Non Profit Accounting
Non Profit Accounting is vital since Nonprofit organizations need to maintain highly accurate financial records in order to be successful. The accounting department of any nonprofit is crucial to its overall health and performance. Without strong accounting, charities are unable to build donor trust, increase funds, work for their cause or pay staff competitive salaries.
Nonprofit Accounting Basics outlined an accounting cycle that affects organizations in various ways. The cycle consists of four stages:
- Accounting: Internal management of an organization’s finances. It has to be accurate and efficient.
- Reporting: Presenting accounting data in digestible, meaningful ways to nonprofit board members and the CEO.
- Analysis: Interpreting accumulated data to better understand the organization’s functionality.
- Planning: Using the data and its analysis to determine budgets, both long- and short-term, internal and external.
Accounting is not simply about finances, it affects all areas of operation for a business or nonprofit. In order to ensure this cycle is consistent, reliable and sturdy, nonprofit accounting departments should recognize the following:
Understand revenue distinctions
According to NPEngage, nonprofits accrue funds in several ways. They may sell tickets to events, accept grants, make investments, receive donations or earn fees for services provided to third parties. Each one requires a different calculation method and must be accounted for meticulously.
Understand tax requirements
Nonprofit organizations will have different tax obligations depending on their annual income and mission. Most will have to complete a Form 990 for the Internal Revenue Service; others may have to fill out certain documents if they accept non-cash donations.
Understand theft is a possibility
Evergreen Industries, a group that provides charities with items to sell during fundraising events, noted that theft should be monitored. Evergreen cited a report from Traveler’s Insurance that claimed an average organization can lose 5 percent of revenue in a single year as a result of internal fraudulent activity. This means that the accounting and financial departments should be supported by others in the nonprofit to double check activity. Often, fraud may simply be an honest mistake, rather than a calculated error. Help eliminate inconsistencies by monitoring operations closely.
Understand the power of automation
Software Advice’s 2015 Fundraising and Donation Management system Software UserView revealed that 98 percent of the nonprofits surveyed claimed automation and donation management software improved their record keeping, workflow and financial reporting abilities. Adopting a program that automatically populates financial information and donation histories eliminates the risk of redundancy and error. Manually entering figures into spreadsheets or other platforms is time-consuming and tedious. Automation improves the accounting department’s efficiency and makes it easier to produce digestible reports. This in turn helps CEOs and board members better interpret and analyze data in order to plan for the future. An effective and streamlined mode of operations can also assist in cutting back on expenses.
Adopting a donation management software has the power to provide charities with increased revenue and donor retention, two things that can dramatically improve a nonprofit’s reputation and standing within its sector. A financially healthy organization will earn constituent trust.