The Charity CFO

Nonprofit Leadership: Using Data for Better Decision-Making

March 22, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

How does your nonprofit make strategic decisions? Are you relying on intuition or guesswork? A better way to make decisions is using data. Leveraging data for strategic decision-making has many benefits–from improving your efficiency to increasing the success rate of campaigns or strategies.

Additionally, leaders can use data to tell the story of their organizations, giving you a better overall picture of the state of your nonprofit.

Learn more about using data for decision-making in your nonprofit in this complete guide.

What Does Nonprofit Data Look Like?

Like for-profit businesses, nonprofits can use a variety of data sources to make informed decisions for their organization.

Let’s look at what types of data nonprofits can use for decision-making and the challenges that go with data usage.

Types of Data for Nonprofits

The types of data a nonprofit might use for decision-making can vary between organizations. Most nonprofits will use at least one of three types of data:

Financial data: Financial data includes any data relating to the finances of the organization, such as revenue or expense data.

Program-based data: Program-based data helps organizations create insights into the effectiveness of their programming or services.

Donor and stakeholder data: Donor and stakeholder data can refer to informational data, such as names and addresses of donors, as well as more in-depth data, such as donation amounts or communication preferences

Challenges of Nonprofit Data Collection

One of the biggest reasons nonprofits avoid using data to make decisions is the challenges of collecting and storing data. Common challenges a nonprofit might face when collecting data include:

Limited resources: Purchasing software or digging through data insights can strain resources, and many nonprofit organizations worry they don’t have the money or time to use data.

Data quality issues: Data-driven decisions are only as good as the data they come from, so nonprofits must ensure their data is clean and high quality.

Compliance and privacy concerns: As more states introduce legislation regarding digital privacy, nonprofits must be able to keep up with regulatory compliance and keep data safe.

Leveraging Data in Nonprofit Leadership

How can you use data effectively as a nonprofit leader? There are many ways to put data to use effectively in your organization. Check out these tips for leveraging data as a nonprofit leader.

Cultivating a Data-Driven Culture in the Organization

First things first when implementing a data strategy at your organization: you need to set the tone from the top. Creating a data-driven culture throughout your organization will help bring staff and volunteers on board with using data.

You can set this data-positive tone by fostering a mindset of learning when using data. As you implement your data strategy, show the benefits of using data and how it will help staff and volunteers. For example, collecting a certain type of data might make it easier for staff to do their jobs.

Investing in Data Technology

Data technology, such as data management software, makes implementing and benefiting from a data strategy easier than ever. You’ll need to carefully consider your options–and the costs–before implementing your strategy. Consider working with knowledgeable data and financial teams, such as The Charity CFO, to help create your data plan.

Once you have a data technology and a data governance plan in place, make sure to invest in staff and volunteer training on the programs and policies. Well-trained staff will be much more likely to embrace a data strategy than those without the knowledge or skills to use the data tools available to them.

Aligning Data with Organizational Goals and Mission

Your data strategy should go hand-in-hand with your mission and nonprofit goals. As you explore data strategies, be sure to pinpoint specific key performance indicators (KPIs) that relate to your goals and data metrics. In addition to identifying KPIs, you’ll need to establish benchmarks for success.

After choosing KPIs and their benchmarks, you can start incorporating data insights into strategic planning.

Using Data for Program Evaluations

Data can be a great tool to evaluate the effectiveness of your nonprofit programs or services. You can use data to help track the outcomes of your programs, such as participant numbers or revenue.

In turn, tracking these outcomes helps you make data-informed adjustments to your programs and services.

Improving Fundraiser Efforts Through Donor Analytics

Data can help you track, predict, and better understand donor behavior. For example, you run two ads for your fundraising event on social media. Using data insights from the ads, you can determine which was more effective for increasing ticket sales or donations.

Donor insights and analytics give you a better idea of how to effectively reach out to donors. You can use donor data to create communication and cultivation strategies that are more likely to hit the mark with donors.

Improving Financial Management

Improving your organization’s financial management is one of the biggest benefits of starting a data strategy. You can use data in almost all aspects of financial management. For example, historical financial data can help you with budgeting or creating financial forecasts for your organization.

Additionally, analyzing financial data helps you identify cost-saving opportunities as well as chances for increasing your revenue streams.

Improve Decision-Making

Leveraging data for decision-making can change your organization for the better. Data-driven strategic decisions help your organization operate more efficiently, effectively manage risks, and create a bigger presence in your community.

Learning how to collect, store, and use data properly, however, can be a daunting task, especially when you’ve got other things to do to keep your organization running. That’s where The Charity CFO comes in. Our experienced team of financial and accounting professionals specializes in nonprofits. We use our specialized knowledge to help you find the right data management strategy and technology solutions to create a culture of data within your organization.

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Budget Tracking for Nonprofits

February 27, 2024/in Accounting, CharityCFO/by Paul Cook

Budget tracking is the process of monitoring your nonprofit’s income and expenses to ensure they stay within your planned budget. Effective budget tracking is essential to financial transparency, efficient resource allocation, and strategic planning for your nonprofit.

Tracking your budget helps with overall budget management, which contributes to your financial stability and the success of your nonprofit mission.

Keep reading to learn more about budget tracking and how it can help your organization improve financial efficiency and effectiveness.

Budgets are Essential for Nonprofit Organizations

While they can be overwhelming to create, having a budget is a necessity for any organization. Think of your nonprofit budget as the financial roadmap for your organization. With a budget in place, you can easily align your finances with the mission of your organization to achieve goals.

Not only will you need a budget for operations and internal decision making, you will also need a budget for grant applications and when asking for gifts from the general public.

As you get started with the budget making process, here are a few things to keep in mind:

Include a detailed look at all revenue sources. Start with the certain revenue streams and work your way to the less certain (we’ll cover this in more depth later).
Include programs, fundraising, and administrative costs
Budget by program (if applicable)
Budget for a surplus to finance expansion in future years

Without a budget in place, you’re left scrambling to ensure you have the funds to cover expenses, such as paying employees or funding nonprofit programs.

But your budget shouldn’t be a “set it and forget it” plan. You also need to track your expenses and income to make sure you’re sticking to your carefully-planned budget. The role of budget tracking is to ensure resources are allocated correctly, especially to key initiatives that are essential for organizational success.

A budget and tracking system also help with transparency and accountability at all levels of your organization. It’s easy to audit a nonprofit budget to check for potential errors and reduce the possibility of fraud.

Creating a Comprehensive Nonprofit Budget – Start with the Details

There are two common ways to budget; starting high-level and moving granularly or starting granularly and moving high-level. At The Charity CFO, we like to do the latter because we feel it leaves you with a more realistic budget base. From there, we move on to reviewing the prior year’s activity.

Review Prior Year Activity

To review your prior year’s activity, you’ll use a “Profit and Loss Detail” report or something similar. This is found in your accounting system and you’ll want to run a report based on the current year. It’s the best way to review current-year expenditures for what you might be spending next year, in fact, you can consider it as a template for your budget.

Discuss Upcoming Expenses, Revenues, and Adjustments

Go line by line with the Profit and Loss Detail. Start with expenses and figure out what investments you need to be making in the coming year to achieve your goals and objectives. Try not to think about where the money is coming from, just think of the ideal scenario about who you want to hire, the investments you want to make, and the cost of the space you’re using.

Start with the largest expense and map it out in detail. (Example: The largest expense is typically payroll. Consider exactly what you want to pay each employee.) Then move to the next largest. Continue this process until you’ve reviewed every expense. We advise you to be a little generous in these categories. It’s better to expect more expenses than to underestimate.

Move On To Revenues

Start by recording what you expect to fundraise in the coming year. We like to start with any revenue that is most certain and then work our way to the least certain. For example, if you receive an annual grant from the government, that’s a fairly “certain” revenue. Budget these first.

Then move on to your less certain revenue streams, like fundraising event income, because these are tougher to estimate. Our tip: budget conservatively for these.

Budget for a Surplus

Once you’ve gone through all of your revenue and expenses, you’ll need to see if you are in a surplus or a deficit for the coming year. Your goal is to be in a surplus so that you can financially expand in the future.

Keep in mind that you won’t be able to budget in a massive surplus; your funders won’t let you get away with that. However, a modest surplus will allow you to build up your reserves so that you can fund your next growth plan. This will look different for every organization.

For a more detailed explanation of creating a budget, check out this video.

Leverage Budget Tracking for a More Successful Nonprofit

Your nonprofit’s budget only works if you know you’re sticking to it. Implementing a budget tracking system helps you monitor your budget so you can stay on target to meet financial goals.

Make creating an effective budget tracking strategy a priority as you set your upcoming budgets. Taking the time to set up your tracking correctly will aid in the long-term financial success of your organization.

Not sure where to start with creating your budget tracking system? Working with a nonprofit accountant like The Charity CFO takes the challenge off of your plate. As financial professionals specializing in nonprofit financial success, our team can help you create and implement an effective budget tracking strategy no matter the size or revenue of your organization.

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Why You May Need an Audit – and What You Should Get Instead

February 8, 2024/in Accounting, Audit, CharityCFO/by Paul Cook

Does the idea of a financial audit on your nonprofit leave you feeling nervous? For many nonprofits, a full financial audit can help ensure the accuracy of their financial recordkeeping. However, it can also feel invasive and overwhelming. Just the word itself can sound scary.

Luckily, not all financial situations require an audit. A reduced scope of attestation (or reduced scope of work) could be a better option for your organization. In this article, we’ll look at when you might need an audit and why an attestation service might make more sense.

Reasons Your Nonprofit May Need an Audit

Regulatory Compliance

One of the most common reasons for a nonprofit audit is to comply with state or federal regulations. Each state has a different threshold for nonprofits incorporated and registered within their states. In some cases, a state may have no requirement for an audit. In other cases, a state may require an audit for budgets as small as a few hundred thousand dollars per year. Here is a great resource to see if/when your nonprofit will need an audit.

Grant Requirements

Some grant programs require an audit before awarding funds. Both government and private grants could require an audit, so it’s important to understand the funding requirements when applying.

Stakeholder Trust and Confidence

Regular independent financial audits of your organization can help keep your financial statements transparent. In turn, this helps maintain stakeholder trust in your organization.

Internal Governance and Oversight

Inaccurate records are one of the most common problems found in a nonprofit audit. Auditing your financial records regularly helps cut down on potential issues by catching inaccuracies before they become a problem.

Fraud Prevention and Detection

No one wants to consider fraud in their organization, but it could happen to anyone. Regular audits can help catch fraud–and potentially prevent fraud in the first place–by verifying transactions.

Is There an Alternative? Can a Reduced Scope of Attestation?

An audit is a deep dive into the financials of a business or organization. A reduced scope of work, on the other hand, works sort of like a slimmed-down version of an audit. There are two ways this is typically handled, and in some cases, they serve as an alternative to an audit:

Review of Financial Statements:

- This provides a limited level of assurance on the financial statements.
- Your accountant will follow the necessary steps to obtain a reasonable basis for showing limited assurance.
- This is a great choice when stakeholders require some level of assurance but don’t need the depth of a full audit.

Compilation of Financial Statements:

A compilation collects financial data and presents it in the form of financial statements without expressing any assurance on the accuracy of the information.
It is the most basic level of service and is used when there is no need for an independent third party to verify the information and internal management or stakeholders already have a good understanding of the organization’s financial activities.

Can a Reduced Scope of Work Replace an Audit?

If your board or organization shies away from an audit, you might be wondering if you can replace an audit with a reduced scope of attestation (or reduced scope of work). After all, wouldn’t it be easier to hire an outside accountant to simply look over a few areas of the books rather than digging through every financial record?

Whether you can replace an audit with a reduced scope of work depends on your organization’s needs and several factors, including:

How much detail and accuracy you need from the examination
The requirements of stakeholders or regulatory bodies
Budget and time constraints
Objective of the audit or inspection

1. Level of Assurance

An audit is a comprehensive examination of an organization’s financial statements and relevant financial information. Audits provide the highest level of assurance for your organization. If you need the utmost assurance of accuracy throughout your financials, an audit is likely the better choice.

Attestation provides a limited level of assurance for your organization. As a reduced attestation focuses on specific areas of your financials, you won’t get the comprehensive look offered by an audit. However, this hyper-focused approach might be the right option if you’re concerned about only a section of your records.

2. Regulatory and Stakeholder Requirements

When choosing between a full audit or reduced attestation, one thing to consider is your regulatory requirements. Many regulatory bodies may require one or the other specifically to stay in compliance.

Likewise, your board of directors or other stakeholders may require a full audit. In situations where it isn’t required, however, a reduced scope of work can be a cost-saving alternative.

3. Cost and Resource Considerations

In general, audits are more resource-intensive and expensive than a reduced scope of work. As a comprehensive look at your financials, they require more time and resources to complete, leading to a higher cost.

A reduced scope of work might be a good alternative if your organization lacks the financial, administrative, or time resources for a full audit.

4. Specific Objectives

Audits provide a broad and thorough examination of an organization’s financial health and operations. While this can be helpful if you need to see the overall health of your finances, you may not need all the information it provides.

Reduced scopes of work can be suitable if your organization has specific areas of concern within your financials. For example, you may want to verify the accuracy of donations for the last quarter.

The Charity CFO Can Give You Peace of Mind

A reduced scope of work can’t completely replace an audit. In some cases, your organization may need one to secure funding, stay in regulatory compliance, or maintain accurate records.

However, an attestation service can be a great alternative for many organizational functions, including:

Analyzing specific financial areas for fraud or inaccuracies
Cost savings for regular financial checkups
Meeting grant, financing, or regulatory requirements that don’t require a full audit

In fact, attestation could help you avoid the fear of an audit–especially when presenting financial needs to your board or other stakeholders.

Do you need an audit or attestation? In some cases, simply having an outside firm handling your financial management can provide the peace of mind your organization needs. Get in touch with The Charity CFO to see how we can help maintain accurate records for your nonprofit today.

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What is Financial Forecasting and Why Does it Matter to Nonprofits?

January 12, 2024/in Accounting, CharityCFO, Nonprofit/by Paul Cook

Financial forecasting is a term you’ll hear thrown around in the business world quite often—but in the world of nonprofits, it can be difficult (and even downright impossible) to plan your organization’s finances with any degree of certainty. After all, you can’t possibly predict:

Who’s going to donate to your organization
How much they’re going to donate
Even when donations are going to happen

Still, even as a nonprofit, having some sense of what your finances may look like in the future is crucial to your long-term success. The best way to do this is through financial forecasting.

With a better understanding of what financial forecasting for nonprofits entails and how to use financial forecasts to your organization’s advantage, you can work more confidently toward long-term success and sustainability.

What Is a Financial Forecast for Nonprofits?

Specifically, a financial forecast, sometimes called a projection, is an estimation of an organization’s projected financial conditions based on past and current finances. Financial forecasts can then be used by nonprofit organizations for:

Budgeting
Strategic planning
Fundraising
Grant applications
Even cash flow management

While not always 100% accurate (especially in the unpredictable realm of nonprofits), a financial forecast can be extremely useful when it comes to informing decision-making and mitigating risks.

What is the Difference Between a Forecast and a Budget?

Let’s break down the difference between a fiscal budget and a financial forecast in a nonprofit setting. Think of a fiscal budget like your organization’s financial game plan for the year. It’s set before the year kicks off and includes all the money you expect to come in (like donations) and go out (like program expenses). It’s your guide for how you plan to spend and receive funds, kind of like a financial blueprint for the year’s activities.

Now, a financial forecast is more like checking the financial temperature throughout the year. It’s not set in stone like your budget. Instead, it changes based on what’s actually happening in your organization. Say you get a surprise donation, or an event costs more than planned – your forecast helps you adjust your expectations and plans on the go. It’s a real-time snapshot that helps you stay flexible and make smart money moves as the year unfolds.

Key Components of Financial Forecasts

So, what are some of the key components of a financial forecast for a nonprofit organization? While no two nonprofits will be exactly alike, most should include the following in a comprehensive financial forecast:

Revenue projections
Expense projections
Cash flow analysis

In addition to these key components, there are some basic documents and records that you’ll need to create a financial forecast for your nonprofit. This will include all of your organization’s financial statements, such as:

Income statements
Balance sheets
Cash flow statements
Annual budget
Any projected fundraising goals (we like our clients to have a gift table that includes specific gifts and when they hope to receive them based on historical knowledge).

Using Financial Forecasts for Nonprofits

There are many ways in which a financial forecast can be used by nonprofits and their leaders to make smarter and better-informed decisions for the long-term success of the organization.

Let’s take a closer look at some of these areas:

Budgeting

For many nonprofits, financial forecasts serve as a reliable foundation for creating budgets that can help organizations make better use of their funds and other resources. By projecting revenues and expenses, nonprofits can develop realistic budgets that align more closely with their goals and priorities.

Strategic Planning

Nonprofits can also use financial forecasts to gain insights into the future financial health and sustainability of the organization. These projections can then be used to identify potential risks and opportunities, allowing leaders to make strategic decisions regarding things like:

Program expansion
Fundraising initiatives
Resource allocation

Fundraising and Grant Applications

It’s no secret that nonprofit organizations rely heavily on grants and other forms of fundraising in order to keep working toward their respective missions. When applying for a grant or seeking other fundraising options, it is not uncommon for nonprofits to be required to submit a financial forecast in order to even be considered.

Understandably, donors and granting agencies want to see a clear roadmap of an organization’s financial stability and responsible resource management before making a donation. In this sense, accurate financial forecasts can actually help to boost an organization’s credibility while increasing the chances of securing funding.

Cash Flow Management

Being able to accurately forecast cash flow is crucial for many nonprofits, yet doing so can be a real challenge when you can’t always predict when donations and funds are going to come in.

Fortunately, financial forecasting can be extremely useful in more accurately predicting cash flow in a nonprofit. By projecting when and how much cash will be coming in and going out, organizations can more readily anticipate potential shortfalls, manage liquidity, and make informed decisions about everything from investments and expenses to cash reserves.

Need Help with Financial Forecasting for Nonprofits?

When it comes to making more informed and confident decisions for the future of your nonprofit, being able to rely on a financial forecast can be extremely useful. At the same time, financial forecasting isn’t always easy—especially for nonprofit leaders who have other important obligations to focus on.

This is where it can be especially useful to work with an experienced team of accountants and other financial professionals who offer nonprofit accounting and bookkeeping services, including financial forecasting.

At The Charity CFO, we’ve been trusted by hundreds of nonprofits to assist with everything from basic bookkeeping to financial forecasting and everything in between. Our philosophy is that when you don’t have to worry about the books, you can focus more readily on what matters most: pursuing your nonprofit’s mission.

Interested in learning more about our nonprofit accounting services? Get in touch with our team today. We’d love to learn more about your organization and help you determine which services may be best for your needs.

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501(c)(3) Donation Rules: The Ultimate Guide

December 8, 2023/in Accounting, Expenses, Reporting/by Paul Cook

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501(c)(3) donation rules are crucial for any nonprofit organization to understand. Donations are the lifeline of any nonprofit organization. While some nonprofits depend more on government contracts or foundations, many rely on donations from individuals as their primary funding source. One essential tool that you can use in your nonprofit is donation tracking software that can help you keep track of incoming gifts. Software helps ensure transparency and accuracy in keeping financial records and tracking restricted funds, crucial in maintaining your nonprofit. In this guide, you’ll learn the rules nonprofits must follow when accepting and accounting for donations.

What is a tax-exempt status?

Most nonprofits have tax-exempt status with the Internal Revenue Service (IRS), which means their revenues, gross receipts, or income are exempt from the federal income tax rate. Tax-exempt status allows you to use your money to fulfill your mission instead of giving a significant chunk to the IRS as for-profit businesses must do. The tax-exempt status can benefit charities, churches and religious organizations, schools, educational organizations, social welfare organizations, civic leagues, social clubs, labor organizations, business leagues, and political organizations.

What are the benefits of donating to a 501(c)3 organization?

501(c)(3) nonprofits are a specific class of nonprofit organizations recognized by the IRS, including most charitable organizations and churches. Donations to 501(c))3) nonprofit organizations are tax-deductible. Individuals can deduct up to 100% of their income in qualified donations. Corporations are limited to a deduction equal to 25% of their taxable business income. Large corporations actively seek the tax deduction, so they often will not give money to organizations that do not have a legitimate 501(c)3 status. Donating to a nonprofit with the correct tax exemption status also helps ensure your money will be put to good use, as 501(c)3 organizations are held accountable to legal standards enforced by the federal government.

Can you donate to a nonprofit without a 501(c)3 designation?

A nonprofit organization doesn’t need to have a 501(c)3 designation to accept donations. But, as a donor, if you donate to an organization that doesn’t have the correct designation, you cannot claim the tax deduction when you file your tax return. Nonprofits without the correct designation will often turn to crowdfund sources or GoFundMe programs to collect donations. PRO TIP: If you donate to an organization that has applied for tax-exempt status but has not yet received a letter of determination from the IRS, your donation will be exempt from taxes only if their application is eventually approved.

Is my political contribution considered a donation?

One of the restrictions placed on 501(c)3’s is that they cannot use funds for political lobbying purposes. Political nonprofits exist, but they fall under the 501(c)4 designation instead with specific tax exemptions and a different way of handling political contributions. A donation to any of the following is NOT tax-deductible according to the IRS:

A political candidate
A political party
A campaign committee
A newsletter fund
Advertisements in convention bulletins
Admission to dinners or programs that benefit a political party or political candidate
Political Action Committees (PACs)

As a donor, can I put a restriction on my donation?

Yes, donors can place restrictions on how a nonprofit may use its funds. Nonprofits are required to adhere to these donor requests by creating accounts to track restricted funds separately from other funds and reporting restricted fund balances on their financial statements.

Can my 501(c)3 I donate to another 501(c)3?

Yes, you can. It’s quite common for nonprofits to support other nonprofit organizations, especially if they share a common mission or serve the same community. Before donating, you should do your due diligence and ensure that the nonprofit you are giving money to is reliable and worthy of your funding– this could help you prevent potential damage to your reputation if that organization isn’t using their funding appropriately.

Can a 501(c)3 nonprofit organization donate to an individual?

Yes, 501(c)3 nonprofits can gift money to individuals, provided the individual falls under the primary demographic the nonprofit assists and the donation falls within your organization’s mission as declared to the IRS.

3 Tips For Boosting Your Donations

Getting more donations is vital in raising funds to keep your nonprofit going. Because of this, nonprofits are getting creative with fundraising events to entice more sponsors and donors. Here are some of the different trips on how you can increase donations to your nonprofits:

Partner up with a fellow nonprofit with a similar mission

Nonprofits love to partner with other nonprofits to multiply resources and help accomplish a common goal. Search for nonprofits that cater to the same audience as you and propose hosting joint events or fundraising ventures. By partnering with other nonprofits, you are dividing the responsibilities, and both organizations can help achieve their goals which creates a win-win for both.

Host virtual or in-person events

Because of the COVID pandemic, most in-person events transitioned to virtual events. The good news is that virtual events are cost-effective and can reach a much wider audience. Just because you are holding a virtual event doesn’t mean that you can’t be creative and have fun with it!.

Tap into technology to reach a wider audience

Social media is a quick and easy way to reach your audience and bring awareness to your cause. It’s an instant way to reach thousands (or millions!) of people. And thanks to easy online payment options, people don’t even have to leave their phones to send money! When posting to social media, be sure to always include a call-to-action. Don’t be afraid to ask for donations, and provide easy options for them to pay you now, like text-to-donate services or Live Donations through Instagram .

Still Confused About 501(c)3 Donations?

At some point, every nonprofit organization needs someone to turn to for answers. But too often, there’s nobody there. The rules for nonprofit bookkeeping and accounting are complex and confusing. So having an expert financial partner on your side can help you sleep better at night and keep your organization out of trouble. The Charity CFO provides full-service bookkeeping and accounting services for over 100 nonprofit organizations in the USA. We’re experts on everything from time-saving bookkeeping software to financial reports and audits.

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How Nonprofits Can Choose the Right Banking Partner

October 16, 2023/in Accounting, Fundraising, Nonprofit, Trending/by Paul Cook

It may not seem like a significant aspect of your organization’s financial situation, but picking the right nonprofit banking partner is one of the most vital decisions leaders can make.

While many banks seem to have many commonalities, the differences can make a massive impact on the financial management and sustainability of nonprofits.

Read on as we break down why this decision is so important and explore how to size up potential bank choices.

Determining Your Nonprofit Banking Needs

Before you can figure out which bank is right for you, it’s vital to take the time to assess your true needs, wants, and must-avoids. This should be a collaborative process between:

Organizational leaders
Financial employees or board members
Outside accountants or advisers
Other important stakeholders

Look at your financial operations and determine the types of accounts and services that any banking partner will need to provide. Don’t just consider your needs now – think about your potential long-term goals and what would be required to operate comfortably. After all, switching banks can require a lot of time and energy, and it’s worth spending the extra effort to find the perfect partner for the long run.

Reviewing Nonprofit Banking Partner Options

It can be a bit overwhelming trying to sort through the extensive information and offerings of each potential nonprofit banking partner. Organization leaders can simplify it all by focusing on these key factors.

Nonprofit-Friendly Services

As you know, nonprofits have unique needs compared to for-profit companies or individuals, and some banks are far better than others when offering special services or catering their current ones toward nonprofits and charities.

One of the biggest is donation processing, a fundamental need for nearly any organization. Consider the other merchant services offered as well, which can range from online or mobile payment gateways to integration into fundraising or financial software you use. Many banking partners also offer payroll solutions that can help eliminate the need for outside processors or services, saving organizations time and hassle.

Good Reputation

There’s no better way to find out what working with a bank is like than to talk with one of its current clients. Use your network throughout the nonprofit community to get some firsthand thoughts on various banks. They may bring up previously unknown benefits or problems you may not have expected.

It can even be helpful to draw on the personal experiences of employees and others in your circle who may have valuable insights about customer service, availability, and more.

Consider Your Investment in the Bank

Unfortunately, working with a high-quality nonprofit banking partner doesn’t come for free. And it isn’t always easy to determine exactly how much using their services will cost you, as many charge different fees, rates, and other expenses. Carefully review these charges, making efforts to create the most apples-to-apples comparison possible.

Meanwhile, as overall interest rates have risen, the amount earned by cash sitting in various accounts has become more significant. While it may not be a huge sum, the differences in interest income can be important for nonprofits always trying to make the most of their dollars. Remember to carefully look over account terms for both financial and non-financial things of note.

Compliance and Regulatory Considerations

Working with nonprofits comes with specific regulations and compliance requirements different from business or personal banking. These can be complex, which is why it’s crucial to find a partner that has experience with them.

At a minimum, every partner should have a firm understanding of and respect for how important it is that your organization maintain its nonprofit tax-exempt status.

Nonprofit leaders also need to address any legal or compliance concerns well in advance of selecting a partner. As with many financial and legal issues, it’s far easier to avoid the problems from the start than deal with them later.

Keep a Strong Relationship in Perspective

There are few things more vital to the success of a nonprofit than a good financial partner, so leaders should take the time and effort to maintain a strong partnership with their chosen bank.

Ensure there are always clear communication channels between nonprofit leaders, financial staff, and bank representatives, allowing all sides to make the most of opportunities and quickly deal with issues.

By developing these relationships, nonprofits can leverage the bank’s resources and expertise to improve their financial management, a benefit that can pay huge dividends over time.

Selecting the Right Nonprofit Banking Partner is Essential

A banking partner is like the financial engine of your nonprofit. Picking the right one and maintaining it in tip-top shape is one of the best ways to put any organization in a position for growth and expanding its impact. But we understand that the choice can be complicated.

That’s why The Charity CFO is here to help, with expert guidance from our financial professionals, who know the ins and outs of the nonprofit banking world. Reach out to us today to learn more and get started.

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How Accounting Setup Can Affect an Organization Long-Term

October 9, 2023/in Accounting, Nonprofit, Operations/by Paul Cook

In many ways, new nonprofits can figure things out as they go, learning from their mistakes and making adjustments.

However, that’s not the case with an organization’s accounting systems. It’s vital to get these right from the beginning or risk serious consequences in the future. Unfortunately, there are plenty of ways for relatively inexperienced leaders to make small but critical errors.

Let’s take a closer look at nonprofit accounting systems, the most frequent mistakes, and how to avoid trouble down the road.

Understanding the Role of Accounting Setup for a Nonprofit Organization

Accounting systems are a vital part of every business or organization, from the largest for-profit corporations to the smallest local charities. At their core, they’re simply a way of keeping track of an organization’s financial standing, including:

Income
Expenses
Assets
Liabilities

Typical income includes donations, grants, interest income from endowments, ticket sales to charity events, and any other source of positive funds into your coffers.

Expenses range from program-related spending aimed at accomplishing the organization’s goals and mission to fundraising expenses (which support income-generating activities) to everyday administrative costs for rent, salaries, office supplies, and other requirements for keeping the nonprofit running.

Well-functioning accounting systems can have a massive impact on how an organization runs outside of conventional financial ways, as well. In the best situations, they provide not only accurate data but timely data, helping make better decisions and solve small problems before they become large ones.

Systems also allow improved forecasting and future planning, as well as making compliance and tax considerations far more straightforward. They’re an underrated pillar of financial stability, which is why it’s so crucial to get them set up correctly.

Common Mistakes in Accounting Setup for Nonprofits

While every nonprofit is different, many organizations tend to make the same kinds of errors when it comes to their accounting systems. Some of the most common and most significant include:

Lack of proper training and expertise

It’s not uncommon for folks in the nonprofit world to lack the financial background and experience necessary to set up their books properly. Those responsible for creating accounting systems might not be aware of industry best practices or make small but significant mistakes that can go unnoticed for months or years.

Poor choice of accounting software

Nonprofit accounting and financial management aren’t the same as for-profit, and the software you use should reflect this.

Luckily, numerous top choices are geared toward charities and nonprofits, like QuickBooks for Nonprofits, ACCOUNTS from Software4Nonprofits, and Financial Edge by Blackbaud.

Inadequate data entry and record-keeping

Old-school accounting systems that rely on manual data entry can introduce many different problems into accounting systems. Human error can lead to some data never making it into the system, while others could be entered incorrectly in ways that are difficult to notice.

Successful organizations design their accounting systems to limit the potential for mistakes and help quickly fix them when they happen.

Ignoring compliance and regulatory requirements

It’s always worth remembering that nonprofit accounting is about more than just internal operations. Nonprofits must meet specific rules and regulations to satisfy federal and state tax authorities and others.

Accounting systems sometimes fail to account for these requirements, leading to extra work or possible penalties.

Long-Term Consequences of Nonprofit Accounting Setup Errors

Improperly setting up accounting systems can lead to major problems that often don’t show up until long after the errors are made.

The most direct of these are financial inaccuracies and misreporting, which can create a host of related problems. At the most serious level, these can lead to legal or compliance issues that may result in tax penalties or even the loss of nonprofit status.

Internally, nonprofit accounting system errors can also create inefficiencies in how the organization is run, wasting precious resources and missing other valuable opportunities. Meanwhile, if word gets out about financial issues or misreporting, it can seriously harm the organization’s reputation and damage trust with donors large and small.

Even organizations that correct their errors before severe consequences present themselves will have to waste valuable time and effort on something that could have been avoided by following best practices from the start.

Preventing and Mitigating Nonprofit Accounting System Setup Errors

Whether you’re a new nonprofit or have been operating for years, it’s important to be proactive about accounting system setup errors. Don’t wait for a problem to show up and end up dealing with it urgently – take the time to work with professionals now to set up your accounting systems properly or check out your current systems for any remaining mistakes.

The Charity CFO can help with skilled and experienced financial professionals who comprehensively understand the needs and unique requirements of nonprofit accounting. Reach out to us today to learn more and get started.

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Donation vs. Loan: Can a Foundation Give Money to a Nonprofit?

October 2, 2023/in Accounting, Fundraising, Nonprofit/by Paul Cook

Bringing in money from significant contributors like foundations is vital for many nonprofits. It helps keep the lights on and achieve the organization’s goals with large chunks of cash rather than forcing them to chase down many small donors.

Donations are often the most significant part of this quest – but they’re not the only part. Loans from foundations can also play a critical role. However receiving funds in these two ways can mean significant differences from a financial, legal, and operational standpoint. Let’s take a closer look.

Understanding Donations and Loans and Their Impact on Nonprofits

It’s important to be clear about what we’re discussing before considering the benefits and drawbacks.

Donations refer to any financial gift that isn’t expected to be paid back at any point. They typically offer some flexibility in terms of how they’re spent, except for restricted donations set aside for certain programs or uses.

On the other hand, loans must be paid back over a defined schedule agreed to by both sides and may include interest in some cases. They’re generally provided for more specific purposes, particularly those that can generate revenue to repay the loan.

Legalities of Donations and Loans

Keeping on the right side of the law is a must for any nonprofit, and donations and loans have varying requirements on this front. Nonprofits receiving contributions must be registered with the appropriate status, usually as a 501(c)(3). In some cases, there may also be state or local registration requirements.

Organizations must also maintain specific records and fulfill financial reporting requirements related to donations and taxes. Nonprofits receiving loans typically need board approval for the transaction and may be required to secure the loan with assets like organization-owned real estate. The cost of this financing should also be clearly documented in the nonprofit’s financial reports.

Meanwhile, foundations have legal responsibilities of their own when giving funds to nonprofits, whether in the form of donations or loans. They should ensure any organization they’re working with is registered correctly in order to preserve the tax benefits of their gift. Foundations likely also have their financial reporting obligations that will have to be met for any donations of loans.

Advantages and Disadvantages of Nonprofit Donations

Like any funding source, donations have both their upsides and their downsides for each side of the transaction. Here are the most critical.

Benefits of Donations From Foundations

One of the most significant benefits foundations enjoy when they provide donations is tax deductibility. Money provided to qualified charities can help offset other tax liabilities, doing good while saving money at the same time.

Nonprofits prefer gifts because they add tangible assets to the organization that doesn’t need to be paid back and can often be used flexibly. For both sides, donations and grants also provide the advantage of simplicity, with easier management of the gift on both sides.

Drawbacks of Donations From Foundations

Providing donations can require more upfront work from foundation staff, who need to ensure that the nonprofits they give funds to are properly registered and good stewards of the cash. Without this, funds can be used inefficiently, reducing the foundation’s overall impact.

Charities must also deal with strict and clearly defined reporting requirements for grants and large donations.

Advantages and Disadvantages of Loans

Foundations that offer loans and nonprofits that accept them also have several critical things to consider on both sides of the issue.

Benefits of Loans from Foundations

Loans also offer the benefit of allowing the foundation to use the same cash to later help other charities or causes once it’s repaid from the original recipient, potentially multiplying their impact in significant ways.

Drawbacks of Loans from Foundations

For nonprofits, loans typically come with more strings attached, requiring nonprofits to use the funds for specific purposes. Loans also can’t offer the same financial benefits to nonprofits since they must keep them on their books as a liability.

They’ll also need to dedicate administrative time to monitoring and paying off their loans, in addition to the financial cost of any interest payments that could otherwise go toward the nonprofit’s mission. Foundations will also need to spend this time, as loans are more complex legal documents than donations or grants.

Evaluating the Effectiveness of Donations and Loans

Improving your impact means tracking your results, whether you’re a foundation giving donations and loans or a nonprofit receiving them. Foundations should track the effects of their giving, especially for restricted donations with a specific purpose. This can allow them to look across their entire portfolio of giving to find the most effective partners.

Nonprofits likewise should keep track of their largest donors and consider the organizational and mission impact of any requirements.

Donation vs. Loan: Still Need Help Understanding?

Both methods of funding from a foundation have their pros and cons. However, the best and most savvy charities and nonprofits keep both in mind when plotting out their financial strategy and carefully consider which might work best for their current circumstances and future goals.

For those who need a little help in these crucial decisions, The Charity CFO is here. Our experienced financial professionals can help break down the details and allow you to move forward with confidence as we back your organization up with all legal and regulatory requirements.

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Why Nonprofits Need to Stop Obsessing Over Expenses

September 25, 2023/in Accounting, Leadership, Reporting/by Paul Cook

For some nonprofit leaders, it can be easy to spend too much time poring over each and every category of nonprofit expenses, carefully scrutinizing each dollar that’s spent. It can quickly become an obsession – and not one that will help you or your organization prosper in the long run.

So, how do you change your thinking about the funds that are flowing out of your organization?

Let’s take a closer look at the significant effects the issue can have and how to overcome them.

The Effects Expense-Obsession Has on Nonprofits

To be sure, overhead costs and routine expenditures are an essential part of any budget, and not keeping them under control is a certain path to trouble. But in some cases, nonprofit leaders need to take a step back and consider the reason they’re operating.

Charities and other nonprofit organizations don’t exist solely to be ultra-efficient in their spending – they’re around to accomplish their mission, whether it’s helping needy children, the environment, animals, or anything else. There’s an old saying that you need to spend money to make money, which is as true as ever for nonprofits. Like it or not, making an impact requires spending money, as long as it’s done smartly.

Obsessing over every expenditure also has a negative effect on employee morale and the organizational culture. If employees feel like it’s a fight to secure every single dollar, they may set their goals lower for their work and accomplish less.

Employees who think their leaders value their reserve funds more than their mission will also likely be less productive and motivated or even become so discouraged that they burn out of the industry.

Focus on Revenue Generation, Not Expenses

Most organizations can only cut so much from their spending while still functioning properly. However, the potential for growing revenue is nearly limitless with hard work and the right strategies. By bringing in more revenue, leaders can avoid worry and tough decisions over how to dole out limited money to worthwhile projects.

The methods will vary from organization to organization, but nearly every nonprofit has the potential to tap into additional funding sources or put in place new strategies.

Look to successful nonprofits in your industry for ideas or brainstorm among your team on how to amp up current fundraising. While organizations shouldn’t look at growing revenue as an excuse to spend carelessly, more funds can solve a great deal of problems, not to mention improve your reputation and impact.

Building a Culture of Revenue-Generation

As with all culture changes, switching from a cutting to a growth mindset starts at the top. Leaders should consistently be visibly working to optimize the revenue being brought in, including integrating advice and guidance from employees.

Another significant part of this involves empowering staff not just to identify potential revenue opportunities but also to pursue them in the best way possible. This also helps employees take ownership of their responsibilities, creating an even more dedicated and engaged workforce.

Over time, this kind of mindset becomes infectious, with new hires easily taking to the culture as benefits continue to compound.

Measure Your Impact, Not Your Overhead Costs

As we’ve noted, people start nonprofits to make a positive difference in the world, not make money or run extra efficiently. That’s why it’s dangerous to rely on low overhead costs as a benchmark for effectiveness.

Instead, leaders and stakeholders need to determine their own key performance indicators that best measure the impact they’re hoping to achieve, whether it’s:

The number of events held
How many people benefited from your services
Projects completed

These should be objective and easily trackable, both to allow leaders to make the best changes and tweaks as necessary and also to provide real, concrete evidence to donors and board members about the direction of the organization.

Obsess Over Profit-Generation, Not Nonprofit Expenses

Obsession can be helpful for growing any organization – as long as it’s about the right things. For a thriving organization that’s growing its income, there’s no need to agonize over every single expense. Leaders need to be continually working to expand their fundraising, which can make achieving their mission so much easier than trying to slash budgets and find savings.

After all, revenue can grow without limits, while expenses can only be cut so far.

Still, keeping a lid on nonprofit expenses remains vital and can’t be ignored simply because you’re focused on growing revenue. Our experienced financial professionals can help with managing expenses to leave you more time to increase your income and expand your impact. Plus, they can provide guidance on selecting the proper indicators to track when charting your organization’s plan for growth.

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Are You Prepared for Nonprofit Tax Deadlines?

September 11, 2023/in Accounting, Audits, Taxes/by Paul Cook

Taxes are rarely anyone’s idea of fun, but meeting nonprofit tax deadlines is critical to keeping even the most successful and impactful charities running.

Unfortunately, they can often sneak up on busy nonprofit leaders, leading to a last-minute scramble to file – or worse.

So, what should organizations keep in mind about tax deadlines? Read on as we break down the basics.

What Nonprofits Need to Know About Tax Deadlines

While it’s common knowledge that nonprofits aren’t responsible for paying taxes on the money they bring in, that doesn’t mean they’re off the hook from filing taxes altogether. In fact, nonprofits and charities must file annually to provide the IRS with updated information on their activities.

However, unlike individuals, nonprofits can have varying deadlines for when their returns need to be filed.

Form 990

Form 990 and its variations are the most common federal form required of nonprofits. It provides information on the organization’s:

Purpose
Structure
Revenue
Spending
Current balance sheet

It’s also available in an “EZ” version, which is a simpler version for nonprofits with less than $200,000 in gross receipts per year and less than half a million in assets, as well as an even shorter 990-N, for organizations with under $50,000 in gross annual receipts.

Form 990 is generally due on the 15th day of the 5th month after an organization’s fiscal year ends. For example, those with a fiscal year ending on December 31st would have a due date of May 15th.

Form 941/944

Form 941 is a quarterly update to the federal government on the nonprofit’s employment situation. It covers things like the following:

Number of employees
Wages paid
Federal taxes withheld

The deadline is the final day of the month following the end of the quarter. Form 944 provides similar information but is filed annually by January 31st of the following year instead of quarterly and only applies to smaller organizations with employment tax liability under $1,000.

W-2/W-3 and Form 1099

Nonprofits with employees (W-2) or who use contractors (form 1099) will need to submit the proper federal tax documents to these individuals and the federal government.

The deadline for both parties is typically January 31st of the year after the work occurred.

State Tax Forms

In addition to federal filing requirements, states also have various forms to be filed and deadlines that need to be met. This can vary widely, so consulting with a local tax professional or state tax officials is the best option for ensuring organizations are fully aware of their additional responsibilities.

Are You Aware of the Consequences of Not Filing Taxes?

The consequences of not filing can be serious and varied. At the most basic level, failing to file on time or completely can result in financial penalties from the IRS. Leaders and board members can even face legal trouble for not filing.

Meanwhile, word of tax trouble can scare off donors, who risk losing the tax-deductible status of their donations if the organization loses nonprofit status.

What is Auto-Revocation?

Auto-revocation is a term no nonprofit wants to encounter. It refers to one of the most significant punishments possible for an organization: removing its federal tax-exempt status.

As its name suggests, this happens to U.S. nonprofits automatically after failing to submit tax returns for a specific period, currently three years. Going forward, the organization will be required to pay taxes like any other for-profit business and may be responsible for back taxes and penalties for the years it failed to file.

This is a significant financial blow to many (now-former) nonprofits, which is why it only occurs after several years of missed filings. The goal is only to penalize organizations that willfully avoid filing or are extremely negligent in compliance.

Already Had Auto-Revocation? Here’s How to Handle It

Receiving a notice of auto-revocation can be scary for any nonprofit leader. Fortunately, auto-revocation isn’t a permanent punishment for every organization.

The first step to fixing the problem is re-applying for tax-exempt status with the IRS. You’ll typically need to pay application fees again and explain the circumstances that led to your auto-revocation. Often, organizations will also have to submit returns for previous years.

The IRS will then consider your case and potentially restore your status. However, this can take several weeks or months, though tax officials can apply your reinstatement retroactively to cover any gaps.

The final step is preventing this serious issue from happening again by setting up robust, regularly reviewed systems to ensure tax compliance and other legal requirements are fulfilled.

Don’t Miss Any Nonprofit Tax Deadlines

By now, it should be obvious that meeting nonprofit tax deadlines is among the most vital and essential duties of leaders, who need to protect their tax-exempt status at all costs.

While taxes can be complicated and overwhelming, nonprofits, fortunately, don’t need to manage it all alone.

The Charity CFO offers tax services and guidance for organizations from our experienced financial professionals with an extensive background in the nonprofit world. Contact us today to learn more and ensure your next tax deadline is stress-free.

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Working as a Team: Forming your advisory financial committee

August 28, 2023/in Accounting, Nonprofit, Operations/by Paul Cook

Running a successful nonprofit requires many diverse skill sets, from experts in your particular field to fundraising and event pros. Unfortunately, one area where many otherwise thriving nonprofits lack experience is financial and money issues. This critical knowledge is a must-have for both long-term growth and short-term stability, but it can be challenging to attract suitable help. That’s where advisory finance committees come in.

This unique partnership helps nonprofits get the help they need while offering an opportunity for experienced finance-minded people to give back to causes they care about. Let’s take a closer look at how it all works.

Why Financially-Minded People Matter

Financial literacy isn’t something that can be gained overnight. It often takes a lifetime of study, observation, and experience to develop an intuition about the best ways to run organizations like nonprofits. This isn’t always a priority for dedicated nonprofit professionals, who may spend more of their time focusing on the issue or cause their group is involved with, as well as programming, donor relations, and event planning decisions.

However, financially-minded folks are crucial for a variety of reasons. They can provide guidance on:

Budgeting
Investments
Risk management
Complex compliance and legal issue

All are necessary for keeping the lights on and charting the organization’s path ahead.

Building an Advisory Finance Committee

Rather than hiring an extensive finance department, many nonprofits can instead create an advisory finance committee.

This generally consists of a group of financially experienced individuals who are interested in helping out the nonprofit and advancing its goals. Members volunteer a few hours a month to provide their services and attend meetings to make recommendations and guide policy.

Like any committee, getting a diverse mix of backgrounds and experience is vital to ensure all perspectives are considered. It’s also crucial to ensure members are available as needed and committed to the role over the long term.

Steps to Establish an Advisory Financial Committee

Putting together your advisory finance committee is a straightforward process but also one that should be undertaken carefully. Here are the steps you need to know.

Identifying Potential Members

In some cases, larger nonprofits may have people with the experience necessary within their base of donors and supporters. Making a list of these folks and reaching out to them can fill most spots on many advisory committees.

Newer organizations or those needing specific skills can also reach out directly to professionals who are known to share the nonprofit’s values and goals.

Articulating the Committee’s Purpose

While some new and potential members may be familiar with advisory finance committees, others may not. Take the time to educate them on the committee’s role and responsibilities.

This is also an excellent opportunity to explain how the panel contributes to the organization’s overall mission, showing how and why their work is so valuable.

Structuring Committee Meetings

Everyone’s time is valuable, especially when they’re volunteering to help your organization. It’s critical to establish a regular meeting schedule (typically monthly, quarterly, or semi-annually) and format for the convenience of both committee members and nonprofit employees who wish to collaborate with them.

Each meeting should have an agenda that addresses the relevant financial issues, challenges, and opportunities that need to be discussed.

Ensuring Effective Collaboration

Advisory finance committees work best when they’re as collaborative as possible. Leaders should work to foster open communication between members and the board, especially when it comes to strategic planning and problem-solving. This can naturally improve over time as both sides get to know one another.

Empowering the Advisory Financial Committee

So how can nonprofits make the most of their advisory finance committees? Here are the keys to helping them help you.

Providing Access to Information

For the best results, provide committee members full access to all relevant financial data and reports. This offers critical insight into the organization’s financial landscape.

Without seeing the whole picture, their advice may be wrong or incomplete.

Encouraging Thought Leadership

You’ve selected these members for their experience and guidance – now, make sure they use it!

Invite committee members to engage with issues in their wheelhouse, giving special care to diverse perspectives and expertise.

Recognizing and Acknowledging Contributions

Make sure your committee members know just how much you appreciate their time and expertise.

By making them feel valued, you’ll encourage them to continue their service and keep working with as much dedication as on their first day.

Showcasing the Impact

It’s worth the time to highlight the impact of their dedication and achievements, as well as their overall influence on your organization’s financial health. Share success stories and make sure they celebrate financial milestones alongside the board and full-time staff.

Incorporate a Financial Advisory Committee into Your Nonprofit

While the mission of any nonprofit is critical, keeping the lights on and the doors open is equally vital. That’s why it’s so important to establish and properly use an advisory finance committee. These crucial groups can help nonprofits get the big, often complicated financial decisions right to enable them to do the work they care about.

If you’re searching for higher-level financial support, reach out to The Charity CFO today to learn how we can help.

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10 Tips for Nonprofit Financial Health

July 17, 2023/in Accounting, Leadership, Reporting/by Paul Cook

Just like a human body’s health situation can be complex, nonprofit financial health is similarly nuanced.

That’s why staying financially healthy and keeping your nonprofit in tip-top shape requires the occasional “checkup” to see where you’re doing well and where you can improve. So what steps should nonprofit leaders take to ensure their organization will enjoy many happy years to come?

Read on as we explore some of the top strategies.

Master Your Nonprofit Financial Health with These Tips

Preserving your good nonprofit financial health is surprisingly straightforward. Try these ten tips for the most significant impact.

1. Define Expectations Through Benchmarks and Other Metrics

Before you can figure out if your nonprofit is healthy, you have to define what healthy means to your organization.

Work with stakeholders like donors, fundraising heads, program leaders, and others to determine what metrics and benchmarks should be used. By clearly identifying these indicators, it’s easy to see when one area is falling behind and take swift action to correct it.

These expectations should be realistic but also provide a goal for your team to strive for.

2. Understand How to Gauge if Your Accountant is Doing a Good Job

Unfortunately, too many nonprofits allow their accountants to take care of business with little oversight. While this may be easy, it can also result in missing out on critical tax savings or, worse, exposing your organization to an audit for breaking the rules.

Keep in touch with your accountant and ensure you’re asking questions about what they’re doing and why. If they can’t provide good answers, it may be time to switch.

Understanding the unique roles within your financial team is also crucial to the success of your nonprofit. Bookkeepers are not the same as accountants, just as staff accountants are not the same as Chief Financial Officers (CFOs). Each plays a distinct role in maintaining and enhancing your organization’s financial health.

3. Have Checks and Balances in Place

Every successful organization needs ways to check the influence of any individual member or department. This ensures all perspectives and impacts of decisions and programs are considered. Without these balances, leaders or others with influence can make decisions that don’t align with the organization’s over-arching goals.

4. Understand Compliance Needs

Compliance is an often underrated key to a thriving nonprofit. Mastering these technical issues and requirements is critical to:

Avoiding audits
Keeping donors’ confidence
Securing various grants and other funding

In some cases, neglecting compliance with state or federal requirements can even lead to your doors being shut.

5. Use the Right Software

It can be difficult to do the job correctly without the right tools, and these days, the right software is a critical tool.

Your accounting and bookkeeping programs should be easy-to-use and have the appropriate features for an organization of your size. Consulting with an accountant who specializes in nonprofits is a great way to ensure you’re using the right software.

6. Create the Right Financial Reports

With the many features of modern accounting and bookkeeping software, the amount of information and reports available can be overwhelming. However, a few matter more than most.

Talk with your financial staff and accountant to figure out which you should be spending the most time creating and reviewing. This is vital for avoiding information overload.

7. Have a Succession Plan in Place

The best and healthiest nonprofits live on for decades or longer, far past the leadership and lifetime of their founders. They can do this because the critical members of the organization have proper succession plans.

Younger leaders should be given more responsibility over time to prepare them for more senior roles, and current longtime heads should have clear plans for how and when they hope to hand off the reins. On the financial side, there are systems and processes that need to be in place, so make sure you consult with an accountant to get these sorted out.

All of this ensures a smooth transition when the time for a change comes, planned or unexpectedly.

8. Understand the Structure of Your Accounting System

Even if financial issues aren’t your particular skill set, nonprofit leaders need to understand how their accounting system works.

It lends important insights into decisions about programs or other aspects of the organization and can help in conversations with donors who may have more detailed financial questions.

9. Share with Other Leaders of the Organization

If this all seems like a lot to handle on your own, it’s because it is.

Bring in other leaders to help manage the burden of keeping your nonprofit financial health in good shape and enjoy the bonus benefit of their added insights. This goes hand-in-hand with a succession plan but also helps improve nonprofit operations in the meantime, as well.

10. Take a Look at Your Culture

At the end of the day, keeping a nonprofit healthy from a financial perspective requires the buy-in of all employees, donors, and other stakeholders.

It’s a comprehensive mindset that focuses on maximizing always-limited resources and ensuring waste is minimized as much as possible. The rewards can be felt every day with an improved ability to carry out your organization’s goals and mission.

How is Your Nonprofit Financial Health?

As with your body, there’s no sense in putting off your nonprofit financial health checkup. Consider these key issues now, and you may be shocked at the improved performance of a “healthier” organization.

But we realize these issues can be complex and time-consuming, so The Charity CFO is here to help. Contact us today to get started with our experienced financial professionals, who’ll set your nonprofit up for many healthy, happy years to come.

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From Necessary Evil to Mission Fuel: The Strategic Role of Nonprofit Financial Statements

June 7, 2023/in Accounting, Nonprofit, Reporting/by Paul Cook

Nonprofit financial statements. Is this just a necessary evil just to meet compliance requirements, and make sure there’s enough cash in the bank? Or can your financial statements be a lens to view your organization and fuel the mission?

In this post, we’ll walk through the most important financial statements, and explain the strategic benefit you can gain by pulling the maximum value from the data.

Nonprofit Financial Statements

You are likely familiar with the different nonprofit financial statements that are typically included in a reporting package:

Statement of Activities
Statement of Financial Position
Statement of Cash Flows
Statement of Functional Expenses

But we’d like to dive beyond the surface. This article explores the multifaceted uses of these financial statements and highlights their significance in enabling financial transparency, informed decision-making, and organizational effectiveness for nonprofit entities.

Remember, these uses are not mutually exclusive, and some applications may overlap across the categories. The categorization of uses may vary depending on the specific context and goals of your nonprofit organization.

Statement of Activities

Financial Uses

Assessing Revenue Sources: Analyze the various revenue sources of a nonprofit, such as donations, grants, program fees, and investment income. This information is crucial for financial planning, budgeting, and identifying potential areas of revenue growth.
Evaluating Expenses: Evaluate the expenses incurred by the nonprofit, such as program expenses, administrative costs, fundraising expenses, etc. It enables financial analysis to identify cost-saving opportunities, manage expenses, and ensure efficient resource allocation.

Strategic Uses

Financial Planning: Provides insights into the financial health of the organization. Can help in identifying trends, forecasting future revenues and expenses, and making informed decisions about resource allocation, fundraising efforts, and program expansion.
Performance Evaluation: By comparing the revenues and expenses on the Statement of Activities with the nonprofit’s strategic goals and objectives, it becomes a valuable tool for assessing performance. It allows management to measure the effectiveness of programs, evaluate cost-efficiency, and make strategic adjustments to enhance overall performance.

Operational Uses

Program Evaluation: Evaluate the financial performance of individual programs or activities conducted by the nonprofit. By analyzing revenues and expenses associated with each program, it helps in assessing program viability, resource allocation, and identifying areas for improvement or expansion.
Stakeholder Communication: Serves as a transparent communication tool for stakeholders, including donors, board members, and grant-making organizations. It provides an overview of the nonprofit’s financial activities, highlighting its financial stability, sustainability, and the impact of its programs.

Statement of Financial Position

Financial Uses

Assessing Financial Health: Provides information about its assets, liabilities, and net assets, allowing stakeholders to evaluate solvency, liquidity, and overall financial position.
Analyzing Financial Structure: By presenting the organization’s assets and liabilities, the statement assists in analyzing the financial structure, including the composition of assets (e.g., cash, investments, receivables) and liabilities (e.g., accounts payable, loans). This analysis supports decision-making regarding debt management, investment strategies, and asset allocation.

Strategic Uses

Financial Planning and Budgeting: Provides insights into the organization’s available resources and financial capacity, enabling strategic decision-making regarding resource allocation, capital investments, and long-term financial sustainability.
Assessing Financial Viability: By examining the organization’s assets, liabilities, and net assets, the statement helps provide information on the organization’s ability to meet its financial obligations, support ongoing programs, and sustain its mission over the long term.

Operational Uses

Managing Cash Flow: By analyzing cash and cash equivalents, accounts receivable, and accounts payable, it helps monitor liquidity, plan for short-term financial needs, and ensure the smooth operation of the organization.
Evaluating Working Capital: Supports operational decision-making by evaluating the organization’s working capital and helps determine whether the nonprofit has sufficient working capital to cover day-to-day operational expenses and short-term obligations.

Statement of Cash Flows

Financial Uses

Cash Position Assessment: Assessing cash inflows and outflows, allows stakeholders to evaluate the availability and adequacy of cash resources, which is crucial for financial planning and decision-making.
Cash Flow Analysis: Assists in analyzing the sources and uses of cash within the organization. It provides insights into cash generated from operating activities, investing activities, and financing activities. This analysis supports financial analysis, budgeting, and investment decision-making.

Strategic Uses

Strategic Planning: Contributes to strategic planning by providing information on the organization’s cash flow patterns. It helps identify trends, fluctuations, and cash flow drivers, which are important for long-term financial sustainability and strategic decision-making.
Capital Expenditure Planning: Assists in planning for capital expenditures and major investments. By examining the cash flows related to investing activities, it helps assess the organization’s ability to fund capital projects, acquire assets, and allocate resources strategically.

Operational Uses

Cash Management: Aids in cash management by providing insights into the organization’s cash inflows and outflows on a detailed operational level. It helps monitor cash flow cycles, anticipate cash needs, and manage working capital efficiently.
Liquidity Assessment: Supports operational decision-making by evaluating the liquidity of the nonprofit. It provides information on the organization’s ability to meet short-term obligations and fund day-to-day operations.

Statement of Functional Expenses

Financial Uses

Expense Analysis: Helps analyze and categorize expenses by their functional nature, such as program services, management and general, and fundraising. By providing a breakdown of expenses, it allows stakeholders to assess cost structures, monitor expenditure trends, and identify areas for cost management and optimization.
Financial Reporting: Provides a comprehensive view of the organization’s expenses. It ensures compliance with reporting standards and provides transparency to stakeholders about how resources are allocated and utilized.

Strategic Uses

Program Evaluation: Aids in evaluating the financial performance and effectiveness of individual programs or services offered by the nonprofit. It helps assess the allocation of resources, cost-efficiency, and the impact of programs on the organization’s overall mission and strategic objectives.
Decision-Making: By analyzing expenses across different functional categories, the statement supports strategic decision-making. It helps identify areas where resources can be allocated or reallocated to align with the nonprofit’s strategic priorities and maximize the organization’s impact.

Operational Uses

Budgeting and Planning: Supports operational budgeting and planning by providing insights into historical expense patterns. It helps in setting realistic budgets for various functional areas, monitoring actual expenses, and ensuring effective resource allocation.
Cost Control and Efficiency: Assists in monitoring and controlling expenses on an operational level. By analyzing expenses within different functional categories, it helps identify cost-saving opportunities, manage spending, and improve operational efficiency.

Nonprofit financial statements fuel your mission

Financial statements play a crucial role in the financial management and governance of nonprofit organizations. By leveraging these financial statements and their diverse uses, nonprofit organizations can pursue their mission with confidence.

Additionally, adhering to compliance obligations reinforces credibility and trust among donors, board members, and regulatory bodies. As financial reporting standards and accountability expectations continue to evolve, nonprofit organizations must prioritize accurate and transparent financial reporting practices to thrive in an increasingly complex landscape. By harnessing the power of financial statements, nonprofits can navigate challenges, drive mission-driven impact, and foster sustainable growth for the betterment of their communities.

The Charity CFO specializes in nonprofit accounting and bookkeeping. If you want to dig deeper, you can learn more in our Financial Statement Guide here.

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Tips for cash management for a nonprofit organization

May 19, 2023/in Accounting, Nonprofit, Operations/by Paul Cook

Cash management for a nonprofit organization is possibly the most important consideration for success.

In a previous article, we discussed the benefits, risks, and compliance requirements of outsourcing bookkeeping for nonprofit organizations. In this article, we will build upon that knowledge and delve more specifically into the topic of cash management. Cash management is essential for maintaining financial stability, complying with regulations, and ensuring effective decision-making.

What is cash management?

When hearing the term “cash management,” many people will jump straight to the Statement of Cash Flows as the primary source of understanding. However, when speaking about cash management there is much more to the story. Cash management, at its core, refers to the process of effectively and efficiently handling and controlling the cash resources of your nonprofit organization. It involves monitoring, tracking and optimizing the inflow and outflow of cash to ensure that the organization maintains adequate liquidity and can meet its financial obligations. Cash management for a nonprofit organization encompasses various activities and strategies to manage cash flow.

Importance of tracking cash flow

Tracking the flow of cash in and out of a nonprofit organization is vital for its success and sustainability. Not only does it fulfill compliance requirements, but it also plays a crucial role in achieving the organization’s mission. By monitoring cash flow, nonprofits gain visibility into their financial health and can make informed decisions about resource allocation, budgeting, and planning. Moreover, tracking cash flow enables organizations to identify potential financial challenges in advance and take proactive steps to mitigate them. It also helps build and maintain cash reserves, which provide the necessary financial cushion to continue operations during lean periods or unforeseen circumstances.

Cash management strategies

Cash flow monitoring: monitoring cash inflows and outflows on a regular basis. This involves tracking revenue from various sources (donations, grants, program fees, investment income etc.) and expenses from various sources (salaries, rent, utilities, program costs, etc.). This supports informed decisions about spending, budgeting, and resource allocation.

Budgeting and forecasting: outlining projected income and expenses for a specific period, typically annually. Developing accurate financial forecasts can help nonprofit organizations anticipate cash flow fluctuations and plan accordingly, thus avoiding cash shortages, managing their financial commitments and allocating resources effectively.

Cash reserves: maintaining an appropriate level of cash reserves to serve as a financial buffer. Cash reserves can provide stability and flexibility during periods of uncertainty or unexpected expenses. Organizations should establish reserve policies that determine the target amount of cash to be held based on their own individual needs, operating expenses, and compliance requirements.

Cash flow optimization: strategies to optimize cash flow for an organization’s specific needs and ensuring efficient cash management. Optimizing cash flow may include negotiating payment terms with vendors, implementing efficient invoicing and collection processes, and exploring cash flow enhancement techniques such as short-term investments or revenue diversification.

Risk Management: assessing and mitigating financial risks associated with cash flow, such as liquidity, current and interest rate risks, Nonprofit organizations should have risk management strategies in place to address potential disruptions.

Overall, effective cash management strategies are essential to nonprofits to maintain financial stability, meet their financial obligations and support their mission. When strategically implemented as a part of an organization’s financial strategy and other fundamental financial requirements, cash management helps to support a holistic picture of the health and prosperity of an organization and their future abilities to maintain their mission.

Supporting fundamental financial processes

By monitoring and maintaining your cash flow, you can set your organization up for easier and smoother financial reporting processes. Understanding your cash position and consistent monitoring and tracking can help with

Accurate Recording of Financial Transactions
Preparation of Financial Statements
Resource Allocations
Budgeting and Forecasting
Financial Analysis and Decision-Making

Effectively managing your cash flow, compliance, regulations, and reporting requirements can be overwhelming, especially without a team specializing in each of these areas. Having a second set of eyes on financials is a prudent practice for nonprofit organizations. It involves engaging an external expert, such as a professional bookkeeper or accountant, to review and analyze financial records.

This serves as a form of independent validation, ensuring accuracy, transparency, and adherence to best practices. A second set of eyes can identify potential errors, inconsistencies, or irregularities that might have been overlooked internally. It adds an additional layer of accountability, reduces the risk of fraud, and enhances the overall integrity of financial reporting.

Overall, tracking cash flow, understanding an organization’s current financial position and accurate bookkeeping and reporting are essential for financial stability, compliance, and effective decision-making.

By diligently tracking cash flow, nonprofits can ensure financial health, maintain cash reserves, and weather unforeseen challenges. Adhering to bookkeeping fundamentals and preparing accurate financial statements demonstrates transparency and facilitates sound financial management.

Additionally, the inclusion of a second set of eyes provides an extra layer of scrutiny, improving accuracy, accountability, and the overall integrity of financial records. By embracing these practices, nonprofit organizations can enhance their financial management processes and support their mission with confidence.

Prioritize cash management for a nonprofit organization

The Charity CFO is a finance and accounting firm specializing in serving nonprofit organizations. If you need help simplifying and organizing your cash management, we’d love to help. Click here to set up a free consultation and see if we can help your nonprofit.

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Outsourced bookkeeping for a nonprofit

May 11, 2023/in Accounting, Nonprofit, Reporting/by Paul Cook

Bookkeeping is a critical component of running a successful nonprofit organization. It involves the management of financial transactions and the maintenance of accurate records to ensure that your organization remains financially healthy and compliant with the law. However, managing bookkeeping in-house can be time-consuming and expensive, which is why many nonprofits are turning to outsourced bookkeeping services.

A study by the Stanford Social Innovation Review found that nonprofits that invested in strong financial management practices, including bookkeeping, were more likely to achieve their mission and grow their organization. Strong financial management can come in many forms and there is no one size fits all for any nonprofit organization. As a leader, you’ll have to determine what is right for your nonprofit. In this article we’ll help you get started by exploring the benefits, risks and other considerations regarding outsourced bookkeeping for nonprofits.

Benefits of Outsourced Bookkeeping for Nonprofits

Cost Savings

Outsourced bookkeeping has the potential to offer significant cost savings, depending on the complexity of your organization and your needs. When utilizing outsourced accounting services, you only pay for the services you need and you may have access to more premium software than you could purchase on your in-house budget.

Labor Costs

You will have the ability to obtain services when you need them without worrying about flexibility, vacation days, or geographical location. You can source the best services for your needs, exactly when you need them.

Expertise and Experience

Industry specific specialists can help your nonprofit organization minimize risk by providing professional tailored advice. As regulations surrounding nonprofits can be incredibly complex, expert guidance on financial matters, including compliance with tax laws and regulations, is key. This can be especially helpful if you don’t have a dedicated staff-person with the expertise level required. A few common areas where in-house staff may not be able to handle growing complexities are:

Audit experience – if your nonprofit is audited by the IRS, an outsourced bookkeeping service can support you in this process
Complex tax preparations – while nonprofits are tax-exempt, they are still required to file their Form 990, which in some cases can be incredibly confusing and complex
Key dependencies – if someone is out of the office, or unexpectedly leaves your organization, it may be difficult to backfill this position or understand all of the organizational knowledge they held

Scalability

While your in-house staff may be able to handle the day-to-day, as requirements increase and your organization grows, an outsourced service can support and grow with you, while also adding additional services that may not have been necessary before. Outsourced accounting services for nonprofits can handle a whole spectrum of accounting tasks for your organization:

Processing payables, receivables, and cash transactions
Reconciling accounts at month-end
Preparing financial statements, budgets and forecasts
Assisting with tax and grant-reporting requirements
Adequately communicating financial matters to your board
Accurately submitting state and federal filings

Time to Focus on Mission

Outsourcing your accounting could free up time for personnel to focus on the mission rather than keeping up with ever-changing accounting requirements, filings, and reporting. These requirements are typically too large for just one person to handle, thus making this endeavor more of a team effort. If there are many people stretching themselves to get this done, you might not only be utilizing their time inefficiently, in an area where they lack expertise, but you may also be taking away from their mission-critical efforts. Outsourced bookkeeping can provide peace of mind knowing experts are on top of the accounting so your staff can focus on what matters most.

Access to Premium Accounting Software

Accounting software comes in many shapes and sizes, but many times the software organizations start with is not tailored and cannot grow with them. As your organization grows, access to the appropriate software can become a large unforeseen expense. Using the scalability mentioned above, outsourced accounting services typically have access to these softwares to ensure that your accounting, reporting and filing is done accurately and efficiently.

Risk of Outsourcing Nonprofit Accounting

While there are many benefits to outsourcing your bookkeeping, we would be remiss not to mention the potential downsides. Many organizations are close to the heart of their leadership, and letting go can be difficult. There are some potential downsides to outsourcing and it will be up to you to determine whether the benefits outweigh these for your organization.

Loss of Control

Entrusting the financial management of your organization to an external party can feel difficult and like you are losing control of a key component that makes your organization run smoothly. Ensuring that your bookkeepers are transparent, experts and trustworthy can help ease this fear. Properly evaluate each company and their credentials before letting go of your financial data.

Timeliness and Accessibility

Access is another common fear. Not having up to the minute transparency into your finances can be daunting. Make sure that you find a partner in your service provider and ensure that your access and communication channels are clearly defined. You may also choose to outsource certain aspects of your accounting that may require less immediate access.

Security Concerns

The financial data of an organization is incredibly sensitive. Ensure that your provider has proper security measures in place and ask to see these in action before proceeding.

Communication Challenges

As part of your diligence in selecting the right provider, you’ll need to consider what your communication preferences are, for both you and your staff. A bookkeeping or accounting service that is right for you will be able to accommodate your needs.

Transitioning

Transitioning from in-house to outsourced accounting services can be complex and time-consuming. You’ll need to have a solid plan outlining:

How financial data will flow
What are the communication channels and expectations
What software will be used and who will have access
Who will train the provider on your accounting processes and procedure
How quickly can they respond in a crisis
How long will this transition take

Compliance Requirements in Nonprofit Bookkeeping

Ultimately, you will need to evaluate the pros and cons of an outsourced nonprofit accounting service. By weighing the benefits you can take a look at where your organization might gain efficiencies and expertise while evaluating the best course of action. Remember, nonprofit accounting comes with a slew of special regulations, standards, and reporting requirements. There is no one size fits all solution. When determining your needs, be sure to consider what your complete financial package looks like and where you might need some help. Keep in mind:

Nonprofit accounting standards
Donor tracking
Fund Accounting
IRS Regulations
GAAP Standards
State-specific requirements
Tax Filing
Grant Requirements

By considering outsourced bookkeeping for your nonprofit, you can be on your way to more accurate reporting, more satisfied and less burnt-out employees, and, most importantly, more time to do the organizational work that really makes an impact on your mission.

If you’ve decided the outsourced bookkeeping is right for your organization, get in contact with us and see how Charity CFO can help!

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Nonprofit Fundraising Strategies to Consider

May 8, 2023/in Accounting, Fundraising, Leadership/by Paul Cook

What nonprofit fundraising strategies are you using to keep your organization healthy?

As nonprofit organizations rely heavily on donations to support their operations, programs and missions, fundraising is an essential component to their continued success. Organizations must be strategic and thoughtful in their fundraising efforts. Here we’ll explore some nonprofit fundraising strategies to effectively raise money for your organization.

Fundraising is More Than Money

When beginning the task of building a nonprofit fundraising strategy, you must first consider the underlying philosophy of fundraising. At its core, fundraising is about building relationships with supporters who share your organization’s values and vision. Effective fundraising is about more than just asking for money; it’s about engaging donors in a meaningful way and demonstrating the impact of their support.

To achieve this, nonprofit organizations should prioritize transparency, authenticity, and accountability in their fundraising efforts. This means being open and honest about your organization’s financial situation and how donations will be used and getting in the habit of regularly communicating with donors to keep them informed about your work and the impact of their support.

Remember, donors are individuals, with their own motivations, interests, and priorities. Therefore, fundraising cannot be a one-size-fits-all approach. The diversity of your donors should match the diversity of your fundraising strategies. Organizations should tailor their messaging and approach to the specific interests and needs of their donors. This requires getting to know your donors on a more personal level and building strong relationships with them based on a common interest: your mission.

10 Nonprofit Fundraising Strategies to Consider

With this foundation in mind, here are some great nonprofit fundraising strategies that your organization can use when developing your plans and determining how best to engage donors and raise funds.

Individual Giving

This is the most common form of giving to nonprofits. To fundraise at the individual level requires understanding your target donor and how best to reach them. This type of outreach can take the form of direct mail campaigns, online giving, major gifts etc. Regular communication with donors is imperative to support the efforts toward individual giving. Demonstrating the impact of their donations can help donors feel valued and appreciated and entice them to continue giving in the future.

Corporate Giving

This involves soliciting donations from businesses and corporations by way of sponsorships, cause marketing partnerships, and/or employee giving campaigns. Successful corporate giving efforts require organizations to identify businesses that share their values and work to develop mutually beneficial initiatives. Building these foundational relationships may require highlighting the ways in which the nonprofit’s work aligns with the company’s values, or offering opportunities for employee engagement or brand visibility.

Grant Writing

Submitting proposals for grants from foundations, government agencies, and other organizations can help secure funding for specific projects or programs. These can be highly competitive and time-consuming, but the efforts can be greatly rewarded with significant funding when done well. Successful grant-writing is a specialized skill and requires the grant writers to have a clear understanding of the grant requirements and how the organization’s proposed project or program aligns with the funder’s priorities.

Events

A fun and effective way to engage donors and raise funds, events can come in many different forms and can be tailored to different donor sets depending on their interests and needs. These can include galas, auctions, walks, and many other exciting fundraising ideas. The most successful events prioritize engagement and relationship-building. They should create opportunities for donors to connect with each other and with the nonprofit’s mission, as well as offer unique and memorable experiences that excite potential donors and encourage them to give.

Major Gifts

These are large donations from individual donors, typically in the range of $10,000 or more. This type of fundraising is highly dependent on building strong personal relationships with donors and identifying those who have the capacity to make significant contributions. Once identified, these relationships can take time and must be cultivated. Donors that make large contributions involve a bit more work than your average individual donor. To build and solidify these types of relationships consider inviting these donors to exclusive events, providing them with personalized updates on the impact of their support, and offering opportunities for recognition and engagement.

Planned Giving

Securing future donations through estate planning and other legacy gifts is a great way to ensure longevity in your organization. These types of donations can include bequests, charitable trusts, and other arrangements that allow donors to make significant contributions over time. Success in this type of fundraising strategy requires nonprofits to educate donors on the benefits of planned giving and to provide them with clear information about how to make a planned gift. This could involve working with outside support such as estate planning attorneys or financial advisors to provide donors with personalized advice and guidance.

Online Fundraising

A rapidly growing area of fundraising and one that will be incredibly important as younger generations enter the workforce and have the capacity and funds to select and support organizations that align with their values. Using digital strategies such as crowdfunding, peer-to-peer fundraising, and social media campaigns is crucial to growing your nonprofit’s fundraising strategy. To be successful in digital spaces, your organization will have to leverage the power of storytelling and social proof to engage donors and build momentum for online campaigns.

Donor Stewardship

The benefits of building long-term relationships with donors and demonstrating the impact of their support can not be overemphasized. Building donor stewardship requires prioritizing transparency, authenticity and accountability in donor communications by providing regular updates on your work, highlighting the impact of donors’ support and offering personalized recognition and engagement opportunities.

Community Fundraising

An organization that is deeply rooted in the community should not be underestimated. The power of community is powerful and tapping into the local community can provide incredible fundraising opportunities for an organization. To begin utilizing this power an organization must engage with supporters and local stakeholders in ways that benefit and support them. An organization can provide training and resources for community fundraising efforts and build partnerships with local businesses and organizations.

Capital Campaigns

These tend to be large-scale fundraising efforts that focus on raising funds for a specific project or initiative, such as a new building, program expansion, or endowment funds. Capital campaigns typically involve a multi-year fundraising effort and may require significant planning and coordination.

Overall, creating a nonprofit fundraising strategy is a complex and multifaceted process that requires careful planning, execution, and ongoing relationship-building with donors and supporters. By prioritizing transparency and communication and tailoring your strategies to the interests and needs of specific donor sets, your organization can create successful fundraising campaigns that make a lasting impact on the world. There are many strategies that nonprofits can use to raise funds and build a strong network of supporters who share their values. Taking a holistic approach to fundraising and focusing on engagement and building relationships can support nonprofits in creating a sustainable and impactful fundraising strategy to effectively support their mission.

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What to expect from accounting firms specializing in nonprofits

April 28, 2023/in Accounting, Nonprofit, Operations/by Paul Cook

Is there an advantage to working with accounting firms specializing in nonprofits?

Nonprofit organizations play a crucial role in addressing social, environmental, and cultural issues in our society. However, running a nonprofit comes with unique challenges that require specialized expertise, particularly in financial management and accounting. Fortunately, there are accounting firms that specialize in nonprofits and can help navigate all of these specific requirements with their vast industry knowledge and expertise. In this article, we’ll explore in more detail what you can expect from these firms and how they can support your nonprofit:

Nonprofit Accounting and Compliance
Financial Management and Reporting
Audit and Assurance Services

Nonprofit Accounting and Compliance

Nonprofit accounting is different from accounting for for-profit organizations in a number of ways. Firms that specialize in nonprofit accounting have in-depth knowledge and experience in accounting for the unique needs and requirements of nonprofit organizations. They understand the complexities of nonprofit accounting, including fund accounting, grant accounting, and compliance with IRS regulations. They also understand the importance of transparency and accountability, which are crucial for building trust with donors and stakeholders.

Fund Accounting

Fund accounting is a method of accounting used by nonprofit organizations to track and report on restricted and unrestricted funds. Unlike for-profit accounting, where all revenues and expenses are combined into one account, nonprofits must track each fund separately to ensure that donations are used in accordance with the donor’s intent.

When setting up your fund accounting system, you must ensure that it meets the unique needs of your organization. This system should then be able to support your organization in maintaining accurate records of each fund, tracking revenue and expenses, and preparing financial reports that show how each fund is performing.

Grant Accounting

Many nonprofit organizations rely on grants to fund their programs and services. However, managing grant funds can be complex and time-consuming. Expertise is imperative to help manage your grant funds by:

Tracking grant funds separately from other funds
Preparing grant proposals and budgets
Managing grant disbursements and tracking grant expenditures
Preparing grant reports and ensuring compliance with grant requirements

Compliance with IRS Regulations

Nonprofits are subject to complex regulations at both the federal and state levels. Accounting firms specializing in nonprofits can help you comply with these regulations. They can help you prepare and file your IRS Form 990, which is required for most tax-exempt organizations. They can also help you navigate state-specific regulations and comply with grant reporting requirements. By working with an accounting firm, you can be confident that your nonprofit is meeting all legal and regulatory obligations.

Financial Management and Reporting

Financial management is critical for the success of any nonprofit organization. Accounting firms that specialize in nonprofits can help your organization with financial management and reporting. They can help you develop budgets, financial projections, and cash flow forecasts to ensure your nonprofit is financially sustainable. They can also provide financial reports that show how your organization is performing and how it compares to industry benchmarks. These reports can help you make informed decisions and identify areas for improvement.

Budgeting and Forecasting

Developing a budget is essential for managing your nonprofit’s finances. It can help you plan for expenses, identify potential funding gaps, and make informed decisions about resource allocation. When developing your budget, you must make sure that it is realistic and aligns with your nonprofit’s mission and goals. Financial forecasting services can also help you plan for the future.

Financial Analysis

Financial analysis can provide valuable insights into your nonprofit’s financial performance. Executing on these analyses can help you understand how your organization is performing, identify areas for improvement, and make informed decisions about resource allocation.

Cash Flow Management

Managing your cash flow by developing cash flow projections, monitoring cash flow on a regular basis, and obtaining advice from experts on cash flow management strategies is crucial to your short and long-term success. Experts can identify potential cash flow issues and develop solutions to ensure your nonprofit has the cash it needs to operate effectively.

Auditing and Assurance Services

Auditing and assurance services help to ensure the accuracy and transparency of nonprofit financial statements. These services help your organization meet regulatory requirements and provide assurance to donors and stakeholders that your financial statements are accurate and reliable.

Financial Statement Audits

Financial statement audits provide an independent and objective assessment of your nonprofit’s financial statements. Nonprofit accounting firms can conduct financial statement audits to ensure your financial statements are accurate and reliable. They can also provide recommendations on how to improve your financial reporting processes.

Single Audits

Single audits are required for nonprofits that expend more than $750,000 in federal funds in a single fiscal year. Specialized firms can provide single audit services to ensure your organization complies with federal regulations and guidelines.

Internal Control Reviews

Internal control reviews assess your nonprofit’s internal control processes and provide recommendations for improvement. Firms can help conduct internal control reviews to ensure your nonprofit has effective controls in place to prevent fraud and ensure the accuracy of financial reporting.

Running a nonprofit organization is challenging, and financial management and accounting can be particularly complex. Accounting firms that specialize in nonprofits can provide invaluable support to help your organization succeed. By leveraging their expertise in nonprofit accounting, financial management and reporting, and auditing and assurance services, you can ensure that your nonprofit is financially healthy, compliant with regulations, and transparent to donors and stakeholders.

The Charity CFO has extensive experience in working with nonprofits, a deep understanding of your organization’s needs, and a commitment to delivering high-quality services.

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How to maximize efficiency with nonprofit accounting software

April 20, 2023/in Accounting, Nonprofit, Reporting/by Paul Cook

How can nonprofit accounting software help your organization with efficiency?

We’re in the age of technology, and it seems that for every process or transaction, there is a corresponding technological solution designed to make our lives easier and our work more efficient.

In today’s digital age, technology has revolutionized almost every aspect of business operations, including accounting and finance. For-profit companies have long used accounting software to track their financial transactions and monitor their bottom lines. However, nonprofit organizations face unique accounting challenges and not all commercial accounting software may be equipped to handle.

Where to start with nonprofit accounting software

Nonprofits have to comply with strict financial accounting standards. Meeting these requirements is crucial to the organization’s survival and to maintain donors’ trust. To help meet these requirements, many nonprofits are turning to accounting software that is specifically designed for their needs. When products are designed with nonprofit accounting in mind, you can expect some of the features to be available:

- Fund accounting: Easy management and tracking of funds, tracking revenues sources and expenses for restricted and unrestricted funds separately. The software should also be able to generate reports that show the balances and activity for each fund.
- Incoming and outgoing payments: Record incoming payments, such as donations and grants, and outgoing payments, such as expenses and salaries. Might also include the ability to track pledges, payments received, and pledge balances.
- Budgeting: Tools for creating and managing multiple budgets for different funds or projects and budget to actual reporting. Some tools may also provide forecasting based on historical data.

Reporting requirements: General financial statements and other reports that are compliant with nonprofit accounting standards as well as reports that are required by grantors, donors and other regulatory bodies.

Grant tracking: From application to closeout, including the ability to create budgets for each grant, track grant expenditures, and generate reports that show the status of each grant. Some tools will also include reminders for reporting deadlines and other grant-related tasks.

Accepting donations: Tools typically include online donation forms and the ability to accept recurring donations.
Donor Tracking: Allows organizations to track contact information, giving history, and communication preferences. Some tools may also allow you to segment donors into different groups based on criteria such as giving level or engagement level and ability to generate trend reports over time.

How to evaluate nonprofit accounting software

One of the benefits of nonprofit accounting software is its ability to help organizations manage many elements of their finances in one place. It even helps automate some recurring tasks, reducing the chance of errors and duplication, and saving valuable hours each week. However, no one solution will be able to handle the vast needs of nonprofit accounting. Some good questions to keep in mind when evaluating a tool to support your accounting needs:

Is the system easy to learn? Is there support available?
How quickly do you need the software to be set up?
What specialized features will you need? These features might include a platform to file your Form 990-N or the ability to create custom reports.
Do you need integration with other systems?
How secure is the system?

“Talk to a customer service representative from each software provider you’re considering to get answers to these questions,” says Katie Gray, the Content Manager for the all-in-one nonprofit software provider Springly. “They can clarify these points so that you don’t have to go searching on their website.”

Software won’t do it all

It is important to note that while nonprofit accounting software is powerful, it is not a cure-all. Technological tools have their limitations and many of them are additions to tools made for for profit businesses. This introduces an element of uncertainty as to whether they will be kept up to date on all things nonprofit or are accurately configured for the standards that nonprofits must adhere to. It is not a substitute for the expertise of a professional accountant or bookkeeper.

These professionals can help ensure that the organization is meeting all the legal and regulatory requirements, and make sure that the software is being used effectively. Nonprofit organizations can benefit greatly from engaging an accountant with specific industry experience for several reasons:

An understanding of nonprofit accounting standards. They should be knowledgeable about these standards and can ensure that the organization’s financial statements are prepared in accordance with them.
Experience with grant and donor reporting,including compliance with federal and state regulations and reporting to grantors and donors.
Knowledgeable about compliance with tax exemption requirements to ensure that the organization remains in compliance with them.
Assistance with fundraising, budgeting, forecasting cash flows, and providing financial insights that can help the organization make informed decisions about fundraising and donor management.
Understanding of nonprofit financial statements and the unique financial reporting requirements of nonprofit organizations, including the Statement of Financial Position, Statement of Activities, and Statement of Cash Flows.

At the end of the day, all of these technologies are great and can truly make your operations run more smoothly, provide more insights in a quicker manner, and streamline your processes. However, there will always be the need for the human element. While technologies are getting much much better at reading data, the humans that are closely tied to your organization can make the minute and fine decisions that a technology doesn’t have the capability to understand. Having someone to talk to through issues, discuss problems and solutions, and analyze and decide what is ultimately best for your organization can not be replaced.

Engaging an accountant with specific nonprofit industry experience combined with the power of technological tools is a powerful duo to set an organization up for success and ensure efficient and effective management of your finances.

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Nonprofit Compliance Requirements

April 5, 2023/in Accounting, Nonprofit, Reporting/by Paul Cook

In order to confidently run your organization, it’s important to have a strong understanding of nonprofit compliance requirements.

Running a nonprofit is no small feat. In addition to the many struggles of running a business, nonprofits have additional hurdles to overcome as it relates to their mission, employment strategy, accounting, and compliance. While this last one, compliance, can tend to fall to the bottom of the priority list, it is actually one of the most important aspects to consider when running a successful and lasting nonprofit.

However, compliance is not always very straightforward and it can be a huge task to undertake on your own. We’re here to provide you with background, information, and support to ensure that you’re on top of your compliance requirements.

What Does Nonprofit Compliance Mean?

Compliance is the act of assuring the public that nonprofit organizations are obeying the appropriate laws, contracts and commitments that they enter into as a nonprofit organization. Compliance laws protect the public and ensure that nonprofit organizations are eligible to receive the financial advantages offered and that they do not abuse these advantages.

Depending on your state, funding and other factors, your compliance and audit requirements might vary. Requirements at the federal and state levels also vary.

Noncompliance can lead to dire consequences for your nonprofit organization, including

Fines
Lack of funds / Reduced funding
Diminishing donor/supporter trust
IRS audits
Revocation of tax exempt status

Compliance Checks

Compliance checks may also vary by organization and can come in different forms.

Compliance reviews: A less exhaustive, non-examination format for the IRS to check on the proper reporting of certain items. Compliance checks or compliance check questionnaires tend to be simpler than a full audit and are limited in scope.

Recordkeeping and information reporting requirements
Consistency with tax exempt purpose

Audit: Can be conducted by the IRS if sent a letter, or may be required to be completed based on your federal funding status or other obligations. A field audit tends to be comprehensive and looks at:

Timeliness
Completeness and accuracy
Exemption status
Annual tax returns / Employment tax returns / Form 1099 series information returns
Proper payment of tax liabilities
Disclosure requirements for applications for exemption, for Form 990 series returns, and for fundraising solicitations and events.

If you are preparing for an external audit, it’s a good idea to properly prepare and gather all of the appropriate documentation. This can be a long and lengthy process. A great way to stay on top of these tasks is with an Audit Checklist.

Staying Compliant

The first step in staying compliant is understanding and being prepared.

Your Organization’s Compliance Requirements

The best thing you can do to ensure your nonprofit organization is always in compliance is first to understand, document, and distribute what those compliance requirements are in the various areas of your organization

Corporate requirements – your incorporation process, annual filings and fees
Fundraising requirements – registration to solicit donors in all states, countries and territories that your nonprofit operates in
Operational requirements – adherence to your bylaws and other operational duties
Accounting requirements – filing your Form 990 and adhering to proper accounting practices
Employment requirements – proper classification of employee exemption statuses
Record-keeping requirements – retaining the appropriate records to be easily accessed and for the required period of time
Private grant requirements – specific requirements as outlined in grants that your organization received
Restricted funds compliance – if restricted donations are received
Workforce health and safety – dependent upon state and federal requirements
Data security and privacy – following the laws in your areas of operation especially if you operate in the digital/web space with a website, app, or services
Local and state zoning and licenses – certain activities your organization may engage in could require permits or licenses

Labyrinth Inc., experts in charity state registrations, provides a great starting point to begin to research and understand some of these requirements.

Accounting, Recordkeeping and Forms

The accounting and reporting function of an organization will play a crucial role in ensuring that you remain compliant. Having a CPA as a resource, whether internally or outsourced will be crucial to understanding the basics of nonprofit accounting. Generally, you will want to know that you are engaging with someone who has a deepening knowledge of the following:

Nonprofit accounting
Unrestricted, temporarily restricted, and permanently restricted funds
Fund accounting
Cash and accrual basis accounting
Presentation of financial statements
Accounting for donated assets
Filing the proper forms at local, state and federal levels
Reviewing accounting standards and updates
Proper internal controls

Compliance Questions

Even if you’re new to compliance or aren’t an expert, there are a few questions that you should always ask and direct to those who are responsible for your compliance

Have you filed your IRS 990 every year?
Have you properly withheld payroll taxes? Without issues, notifications or penalties?
Has the department of labor audited your nonprofit for misclassifying employees?

If you do not know the answers to these questions, it’s best to seek help and find out sooner rather than later before compliance becomes a larger issue.

Ongoing Maintenance

Once you have a handle on your compliance with good processes in place, the best way to avoid issues is constant maintenance.

Keep up with new regulatory developments
Regularly review your organization’s financial statements
Conduct periodic internal audits
Setup a process for monitoring compliance
Evaluate the effectiveness of internal controls, financial policies, and procedures
Assess risks and make necessary changes to mitigate them
Create procedures for taking corrective action when necessary

The Charity CFO can help you stay in compliance with our expert teams with nonprofit experience.

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Independent audit requirements for a nonprofit

March 31, 2023/in Accounting, Audit, Nonprofit/by Paul Cook

The word audit can invoke instant fear and dread. Whether it’s an IRS audit, external audit, or even an internal audit, the process can feel burdensome and worrying. However, with the right tools and preparedness, there’s no need to worry.

Contrary to popular belief, most audits are not conducted to detect a problem. They are actually useful tools to ensure that an organization is in compliance and can also be used to identify potential problems before they become too big.

The IRS does not require nonprofit audits in most cases, however, they may periodically request an audit (examination) or a compliance check.

Should My Nonprofit Obtain an Independent Audit?

If the IRS doesn’t require an audit, you may wonder why you might put your organization through this process, as cumbersome and time consuming as it can be. However, there are a few reasons why you might need to conduct an independent audit to remain in compliance with your organization’s other obligations.

Bylaws: The bylaws of your organization may have been outlined to require regular audits to ensure transparency, security and confidence in the financial standing of the organization.

State Governments: Depending on the state you operate in and the funding you receive, you may be required to conduct an independent audit.
Federal Funding: If your organization receives $750,000 or more in federal funding, you are required to have an independent audit conducted.
Private Foundations: Some may require nonprofits to conduct an independent audit
Grant Recipients: If your nonprofit has received funding from grants, some may require audits to ensure that they can have confidence in the financial aspects of the organization that they have provided this money to.
Proof of Financial Status: Additionally, other funding sources or applications might require proof of financial management, solvency, transparency and compliance. While they may not specifically state that an audit is required, this is a great way to fulfill that obligation.

Selecting an Audit Firm

Once your organization has decided to obtain an independent audit, the real work begins. Taking steps to make sure that you are working with the right audit Firm is important. Do your research and select Firms that specialize in nonprofits.

Outline your requirements – be detailed about what you are looking for from an external audit firm.
Send out RFPs – select three to five Firms that you believe could conduct the audit properly and send them an RFI/RFP to determine their qualifications, approach, and fee structure.
Interview potential Firms – give your organization and your accounting team the opportunity to interact with the potential auditors to determine if they are a good fit.
Make your selection – select the Firm that you believe can fulfill your specific audit requirements and are aligned with your goals to provide accurate, transparent, and clean financial statements.
Sign an engagement letter. This should include:
- An outline of services to be performed
- Responsibilities of staff and auditors
- Fee Structure
- Start date, milestones, and end-dates

How to Prepare for an Audit

In the nonprofit world, audits are a normal course of business and should not be something to be nervous about. With appropriate planning, they can go smoothly. As soon as you know that you will be obtaining an independent audit, begin the planning process.

Conduct pre-audit meetings with the auditor, the oversight committee, and any staff that will be involved in and responsible for items requested throughout the audit.
Receive a listing from the Firm of documentation that they will require
Pull and obtain the documentation before the start of the audit to the best of your abilities to avoid delays and confusion.
Have staff readily available to answer questions and provide clarification to auditors.
Stay ready year round and with an audit checklist and roadmap.

After the audit, make the appropriate adjustments and continue to keep up with the suggestions that are made.

Implementing and making changes to your processes and internal controls after an audit can help make future audits even more successful and ease the stresses that these can cause. These changes can also provide the following benefits.

Transparency: Communications regarding your audit and the changes that are being made can boost confidence and assurances in your donors and supporters. They can feel good knowing that you are properly taking care of and using their contributions appropriately.
Accountability: Regularly scheduled audits keep your organization accountable for consistent accurate reporting
Improvements: Finding opportunities for improvement in policies and procedures is an added benefit to audits that can result in additional efficiencies and better usage of resources.

Other Types of Audits to Support Compliance

While the independent external audit is the most familiar to nonprofit organizations, the following can also support your compliance efforts.

Internal Audit

These are conducted by staff within your organization and can help identify opportunities for improvement in many different areas. Internal audits allow organizations to remove themselves from everyday tasks and take a look at the big picture to more effectively and efficiently manage their operations and achieve their mission.

Financial Audit

Financial audits are useful in evaluating your organization’s financial statements and reporting. They can help understand and showcase the health of your organization and work to improve it. These can also examine your internal controls to ensure financial security and stability.

Compliance Audit

Compliance audits are conducted to review adherence to regulations and requirements set by your bylaws, the federal, state, and local governments, as well as other compliance requirements. Ensuring that you remain in compliance is an important task, as noncompliance can have huge risks.

Operational Audit

These can assess your organization’s systems, productivity, staffing, IT, HR, and other functions and can provide operational insights that are invaluable to the growth and success of your nonprofit.

Whether or not an audit is required, they can be useful tools in determining the financial health of your organization, providing transparency and assurances, and discovering process and efficiency improvements to make sure your organization is performing its best to fulfill its mission. If you need audit support, The Charity CFO and its experts are always available.

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What to look for in nonprofit accounting financial statements

March 23, 2023/in Accounting, Nonprofit, Reporting/by Paul Cook

Nonprofit accounting financial statements may seem like a chore. They can be meticulous and time-consuming to prepare. However, the benefits of these statements far outweigh any possible inconvenience. Nonprofits use financial statements to comply with IRS regulations, build trust with donors, and plan for the future.

You may think that nonprofit financial statements are the same as those at for-profit companies, but this is not the case. The financial statements used by for-profit companies are typically the income statement, balance sheet, statement of cash flows, and statement of owner’s equity. While nonprofit financial statements have some overlap with these, there are key differences.

Here are the main nonprofit accounting financial statements:

Statement of activities
Statement of financial position
Statement of cash flows
Statement of functional expenses

Let’s take a closer look at each.

Statement of activities

This is the nonprofit equivalent of the income statement. As with the income statement, the statement of activities presents all revenue and expenses for a reporting period, but the goal is different. A for-profit company measures how much money they are making because they want to earn a profit. Nonprofits want to make money, but not to earn a profit. Expenses are subtracted from revenues to show the change in net assets, rather than net income. The money nonprofits make is reinvested into their programs and services.

The statement of activities is exactly what it sounds like. It looks at all of your organization’s activities so you can see what is working and what isn’t. Common revenues for nonprofits include contributions, grants, and investment income. Common expenses include administrative expenses, fundraising, and program services.

The statement of activities looks a bit different from the income statement. Separate columns classify revenue based on whether it is restricted or unrestricted. Restricted revenue is funds that are for a specific purpose. If your nonprofit receives grant money, there may be stipulations over how it is used. On the other hand, unrestricted revenue can be used as the nonprofit wishes.

Statement of financial position

As with the balance sheet, the statement of financial position is a snapshot of your nonprofit’s finances at a specific point in time. The balance sheet follows the basic accounting equation, which is:

Assets = Liabilities + Owner’s Equity

Instead of owner’s equity, the statement of financial position looks at net assets. Therefore, it displays assets (what you own), liabilities (what you owe), and net assets (your value).

Like the statement of activities, the statement of financial position sorts net assets based on whether or not they are restricted.

Statement of cash flows

The nonprofit statement of cash flows is very similar to that of a for-profit company. It looks at cash inflows and cash outflows, which is cash coming in or leaving your organization. These cash flows are then sorted into the below categories:

- Operating activities: Occur during the normal course of business
- Investing activities: Buying or selling long-term assets
Financing activities: Funding, such as loans

Statement of functional expenses

This statement is unique to nonprofits. It is required for nonprofits to report expenses based on their functional classification and their natural classification. This may sound confusing at first, but it’s actually pretty straightforward.

Classifying expenses by their function demonstrates what they were used for. Functional classifications include program costs, management and general costs, and fundraising costs. Natural classifications look at the type, or nature, of the expenses. These include salaries, rent, utilities, and so forth.

Getting maximum value from nonprofit financial statements

Now that you know what goes into the main nonprofit financial statements, it’s time to learn how to use them! While financial statements are required for reporting purposes, there is much more to it than that. The financial statements can help you assess how your business performed for the period. Your nonprofit probably has financial goals it wants to achieve. With these goals in mind, you can look at each of your financial statements and see whether or not you’re on track to achieve them. If not, you can always make adjustments.

You should set goals, create a budget, and compare the budget to the actuals from your financial statements.

Let’s take a look at how each of the financial statements we discussed can provide value for your organization.

Statement of activities: You may find that your net assets are not as high as you want them to be. To make changes, you might need to find ways to cut back on expenses or find new funding opportunities to boost revenue.
Statement of financial position: This broad overview of your nonprofit’s financial health gives you a quick look at your assets, liabilities, and net assets. As with the statement of activities, you may need to adjust your operations if your net assets are too low. You can determine if you’re paying off your liabilities and measure liquidity.
Statement of cash flows: You can determine if there’s enough cash available to pay off expenses. If not, you can quickly make changes in your nonprofit’s operations to avoid running out of cash!
Statement of functional expenses: The main purpose of this statement is to comply with IRS regulations. It is part of Form 990. However, it is also beneficial to provide transparency to donors so they can see how you are using your funds.

Need help with nonprofit accounting financial statements?

Nonprofit financial statements can be confusing. It’s important that they are accurate and are properly interpreted for use in future planning. Consider partnering with a firm to connect data to your goals and provide insights on where your nonprofit is going.

The Charity CFO works exclusively with nonprofits to help with accounting, including preparing financial statements and providing CFO-level guidance. Contact us today to help your nonprofit succeed in its mission.

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Nine Fundraising ideas for nonprofits

March 13, 2023/in Accounting, Fundraising, Nonprofit/by Paul Cook

Fundraising ideas for nonprofits are one of the more exciting ways to add needed momentum to your mission.

The idea behind nonprofits is to support the public good. With over 1.3 million nonprofits in the United States, there are countless organizations available to provide shelter, medical assistance, and education, you name it! While this all sounds nice, there is a nagging question.

How do these organizations have the money to operate?

Even though nonprofits are not concerned with earning a profit, money is necessary for their success. Nonprofits need funds for the day-to-day services they provide, as well as to cover employee salaries, office space, and other administrative expenses.

Fundraising ideas for nonprofits to fuel the mission

So, how do nonprofits make money? Common ways include donations, grants, and fundraising. This article will explore the latter in greater detail.

Below are 9 fundraising ideas for nonprofits:

Sporting event

This could include a 5K, charity golf tournament, bowling event, tennis tournament, and many others. Your nonprofit may be able to partner with the facility the event is being hosted at, such as the golf course or tennis courts, to get discounted playing rates. However, keep in mind that hosting charity tournaments can be very expensive. It can be helpful to obtain sponsorships to offset costs.

Auction

Attendees bid to win items, and the proceeds will go to your organization. Auctions are popular because the prizes are attractive to attendees. If your nonprofit is small, it may seem overwhelming to think about hosting an auction. Fortunately, auctions can be large or small, and hosting your auction online can be another way to cut costs. To choose items to auction off, you should consider the profile of your donors, such as age and the size of their donations. You should use this information, as well as following current trends, to come up with a list of items.

Bake sale

The logistics of hosting a bake sale is often easier than some other fundraising ideas because most, if not all, of the items to be sold are donated. People may donate cookies, cakes, or brownies. Your organization will need volunteers to facilitate the event and sell the items. Instead of a bake sale, similar food-related events you could host include a chili cook-off or barbecue.

Themed gala

A gala is often an annual event that raises a lot of money and allows for donors to mingle with your nonprofit’s staff. Hosting a gala can require a lot of planning and costs, but the funds you raise can make it worth it. Also, while a gala is often thought of as a formal black-tie event, you can host a more informal event to cut costs. Having a theme for your gala can make the event seem more attractive to attendees.

Craft fair

This is similar in concept to a bake sale, since the inventory is all donated. Many crafters want to raise the visibility of their own small business, so they are often eager to participate in this type of event. The proceeds from the sold items go to your nonprofit. While hosting a craft fair can seem fairly straightforward, keep in mind that you will need to find a location and determine the layout of the vendors.

Benefit concert

While hosting a benefit concert may sound intimidating, it doesn’t have to be. A benefit concert is when you host a performance of either one or more performers to raise money for your nonprofit. It can range in size and expense. You will need to book acts to perform, and for most nonprofits, a reasonable approach is to ask local musicians. Musicians will often be eager to perform at this type of event because in addition to raising funds for your organization, it is a way to increase the size of a musician’s audience. Money can be raised through ticket sales, concessions, and merchandise.

Trivia night

Trivia nights are popular due to their entertainment value for existing donors and the overall community. It is relatively inexpensive to organize a trivia night, but you will still need to select a venue, determine a format, and come up with trivia questions. The planning can seem difficult, but after the first time, it will be much easier to plan similar events in the future.

Email/Social media

Email and social media campaigns can be highly effective, and relatively easy, ways to raise money. When sending a fundraising email, make it personal, provide testimonials of your organization’s impact, and include a call to action. For social media campaigns, tell the story of your organization, be consistent, and use hashtags.

Virtual event

Consider hosting events virtually to reach a greater audience. Many of the events previously discussed, such as a gala or auction, can occur in an online format.

Fundraising ideas will impact your accounting

When raising money through fundraising, you need to consider how this affects your nonprofit’s accounting. The way revenue and expenses are recorded can differ for GAAP purposes and tax purposes (Form 990).

When selling tickets to a gala or benefit concert, the ticket price is often higher than normal due to the added contribution. For tax, this excess amount is reported as a contribution, and for GAAP, it can be reported as either a contribution or special event revenue. When a venue donates space for your event, such as a golf course or concert hall, under GAAP you will report the fair market value of this donation. It will not be reported on Form 990.

If items are donated to be auctioned off, you will need to report this as contribution income at fair market value. These are just a few examples of best practices when accounting for fundraisers, and there are also many others.

The Charity CFO can help you sort out the accounting considerations of hosting a fundraiser. Specializing in nonprofits, we can be a helping hand to boost your nonprofit’s success. Schedule a free consultation today.

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Does the accounting industry have a diversity problem?

March 9, 2023/in Accounting, Nonprofit/by Paul Cook

As with many long-standing professions and institutions, the short answer is “yes.” The accounting industry currently and historically does have a diversity problem. According to the most recent AICPA Trends Report (2021), 41% of accounting graduates are nonwhite while only 23% of professional staff identify as nonwhite. Moving up the ladder, among partners, only 18% are nonwhite. This unfortunate trend persists throughout the report citing similar gaps for bachelors, masters and doctoral candidates of varying groups as well as the existing demographics of CPA firms nationwide.

Primed for change

That being said, many Firms in the accounting industry have taken up diversity initiatives in recent years and we are seeing positive trends. While the progress is painfully slow, changes between the 2018 and 2020 AICPA Report show that diverse hiring of graduates has increased from 28% to 32%

In a time when the industry is seeing decreasing interest and high turnover, it might be time to rethink how things have always been done. Increasing diversity in the workplace can have a monumental impact on how employees show up at work, collaborate with each other, and interact with clients.

According to the CPA Journal, a recent report found that “workplace belonging” leads to a 56% increase in job performance and a 50% reduction in turnover risk. The more diverse your organization, the more employees feel comfortable showing up as themselves and putting in their best work.

Diversity creates a stronger organization

Starting a journey to truly engage in this work and build a diverse organization that is respected by employees, clients and the industry is no small task, but the rewards can be great at all levels from leadership, to client engagement, to employee wellness and satisfaction. An organization with a strong DEI commitment can see many benefits. According to The Nova Collective, “Organizations who invest in DEI not only stand to gain a loyal workforce, they also have the opportunity to increase its bottom line and attract more customers.” Other ways diversity can strengthen an organization:

Internal enrichment and satisfaction when employees feel they are a part of a group, rather than an outsider. Seeing themselves in others, employees increase drive and initiative to excel.
Diverse employees expands access to diverse clients, talent pools, lines of business and partnerships that you may have been unaware of before.
Innovation and DEI are intricately linked, opening up more room for ideas, collaborations, challenges, and voices, according to the Harvard Business Review.
Diverse workforces create a more equitable distribution of wealth.
Enhanced customer service across industries as employees and the organization as a whole have a wider perspective and understanding of the global world

Where to start?

Building a diverse workforce doesn’t come easily and isn’t something that can be done by posting a statement and changing a few images. According to a workplace report by Glassdoor, 66% of employees and job seekers trust employees the most when it comes to understanding what diversity and inclusion really looks like at a company. Especially in an industry with historically low nonwhite employees, the work needs to be done.

Encourage mentorship and engagement of young accountants and CPAs of all backgrounds. As the statistics above show, there are a large number of nonwhite graduates looking to break into the industry. Support them by providing guidance, tips, and introductions along the way.
Evaluate where your organization currently stands and where you need to improve. Be honest about the results and the work that needs to be done.
Create a plan to build a supportive and trusting workplace by intentionally cultivating DEI in the workplace
Understand that there is no one size fits all approach and you will constantly need to adjust and change your plans as you move forward and discover what works for your organization and its employees.

Building momentum is the hardest part. But once you begin to implement these practices, you can really start to see the impact within your organization. The Move Project Metrics Report notes that academic studies and management consultants agree that “when people with a shared identity become at least a third of a group, the group has a dynamic shift. Each person with that identity, once the 33% is achieved, is seen less as representing that identity, and more as speaking on the basis of their own expertise and experience.”

Representation matters, and real change and growth takes time. So laying the foundation now for an inclusive, welcoming and strong organization is imperative to the future success of an organization in an ever changing and ever global environment.

The future of the industry

The accounting industry will always be needed, yet it’s continuously losing more and more people due to its bad reputation. By being at the forefront of changing an antiquated industry, from recent graduates all the way up to senior leadership and the Board of Directors, by committing to diversity with intention, impact and financial resources, an organization can be in a prime position to attract high quality professionals, grow their firm, and become a leader and an example of how great the accounting profession really can be.

Charity CFO is passionate about representation and providing opportunities to underrepresented sectors. We are helping to create an environment and culture where people have opportunities. And we’re hiring! Check out our list of open positions

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Nonprofit treasurer duties: Where you should focus

February 27, 2023/in Accounting, Nonprofit, Operations/by Paul Cook

Does your organization get bogged down with nonprofit treasurer duties?

Nonprofits don’t exist for the purpose of earning profits. With that being said, money is central to a nonprofit’s success. Salary costs and other administrative expenses are unavoidable. Also, there can be a lot of cash inflow from fundraising and grants, and it’s important to know how to use it.

How does a nonprofit manage its money? One of the most important board members for a nonprofit is the treasurer. The treasurer role encompasses a wide array of responsibilities, mainly concerning financial management and oversight.

You may be wondering what a treasurer can do for your nonprofit, or you may be interested in becoming a treasurer yourself. Read on to learn about a nonprofit treasurer’s duties.

What does a nonprofit treasurer do?

First things first: Treasurers aren’t accountants. A position to oversee finances may sound a lot like an accountant, but there are important distinctions between the two. Many nonprofits do not have in-house accountants and choose to outsource instead. The tasks of nonprofit accountants include more of the day-to-day bookkeeping tasks, while treasurers are more concerned with the bigger picture.

Tosha Anderson, CPA and CEO of The Charity CFO, discusses the do’s and don’ts of a treasurer in a recent episode of the “A Modern Nonprofit” Podcast.

The major tasks of a treasurer can be summed up as follows:

Operations management
Oversight and compliance
Strategic decision-making

Operations management

The operational tasks of a treasurer concern financial management. These tasks include organizing financial data into helpful reports to be presented to the other board members. In addition to financial reporting and presentation, the day-to-day duties of a nonprofit treasurer may consist of signing checks, approving expenses, investing funds, paying bills, and so on. Some of the operational responsibilities of a nonprofit treasurer may overlap with that of the operations manager. However, the treasurer focuses more heavily on finance, while the operations manager has a broader scope of duties.

Oversight and compliance

In order for a nonprofit to be financially healthy, the right policies and procedures need to exist to guide financial duties. Potential oversight tasks could include establishing processes for budget review and selecting an auditor. Other important policies that should be in place are proper internal controls. These are measures put into place to guard your nonprofit’s assets and provide protection against any potential wrongdoings. Examples could be requiring two signatures on checks and maintaining a paper trail.

When discussing oversight responsibilities of a treasurer, Form 990 must be included. The IRS requires all nonprofits to submit this form each year. Form 990 is used to ensure that an organization meets the requirements for tax exemption by collecting a nonprofit’s financial data. The treasurer should make sure this form is submitted on time each year for compliance purposes.

Strategic decision-making

Above oversight are the even bigger-picture strategic duties. Strategy involves using financial data and reports to make sound decisions. Long-term financial planning is critical to the success of your nonprofit. A treasurer needs to look at financial options for meeting future goals, and they should ensure that the nonprofit’s finances are in line with the overall mission.

What are the qualifications for nonprofit treasurer duties?

As previously mentioned, a treasurer is not the same as an accountant. Treasurers may have a background in accounting, such as being a CPA or having education in nonprofit management, but this is not a requirement. A treasurer doesn’t need to have an accounting background, but they should be willing and capable of learning how to manage financial systems and reporting.

Other qualities that a treasurer should have are great communication skills, and even creativity. Treasurers aren’t just numbers people. They need to be able to clearly present the nonprofit’s finances to the rest of the board, so they should be clear communicators. Creativity is also a necessary trait when it comes to strategic decision-making. A treasurer should be someone who is willing to look at a variety of options from different angles to make well-informed choices.

A new treasurer can face a steep learning curve, especially if they do not have a background in accounting. Even for a treasurer who has worked in accounting or finance, there can be a lot to learn, since nonprofit finance is much different than that of for-profit companies. A nonprofit’s executive director and other board members should support the new treasurer as they get up to speed in their responsibilities. Without the support of others in leadership, a treasurer’s role can be very overwhelming at first.

Nonprofit Treasurer Duties: A Recap

The nonprofit treasurer is critical to the financial success of an organization. Duties include financial reporting, compliance, and financial strategy, although they are not involved in day-to-day bookkeeping tasks. Accounting tasks are either performed in-house or are outsourced.

It can be difficult at first for a treasurer to learn about all the duties that are part of their new role, but with support and guidance from other board members and leadership, a good treasurer can be the key to your nonprofit’s success.

Support for your nonprofit treasurer duties

If you are looking to add support and bandwidth to your nonprofit organization’s support staff, The Charity CFO is here to help. Contact us today for a free consultation on how we can serve your mission.

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What Does Nonprofit Data Look Like?

Types of Data for Nonprofits

Challenges of Nonprofit Data Collection

Leveraging Data in Nonprofit Leadership

Cultivating a Data-Driven Culture in the Organization

Investing in Data Technology

Aligning Data with Organizational Goals and Mission

Using Data for Program Evaluations

Improving Fundraiser Efforts Through Donor Analytics

Improving Financial Management

Improve Decision-Making

Budgets are Essential for Nonprofit Organizations

Creating a Comprehensive Nonprofit Budget – Start with the Details

Review Prior Year Activity

Discuss Upcoming Expenses, Revenues, and Adjustments

Move On To Revenues

Budget for a Surplus

Leverage Budget Tracking for a More Successful Nonprofit

Reasons Your Nonprofit May Need an Audit

Regulatory Compliance

Grant Requirements

Stakeholder Trust and Confidence

Internal Governance and Oversight

Fraud Prevention and Detection

Is There an Alternative? Can a Reduced Scope of Attestation?

Can a Reduced Scope of Work Replace an Audit?

1. Level of Assurance

2. Regulatory and Stakeholder Requirements

3. Cost and Resource Considerations

4. Specific Objectives

The Charity CFO Can Give You Peace of Mind

What Is a Financial Forecast for Nonprofits?

Key Components of Financial Forecasts

Using Financial Forecasts for Nonprofits

Budgeting

Strategic Planning

Fundraising and Grant Applications

Cash Flow Management

Need Help with Financial Forecasting for Nonprofits?

What is a tax-exempt status?

What are the benefits of donating to a 501(c)3 organization?

Can you donate to a nonprofit without a 501(c)3 designation?

Is my political contribution considered a donation?

As a donor, can I put a restriction on my donation?

Can my 501(c)3 I donate to another 501(c)3?

Can a 501(c)3 nonprofit organization donate to an individual?

3 Tips For Boosting Your Donations

Partner up with a fellow nonprofit with a similar mission

Host virtual or in-person events

Tap into technology to reach a wider audience

Still Confused About 501(c)3 Donations?

Determining Your Nonprofit Banking Needs

Reviewing Nonprofit Banking Partner Options

Nonprofit-Friendly Services

Good Reputation

Consider Your Investment in the Bank

Compliance and Regulatory Considerations

Keep a Strong Relationship in Perspective

Selecting the Right Nonprofit Banking Partner is Essential

Understanding the Role of Accounting Setup for a Nonprofit Organization

Common Mistakes in Accounting Setup for Nonprofits

Lack of proper training and expertise

Poor choice of accounting software

Inadequate data entry and record-keeping

Ignoring compliance and regulatory requirements

Long-Term Consequences of Nonprofit Accounting Setup Errors

Preventing and Mitigating Nonprofit Accounting System Setup Errors

Understanding Donations and Loans and Their Impact on Nonprofits

Legalities of Donations and Loans

Advantages and Disadvantages of Nonprofit Donations

Benefits of Donations From Foundations

Drawbacks of Donations From Foundations

Advantages and Disadvantages of Loans

Benefits of Loans from Foundations

Drawbacks of Loans from Foundations

Evaluating the Effectiveness of Donations and Loans

Donation vs. Loan: Still Need Help Understanding?

The Effects Expense-Obsession Has on Nonprofits

Focus on Revenue Generation, Not Expenses

Building a Culture of Revenue-Generation