Nonprofits have lots of financial red tape. Maintaining a nonprofit’s status proves challenging when supporting documentation is misrecorded.
Nonprofit accountants suffer the most when it comes to tracking various financial processes. These accounting challenges can even change by year. Depending on regulation changes set by the Financial Accounting Standards Board, you may fall out of compliance.
Read this guide to learn about the most common ways to overcome these challenges for your nonprofit.
1. Real-Time Financials
One of the most common accounting challenges nonprofits face involves monthly financial statements. Most nonprofits lack real-time visibility on transactions. Often, processes fall behind, which results in bulk entries once or twice monthly.
Infrequent data entry causes problems. Managing cash flow and budgets further apart makes proactivity more difficult. Automated processes allow for seamless transaction entry.
This streamlined feature is part of most financial accounting software. Choosing the right software requires expertise most for-profit accountants might not have. You want something that offers security and access with variance.
2. Management Reporting
When nonprofits lack real-time financial data, they face even further accounting challenges. This includes periodic or inaccurate management reports. Financial statements are less useful with outdated data.
To accurately determine reporting, fundraising goals, and more, you need current reports. Ideally, timely reports allow for detailed expense reports for event mission-based budgets. You can also improve daily function and focus on finding better funding sources.
Management reports should not be overlooked. They are the financial bread of butter of any nonprofit organization. Professional nonprofit accountants offer services to help you manage reporting, too.
3. Paper-Based Processes
Many institutions cannot efficiently track and record financial data. Most nonprofits still use paper documentation as critical parts of their accounting.
Paper provides a valuable hard copy of certain information. It should not be at the nexus of any accounting process.
To avoid outdated accounting challenges like paper-based processing, find the right software. Or, turn to a professional nonprofit bookkeeper. You will see an improvement in workflow, managed reports, and real-time financial information.
A professional can track expenses down to each department and/or event. This automates the ineffective tracking down of receipts and invoices. It also saves valuable time for your organization.
4. Tracking Grants
Grant tracking ends up on this list of accounting challenges, too. Accounting comes with many tasks and subtasks.
This makes it hard to keep track of multiple processes. Applying for grants is no different.
When applying for grants, there are often many steps involved. Tracking grants and their accompanying processes is usually a full-time job. Whether tracking grants applied for or received, no nonprofit wants to lose track.
Overcoming this challenge involves working with software to streamline reporting. It might also mean hiring a specialist to manage grants.
You might be wondering who to hire for this position. Consider a nonprofit accounting service.
You might be wondering who to hire for this position. Consider a nonprofit accounting service.The Charity CFO
They’re likely to have the skills and dedicated processes for grant tracking. You can also save on time and money when you outsource this work.
Many nonprofits overlook cybersecurity. Primarily, this directly impacts financial security. To avoid accounting challenges that impact your organization’s future, you need resources.
Your first step should be to limit access to financial information. A nonprofit accounting service usually has processes to update security features. Their procedures can protect your information, too.
A nonprofit accountant can give you access to accounting software. This helps to keep your information safe.
Professional monitoring of your accounts is better for cybersecurity. An experienced eye is more likely to notice any disparities sooner, too.
6. Payroll Management
Your nonprofit needs a system for payroll. If it does not have one, it suffers from accounting challenges. This system should not be paper-based or inconsistent.
If you do not track sources of income for your employees, it makes their tax reporting harder.
Additionally, poor management of payroll allows for critical financial discrepancies. It becomes more challenging to support salary amounts for leadership or executive officers. If your nonprofit’s finances ever come under audit, you need payroll management.
The best solution is to consider an external payroll bookkeeper. This removes any issues in tracking sources of income and dispersal of funds. It also ensures you have a reliable system for paying employees.
7. Board Oversight
Management reporting may not only fall to one leader. Board oversight offers many accounting challenges. It also provides benefits.
For example, a board may bring financial advice to support your nonprofit. A panel also adds more steps to reporting processes. These additional steps can generate more errors in reporting.
To account for board oversight, consult a professional nonprofit accountant. They can streamline reporting processes.
They can also answer complicated queries. Board members may inquire about budgeting, assets, and expenses. A professional has the knowledge you may not.
8. FASB Compliance
With the FASB as the golden standard for accounting, it’s critical to stay up to date. The regulations for 501(c)3 organizations change annually. Sometimes, these changes happen more than once a year.
Consulting nonprofit bookkeepers can ensure you avoid falling out of complaints. Accounting challenges like incompliance are worth investing in a professional. The last thing you want is to lose nonprofit status from a small mistake.
Where to Turn for Tax Professionals to Solve Your Nonprofit Accounting Challenges
If you find yourself in search of accounting services for your nonprofit, look no further. At The Charity CFO, we can address the accounting challenges for any nonprofit.
Our goal is to support your mission and do so with reliable service. We offer flexible pricing for your organization, based on budget and size. To learn more about our services, request a meeting for the accounting expertise your mission deserves.