Nonprofit Accounting: Tips for Better Bookkeeping
It's important not to step into nonprofit accounting with the same mindstate as you would with a for-profit organization. For starters, there is a slew of customary principles involved with nonprofits that you won't see with other types of companies.
While you are tracking some of the same data like cash flow, the way you handle your taxes and your reliance on public trust as a not for profit will require some distinctive changes. In this guide, we're sharing some tips to help you keep your nonprofit accounting on track. Just continue to read along.
Tips for Flawless Nonprofit Accounting
Nonprofit organizations are required to maintain high amounts of financial transparency. And because the IRS often scrutinizes their dealings much closer than those of for-profit businesses, it's important to maintain clear, concise records that are kept safe, yet easily accessible.
This is where uses accounting software can help, as it brings ease to updating and sharing records. But there's a lot more to nonprofit accounting.
We've listed some helpful tips for you to follow below:
Keep Up With an Accounting Schedule
You should schedule times to review certain accounting tasks at specific intervals. For example, weekly, monthly, and quarterly.
Doing so will provide you with the peace of mind that your finances are always on the right track. It also keeps you from scrambling if you should ever need to present financial data to your Board of Directors or donors.
Even if you use accounting software, this is something you should make an effort to review manually.
Evaluate Your Board Members
Part of running a successful nonprofit is ensuring that your goals and objectives are met even as changes and challenges arise. Accomplishing this goal starts with the people you have filling seats on your board.
Your board members should have diverse skillsets that can help the organization benefit the most. You will have to decide which qualities and skills are important to your cause.
However, some good examples of board members you should consider are those with backgrounds in human resources, marketing, information technology, finance, law, and fundraising.
Prepare for Audits Ahead of Time
Although some of the accounting principles for nonprofit organizations differ from those of for-profit businesses, you are still subject to annual audits in this sector.
Keeping yourself prepared for audits includes a few different actions. Including constant communication with the person handling your external audits throughout the year.
You should ask questions about changes to accounting standards in both the short and long terms. You should also ask about infrequent or abnormal transactions that may come up on your report.
Additionally, keeping records of financial statements in files that are organized by date and purpose. Also, don't forget to keep this data in a secure location.
Make Sure Your Are Tax Compliant
It's important to make your Form 990 as accurate as possible to keep from having any red flags reported while also keeping up to date with its schedules. If you are struggling with preparing or even understanding the Form 990, you're not alone.
The American Institute of CPAs' Not-for-Profit Section's tax resource library has resources that can help you.
Track Your Donors
Of course, finding new donors is a large part of operating a not for profit company. But following up with your existing or past donors should also be part of your regular accounting tasks.
Follow up calls to remind donors of the cause they previously gave to can help grow the amount of money the organization brings in. You should also make opportunities that allow you to set up automatic monthly donations with donors.
Doing so helps you establish a predictable and reliable cash flow which will be helpful when it's time for you to work on your budget. Plus it makes your donors' lives a bit easier.
Use the Right Accounting Software
Accounting software can help you maintain your financial statements, record financial changes, teach you control procedures, and much more. Whether you've brought an accountant on board, or you've chosen to handle this job yourself, the right software will significantly lighten your complicated load.
Don't Discard Financial Records too Soon
You need to keep all of your financial records on hand for at least years after the taxation year. Discarding them before they can cause problems during an audit.
With that said, there are certain documents you shouldn't ever toss out. Those are meeting minutes, share registers, general and private journals, and any contracts or special written agreements you may have.
Set a Budget
Your nonprofit organization should have a specific budget set up in writing. The budget should clearly outline how you plan to work toward your organization's financial goals.
Additionally, you should have an operating budget that is prepared each year as well as a cash flow statement and capital budget that is updated regularly throughout the year.
Set a Plan for Cash Donations
Because cash can be stolen in many situations like during collection, storage, and counting, you should have at least two people present during these instances of handling cash.
To keep everything organized and traceable, you should also give each of your donors a numbered receipt. Numbered receipt books come in handy because they also make room for you to record the donation amounts on a receipt that matches the one given to the donator.
With that said, your receipt books and cash should both be placed in a secure location until you are able to deposit it into your organization's bank account.
Do You Still Need Accounting Help?
Nonprofit accounting isn't for everybody. It is a daunting, time-consuming procedure and when it isn't done correctly, it can cause major complications.
So, if you need some additional accounting help, check out our list of services on our site. We can help minimize the difficulty of this task so that you can focus on more important things like running an organization that truly helps your community.