What Small Nonprofits Should be Talking to Their Accountant About

In the world of small, nonprofits, financial management can often feel daunting to navigate. From understanding the nuances of revenue and accounts receivable to deciphering balance sheets and profit & loss statements, there’s no shortage of complexities to focus on.

Here are a few topics small, non-profit organizations should be talking to their accountant about:

1. Revenue vs. Accounts Receivable (A/R)

Understanding the distinction between revenue and accounts receivable is fundamental to financial literacy. Revenue represents the income generated from the sales of goods, services, contributions or grants.  While accounts receivable refers to the amounts owed to the organization by customers or donors for goods and services or grant awards already provided. Your accountant can help you track both revenue and accounts receivable effectively, ensuring accurate financial reporting and cash flow management.

2. Cash Flow Management

Cash flow is the center of any organization, including nonprofits. It encompasses the movement of cash in and out of the organization and is essential for meeting day-to-day expenses and funding operations. Your accountant can assist you in developing cash flow projections, monitoring cash inflows and outflows, and implementing strategies to optimize cash utilization. By maintaining healthy cash flow, you can enhance financial stability and resilience.

3. Understanding the Balance Sheet and Profit & Loss Statement

The balance sheet and profit & loss (P&L) statement are two fundamental financial reports that provide insights into the financial health of your organization. The balance sheet summarizes assets, liabilities, and equity at a specific point in time, offering a snapshot of your organization’s financial position. On the other hand, the P&L statement (also know as the income statement) details revenues, expenses, and net income or loss over a specified period, such as month, quarter, or year to date. Your accountant can help you interpret these financial statements, identify trends, and make informed decisions based on financial performance.

4. Tax Obligations

Navigating tax obligations can be daunting for small, nonprofits, but it’s crucial for maintaining compliance and optimizing tax efficiency. Your accountant can advise you on what types of income are taxable and what deductions or credits you may be eligible for. Common tax considerations for non-profits include unrelated business income tax (UBIT), payroll taxes, and sales tax. By staying informed about your tax obligations and leveraging available tax benefits, you can minimize liabilities and maximize financial resources for your mission.

5. Recordkeeping for Audits

Audits are a necessary aspect of financial accountability for small, non-profits, ensuring transparency and integrity in financial reporting. Proper recordkeeping is essential to facilitate audits and provide evidence of financial transactions and activities. Your accountant can guide you on the documents and records you need to retain for audit purposes, such as financial statements, bank statements, invoices, receipts, and payroll records. By maintaining organized and accurate records, you can streamline the audit process and demonstrate compliance with regulatory requirements.

In the complex landscape of nonprofit finance, proactive communication with your accountant is essential for financial literacy, compliance, and strategic decision-making. By discussing topics such as revenue and accounts receivable, cash flow management, understanding financial statements, tax obligations, and recordkeeping for audits, you can empower your organization to navigate financial challenges with confidence.

If you would like to explore whether outsourcing your accounting function to ARI is the right move for your business, contact us today.

In the meantime, discover the top 10 accounting tips for nonprofits.

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