Our accounting professionals have served hundreds of nonprofit organizations throughout the decades since we were founded and we have found these ten tips to be some of the most helpful.
Regardless of the size of your nonprofit, it’s important to define and adhere to an annual operational budget. A good budget will serve as a roadmap, defining where and when your organization will deploy its resources throughout the year.
However, it’s critical to ensure your operational budget is realistic and based on previous income and expenditures over the years.
Most importantly, be sure to review your budget monthly to ensure cash flow and expenses are working out as expected.
Strict segregation of duties is critical for any organization. When internal controls are effective, there will be a separation of duties between those who perform accounting tasks and/or control activities and those who handle the organization’s assets.
Ideally, no one individual will perform more than one of the following duties without someone else approving the steps along the way:
When internal controls are successful, the work of one individual is independent of, or serves to check on, the work of another. This structure reduces the risk of undetected errors and limits opportunities for employees to misappropriate assets or conceal intentional misstatements in financial statements.
And finally, to ensure operational continuity, make sure more than one individual is authorized to sign checks and authorize other banking transactions.
Be sure to record expenses when they occur rather than when you receive an invoice. Especially when the expense is being paid with grant money, grantors want to understand how and where you spent it.
Your accounting platform should suit your needs – not your budget.
In other words, just because you have a large budget, you don’t necessarily need to invest in a top-of-the-line accounting system. Your accounting system should be sized to your organization and should suit your specific needs. For example, do you manage one program or several? Do you have different locations that must be kept separate? Do you have multiple allocations of expenses? Also, keep in mind – if you don’t need payroll functionality, don’t pay for it.
This one appears to be straightforward, but we find many nonprofit organizations making this mistake. When forecasting fundraising, be sure to use historical data to develop an accurate projection.
For example, if your organization raised $500 thousand in its annual giving campaign for the last three years, it’s unwise to assume donations will surpass $1 million this year.
Recently, as the nation began to recover from the COVID pandemic, many nonprofits expected donations to rebound quickly to pre-pandemic levels. Instead, they are finding it is taking more time than expected for donors to come forth.
If you’re managing grants effectively, you’ll want to know the ins and outs of your grantors’ and donors’ requirements. That is why it’s important to keep these documents organized for quick reference.
During day-to-day accounting activities, your team should constantly be referring to these documents to clarify what activities grants cover and what the grantor requires in terms of reporting. Does funding come before fundraising? If your nonprofit is earning money, can you still use grant money? How much per hour will they pay for you to enlist the help of a consultant? What is the grant start/stop date?
Some grants can get very specific, so it’s important to be aware of the fine print.
The general ledger consists of a string of codes or numbers given to each account in the Chart of Accounts. When planning your general ledger string, be sure to define best practices for everyone to follow across the organization. In general, consider your organization’s future needs, keep coding simple with the flexibility for room to grow.
Some nonprofit accountants maintain what they call their “big book of everything.” This is an organized file of various folders detailing important things such as reporting deadlines. Some grantors require proof of expenditures, so this file will contain all receipts. Other folders may include sales and use tax information, loan documents or amortization schedules for reference. Staying organized makes the end of the year less stressful.
As with any entity, it’s important that leaders understand the organization’s financial health. Review the profit and loss statement and balance sheet monthly. Understand how accounts receivable and accounts payable stand. Are bills being paid on time? Is the organization owed money? Also, keep an eye on bank statements, credit card statements and employee salaries.
Not everyone is a finance expert, but to have a successful nonprofit organization, you can’t guess – you need financial expertise. It’s important to be familiar with the Financial Accounting Standards Board (FASB), which uses Generally Accepted Accounting Principles (GAAP) as the foundation for its accounting methods and practices.
If you don’t adhere to GAAP, it’s likely an annual audit will call attention to your organization’s shortcomings.
If your team has questions about anything – perhaps how to code something related to a grant, or questions about depreciation, don’t be afraid to reach out to an expert for help.
Are you spending more time managing your organization’s finances than you are exploring ways to grow it? We can help.
If you’re curious, here are some of the nonprofit entities we currently serve.