an accounting and advisory perspective? 

Mark: Several pressing challenges are keeping real estate executives up at night. Interest rates are certainly top of mind, affecting everything from acquisition financing to refinancing existing properties. And the on-again, off-again tariff situation is a constant concern. 

The cybersecurity landscape has become increasingly threatening, with real estate firms becoming attractive targets due to the sensitive financial and personal data they manage. And while new technologies offer tremendous benefits, the change management required to implement them effectively is often underestimated. 

The regulatory environment continues to grow more complex, requiring constant vigilance to maintain compliance while also adapting to evolving market conditions. 

At BPM, we’ve structured our advisory services specifically to address these challenges. We provide comprehensive support spanning tax planning, regulatory compliance, and strategic accounting solutions. Our specialized experience in real estate accounting enables clients to optimize financial performance while effectively mitigating risks in this challenging environment. 

Q: How are emerging technologies like automation, AI, and blockchain reshaping accounting processes in real estate? 

Mark: These technologies are fundamentally transforming accounting operations across the industry. Automation is streamlining previously time-consuming tasks like CAM reconciliations, tenant billing and collections, and lease administration. This shift allows teams to focus on more strategic activities that drive business growth. 

AI delivers exceptional efficiency gains through real-time data analysis, predictive insights, and intelligent automation. The result is higher data quality, more informed decision-making, and more accurate financial reporting. 

Blockchain technology is particularly interesting in how it accelerates transaction recording while simultaneously providing greater security and transparency. This reduces fraud risk and increases confidence in financial operations. 

Together, these technologies are making real estate accounting more efficient, accurate, and scalable. However, I always caution clients about the risks these technologies introduce if implemented without proper controls and oversight. 

Q: What misconceptions do you encounter when discussing outsourced accounting solutions with real estate clients? 

Mark: Our goal is for clients to view BPM’s solutions as a seamless extension of their own team. Many real estate clients initially express concerns about potential loss of control over financial operations, data security risks, or challenges integrating outsourced services with existing systems. 

We address these concerns by highlighting the tangible benefits of our approach, including improved operational efficiency, access to specialized experience, and the ability to refocus internal resources on core business functions. 

What makes our specialty practices effective is how they integrate both with each other and within our clients’ existing ecosystems. We offer flexibility to align with each owner’s preferred operational style rather than forcing clients to adapt to rigid systems. 

We also place tremendous emphasis on robust data security, providing various technology stack options and integrations, and ensuring smooth system transitions. Our team provides comprehensive support throughout implementation, making the process as seamless as possible. 

Q: How do you see the relationship between real estate and technology evolving over the next 5-10 years? 

Mark: We’re at the beginning of a significant evolution. As technology continues advancing, the adoption of innovative solutions will accelerate across the industry, boosting efficiency and enhancing client experiences. 

To maintain competitive advantage, firms should invest strategically in PropTech, AI, and blockchain technologies. The companies that thrive will be those that integrate these tools with strong project management practices to optimize processes, reduce costs, and strengthen market positioning. 

I believe it’s equally important for organizations to prioritize robust cybersecurity frameworks and meet compliance requirements with evolving regulations. These elements are essential to safeguard investments and maintain stakeholder trust. 

The real estate firms that embrace this technological transformation while adding proper controls and governance will be positioned to thrive in tomorrow’s market. 

Final thoughts and next steps 

The real estate industry stands at a technological crossroads: PropTech innovations are revolutionizing everything from property marketing to operational workflows, with AI handling routine management tasks and predictive analytics offering unprecedented market foresight. These advancements create opportunities to simultaneously enhance investment strategies while reducing operational costs. Teaming with a dedicated partner can help you take full advantage of this revolution. 

Ready to transform your real estate operations with strategic technology implementation and specialized accounting experience? Contact BPM today to schedule a consultation with Mark and his team. Their seamless, client-centered approach will help your organization leverage emerging technologies while strengthening financial operations and positioning your business for sustainable growth in an increasingly competitive market. 

Download the e-book, “Realizing the potential of outsourced accounting” to help your business maximize efficiency and transform your financial operations.

In the mission-driven world of nonprofit organizations, the focus naturally gravitates toward program delivery and fundraising. While these activities are vital to your impact, effective financial management serves as the backbone that enables your organization to fulfill its mission sustainably.  

As nonprofit professionals, you face unique challenges that traditional businesses don’t—from managing restricted funds to navigating complex compliance requirements—all while stretching limited resources to maximize community impact. 

At BPM, we understand these challenges and have helped countless nonprofit organizations develop financial management practices that support their missions. Let’s explore how you can strengthen your nonprofit’s financial health and create a foundation for lasting impact. 

Why your nonprofit needs robust financial management 

Before diving into specific strategies, it’s important to understand why financial management matters so much for your organization: 

• Mission sustainability: Strong financial practices ensure you can continue serving your community for years to come 
• Donor trust and transparency: Clear financial reporting builds confidence with supporters who want to see their contributions used effectively
• Regulatory compliance: Meeting IRS requirements and accounting standards is essential for maintaining your tax-exempt status 
• Strategic decision-making: Data-driven insights help you allocate resources where they’ll have the greatest impact 
• Risk management: Proactive financial planning helps you navigate unexpected challenges and economic fluctuations 

Unlike for-profit businesses that focus on maximizing profits, your nonprofit must balance financial stability with mission fulfillment. This requires a different approach to financial management—one that embraces both fiscal responsibility and mission-driven values. 

Key components of an effective nonprofit financial plan 

1. Understand your nonprofit’s funding model 

Before you can develop a strategic financial plan, you need a clear picture of where your money comes from. Most nonprofits rely on multiple revenue streams, which might include: 

• Individual donations 
• Grant funding 
• Program fees or service charges
• Membership dues 
• Corporate sponsorships 
• Earned income 
• Investment returns 

Identifying your primary funding sources helps you understand your organization’s financial vulnerabilities and opportunities. For example, if you rely heavily on grant funding, you’ll need strategies to manage the cyclical nature of grant cycles and reporting requirements. If individual donations drive your revenue, donor retention programs become critical to your financial health. 

2. Create and maintain comprehensive financial policies 

Strong financial management starts with clear policies that govern how your organization handles money. These policies build accountability, reduce risk, and ensure consistency even as leadership changes. Essential financial policies include: 

• Gift acceptance policy: Outlines what types of donations your organization can accept and under what conditions. This helps you gracefully decline inappropriate gifts while encouraging suitable contributions. 
• Conflict of interest policy: Establishes procedures for identifying and managing situations where board members or staff have competing interests that could affect financial decisions. 
• Expense reimbursement policy: Details which expenses qualify for reimbursement, required documentation, and timelines for submission and payment. 
• Staff compensation policy: Creates a framework for fair and competitive compensation, including both direct compensation like salaries and indirect benefits like healthcare and professional development. 

Compiling these policies into a comprehensive financial handbook provides guidance for your team and demonstrates good governance to external stakeholders. 

3. Implement proper accounting systems and practices 

As your nonprofit grows, managing financial data in spreadsheets becomes increasingly risky and time-consuming. Modern nonprofit accounting software like Sage Intacct offers specialized features designed specifically for the unique needs of mission-driven organizations. 

Sage Intacct helps nonprofits: 

• Track restricted and unrestricted funds with automatic tagging and allocation 
• Generate FASB-compliant financial statements with the click of a button 
• Create program-specific reporting to understand the true cost of each initiative
• Automate grant management processes for improved compliance 
• Provide real-time dashboards for board members and leadership 

With the right technology, your team spends less time on manual data entry and more time on strategic financial analysis that advances your mission. 

4. Develop and monitor budgets aligned with your mission 

Your budget is more than a financial document—it’s a strategic plan that reflects your organization’s priorities and goals. Effective nonprofit budgets: 

• Align with your strategic plan and mission objectives 
• Account for both restricted and unrestricted funding 
• Include realistic projections based on historical data 
• Incorporate contingency planning for unexpected events
• Break down expenses by program, administration, and fundraising
• Receive regular review and updates as conditions change 

By comparing actual performance against budget projections, you can identify variances early and make timely adjustments to keep your mission on track. 

5. Maintain transparency with comprehensive financial reporting 

Regular financial reporting builds trust with donors, board members, and other stakeholders while providing essential insights for decision-making. Key nonprofit financial statements include: 

• Statement of financial position: Shows your organization’s assets, liabilities, and net assets at a specific point in time (the nonprofit equivalent of a balance sheet).
• Statement of activities: Details revenue and expenses over a particular period, broken down by with and without donor restrictions (the nonprofit equivalent of an income statement). 
• Statement of functional expenses: Categorizes expenses by program, management, and fundraising to demonstrate your mission efficiency. 
• Statement of cash flows: Tracks cash moving in and out of your organization through operating, investing, and financing activities. 

These reports not only fulfill compliance requirements but also tell the story of how your financial resources support your community impact. 

5 best practices for sustainable nonprofit financial management 

1. Diversify revenue streams 

Relying too heavily on a single funding source creates significant risk for your organization. If that source unexpectedly declines—whether due to economic downturns, shifting funder priorities, or other factors—your entire mission could be jeopardized. 

Creating a diversified funding portfolio provides stability and flexibility. Consider developing a mix of: 

• Individual giving programs (monthly donors, major gifts) 
• Foundation and government grants 
• Corporate partnerships and sponsorships 
• Earned income opportunities aligned with your mission 
• Events and campaigns 
• Planned giving and endowments 

This diversification acts as financial insurance, protecting your organization from the inevitable fluctuations in any single revenue source. 

2. Balance program and overhead expenses 

While the pressure to minimize overhead is real, an exclusive focus on reducing administrative costs can actually undermine your long-term effectiveness. Strategic investments in infrastructure, technology, and talent enable your organization to deliver programs more efficiently and scale your impact. 

Rather than adhering strictly to arbitrary ratios, focus on: 

• Ensuring overhead expenses directly support program delivery 
• Investing in systems that improve operational efficiency 
• Being transparent with donors about the true cost of your mission
• Measuring outcomes alongside financial metrics 

Remember that your goal isn’t to minimize spending—it’s to maximize impact relative to the resources invested. 

3. Build operating reserves 

Every nonprofit should maintain an operating reserve—funds set aside to cover unexpected expenses or revenue shortfalls. These reserves provide a financial cushion that can help your organization weather challenges without disrupting essential programs. 

Financial advisors typically recommend maintaining reserves equivalent to 3-6 months of operating expenses, though the appropriate amount varies based on your organization’s size, funding model, and risk profile. 

Building reserves requires intentional planning and discipline. Consider: 

• Setting specific reserve goals in your annual budget 
• Designating a portion of unrestricted donations for reserves 
• Creating board policies for when and how reserves can be used 
• Gradually building reserves over time rather than all at once 

With adequate reserves, your nonprofit gains the stability and flexibility to pursue long-term strategic goals rather than just managing day-to-day survival. 

4. Implement risk management strategies 

Financial risks come in many forms, from external economic factors to internal control weaknesses. Developing a comprehensive risk management approach helps protect your organization’s assets and reputation. 

Key risk management strategies include: 

• Conducting regular financial audits or reviews 
• Maintaining appropriate insurance coverage 
• Implementing strong internal controls with segregation of duties 
• Creating contingency plans for revenue shortfalls 
• Monitoring compliance with funder requirements and regulations

By proactively identifying and addressing potential risks, you can prevent many financial challenges before they occur. 

5. Leverage technology for greater efficiency 

Modern financial management technology like Sage Intacct can transform how nonprofits handle their finances. By automating routine tasks and providing powerful reporting capabilities, the right technology allows your team to focus on strategic priorities rather than administrative burdens. 

Look for technology solutions that offer: 

• Cloud-based access for remote work flexibility 
• Role-based permissions to maintain proper controls
• Automated workflows for approval processes 
• Real-time reporting and dashboards 
• Integration with other systems (CRM, payroll, etc.) 
• Specialized nonprofit features like fund accounting 

With Sage Intacct’s nonprofit-specific functionality, you can streamline operations while gaining deeper insights into your financial performance, ultimately helping you make more informed decisions about resource allocation. 

Bringing it all together: From financial stability to mission impact 

Effective financial management isn’t separate from your mission—it’s an essential enabler of your impact. When your organization achieves financial stability, you gain the freedom to focus on what matters most: serving your community and advancing your cause. 

The journey to financial excellence is ongoing. It requires commitment, adaptability, and a willingness to invest in the right people, processes, and technologies. But the rewards are immense: greater mission impact, stronger donor relationships, and the ability to weather challenges that might otherwise derail your important work. 

As you implement these financial management strategies, remember that you don’t have to navigate these waters alone. BPM’s nonprofit specialists bring decades of experience helping mission-driven organizations like yours develop financial practices that support sustainable growth and impact. 

Ready to strengthen your nonprofit’s financial foundation? 

Contact BPM today to learn how our nonprofit specialists can help you implement these strategies and leverage powerful tools like Sage Intacct to transform your financial management. Our team understands the unique challenges nonprofits face and can provide customized solutions that align with your mission and goals. Let’s work together to build a financially sustainable future for your organization and the communities you serve.