Advocacy in the nonprofit world often gets narrowed down to policy, awareness campaigns, or boardroom pitches. But as Courtney Johnson of Culinary Care reminds us, the most powerful kind of advocacy happens one relationship at a time—starting with yourself.
On this episode of A Modern Nonprofit Podcast, host Tosha Anderson sits down with Courtney Johnson, who founded Culinary Care at just 23 years old after losing her father to cancer. What began as a simple act of service—delivering a hot, restaurant-prepared meal to one patient—has grown into a mission-driven nonprofit serving cancer patients across regions.
This isn’t a story about scaling overnight. It’s a story about finding your people, listening to your community, and building a nonprofit that meets a need no one else was addressing.
Advocacy Starts With Listening
Courtney didn’t launch Culinary Care with a perfectly polished plan. She started with a single goal: to give comfort and nourishment to cancer patients in outpatient care—people who often spend hours at treatment centers with no access to meals.
The turning point? A handwritten four-page letter from the first patient she served. That one story opened Courtney’s eyes to the emotional, physical, and financial weight patients carry—and helped her realize she wasn’t just delivering meals. She was delivering connection, dignity, and care.
That’s where advocacy truly began—not with a pitch deck, but with presence.
Ignore the Naysayers. Find Your People.
As a young founder, Courtney faced skepticism at nearly every turn. Lawyers, donors, and even friends questioned her decision to start a nonprofit with no culinary background, no logistics team, and no fundraising experience.
But instead of internalizing the doubt, she used it as fuel. “Every donation is like a vote,” she says. “It’s someone saying, ‘I believe in this mission—and in you.’”
Rather than trying to win everyone over, Courtney focused on finding the people who already believed in what she was building. From patients to donors to hospital staff, she built a community rooted in trust, transparency, and shared values.
This is where most nonprofit founders get stuck. They pour energy into convincing the wrong audience instead of connecting with the right one. As Courtney puts it: “You’re not here to change someone’s mind who doesn’t believe in your mission. You’re here to find the people who already do—and might not know you exist yet.”
Start Small. Stay Aligned.
Courtney didn’t start with a massive donor list or a staff of 10. She worked full-time, delivered meals on her lunch break, and relied on family and friends to help grow the mission—one meal at a time.
Eventually, she expanded that model through intentional, mission-aligned fundraising. Instead of a traditional gala, she launched a Corporate Cook-Off—a unique, branded experience that aligned with her audience and her mission. Ten years later, it’s still their most successful annual event.
Her advice to founders? Start with your strengths. Don’t mimic what other nonprofits are doing if it doesn’t make sense for your mission. Get creative, stay authentic, and build with sustainability in mind.
Real Advocacy = Real Alignment
One of the most compelling parts of Courtney’s journey is how Culinary Care stayed operational during the COVID-19 shutdown. When hospitals locked down and restaurants closed, she turned to her community, raised emergency funds, and delivered meals through creative new systems—with nurses stepping in to help.
That’s what advocacy looks like at its best: mutual mission alignment. When you partner with people who care about the same outcomes, advocacy isn’t a hard sell—it’s a shared effort.
Advocacy Is a Relationship
This episode isn’t just for nonprofit founders—it’s for anyone trying to lead with purpose and grow something meaningful. Courtney’s story reminds us that advocacy is less about shouting louder and more about showing up, listening, and building from trust.
If you’re a nonprofit leader looking for direction, motivation, or just a reminder that you’re not alone in this work—this one’s for you.
The Charity CFO is an accounting partner that truly understands nonprofits. Our team knows the missions that drive you, the obstacles that challenge you, and the dedication your job demands. We “get” nonprofits, because nonprofits are all that we do. If you need help with your accounting and bookkeeping, let’s talk.
https://thecharitycfo.com/wp-content/uploads/2025/07/White-Simple-Woman-Photo-Sale-or-Business-Womens-Beauty-Facebook-Cover-2-scaled.jpg9472560KRunnels/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngKRunnels2025-07-15 15:39:052025-08-17 07:55:30Find Your People: What Nonprofit Advocacy Really Looks Like Behind the Scenes
Most nonprofits don’t have a branding problem—they have a clarity problem.
In our latest episode of A Modern Nonprofit Podcast, Steven Picanza of ANEWbrand joins Tosha Anderson to talk all things branding, verbal identity, and the art of not overloading your homepage.
Your Website Is Trying to Talk to Everyone
Too many nonprofits try to speak to all their audiences at once:
Donors
Program participants
Board members
Staff
Volunteers
The result? Websites that feel more like mazes than invitations.
When your homepage tries to do everything, it often does nothing well. People don’t know where to click, what matters most, or how to take action. And when there’s confusion, visitors disengage.
Function Over Flash
Branding doesn’t have to be flashy. In fact, the most effective nonprofit brands are grounded in function—not flair.
Think of your brand like a kitchen. If it’s cluttered, outdated, and confusing, no one wants to spend time there. The same goes for your website, social media, or marketing materials. They should feel welcoming, efficient, and easy to navigate.
Start with Verbal Identity
So how do you fix a cluttered brand? It starts with verbal identity—your voice, tone, and the words you use to communicate your mission.
Getting clear on how you sound helps you stay consistent across every touchpoint—from your homepage to your donation forms to your elevator pitch. When your language is clear, your message becomes memorable.
Your Brand Should Work Internally, Too
Verbal identity isn’t just for donors—it’s for your team.
Every staff member, board member, and volunteer should be able to recite your mission on command. If they can’t, your brand isn’t working internally. And if it’s not working internally, it won’t hold up externally either.
A strong brand creates alignment. It brings everyone on the same page with your purpose, values, and next steps.
Your Brand Attracts More Than Donors
Branding isn’t just about fundraising. It also impacts your ability to attract:
Mission-aligned staff
Skilled volunteers
Community partners
In today’s nonprofit landscape, where funding is shifting from government to private sources, your brand needs to do more than inspire—it needs to convert.
Don’t Wait Until It’s Broken
You don’t have to wait for your brand to be broken—or outdated—to take action.
Learn about simple tools you can use like:
Stakeholder surveys
External brand consultants
These can help you gather honest feedback and make strategic improvements.
Branding doesn’t have to mean starting over. Most of the time, it’s an evolution—not a revolution.
Clarity Is the New Competitive Edge
In a crowded digital world, clarity is what cuts through.
Get clear on who you are. Get clear on who you’re talking to. And most importantly—get clear on what you want them to do next.
The Charity CFO is an accounting partner that truly understands nonprofits. Our team knows the missions that drive you, the obstacles that challenge you, and the dedication your job demands. We “get” nonprofits, because nonprofits are all that we do. If you need help with your accounting and bookkeeping, let’s talk.
https://thecharitycfo.com/wp-content/uploads/2025/07/White-Simple-Woman-Photo-Sale-or-Business-Womens-Beauty-Facebook-Cover-1.jpg9452553KRunnels/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngKRunnels2025-07-08 10:55:192025-08-17 07:55:31Branding Beyond the Logo: What Nonprofits Must Know
https://thecharitycfo.com/wp-content/uploads/2025/05/Blog1-scaled.jpg16002560Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2025-03-07 05:11:052025-08-04 12:46:38How Nonprofits Can Use Data to Drive Accountability & Growth
No time to read this article now? Download it for later.
For nonprofits, audits are more than just a regulatory requirement–they’re a tool for safeguarding the organization’s mission and financial health. An audit helps improve an organization’s financial transparency, builds donor trust, and ensures compliance with regulations.
However, preparing for an audit can be overwhelming if you don’t have the right guidance. This comprehensive checklist can help you streamline the audit preparation process so every detail is ready for a thorough financial review.
Why is Your Nonprofit Being Audited?
Before preparing for your audit, it’s a good idea to look at why your organization may be facing an audit. There are many reasons nonprofits are audited, including:
Regulatory Compliance
Grant Requirements
Board Oversight
Unusual Financial Activity
No matter the reason for the audit, it’s important to be prepared.
Preparation can help minimize disruptions during the audit process. Preparing for an audit also helps ensure the accuracy of your financial records, which can help reduce discrepancies found by the audit.
Finally, being prepared for your audit shows a level of professionalism that helps protect your nonprofit’s reputation with the public.
Pre-Audit Prep
1. Review Financial Statements
Your first step in preparing for a nonprofit audit is to look at the financial statements of your organizaiton. Financial statements form the foundation of an audit, so your records must be accurate and complete. Take the time to carefully examine each financial statement, ensuring that all income, expenses, assets, and liabilities are properly recorded and classified.
In addition to reviewing financial statements, you should verify that all accounts are fully reconciled by comparing bank statements and other financial records against accounting records. Any discrepancies or inconsistencies should be addressed immediately to avoid complications during the audit.
2. Organize Financial Documents
Being organized will make the audit process much easier. Ask your auditor or accountant for a list of the required documents for your audit and use it as a checklist. You’ll generally need to gather all relevant financial records, such as:
Bank statements
Receipts
Invoices
Once you have the documents you need, organize them in a way that makes them easily accessible.
3. Assess Internal Controls
Before your audit, it’s a good idea to analyze your internal controls and procedures. These controls help your organization safeguard assets and ensure accuracy in financial reporting. Reviewing your controls–such as how financial transactions are handled, recorded, and approved–helps with audit preparation. It’s also a great way to check if your controls are working as intended.
As you assess controls, identify any weaknesses or gaps in the processes. Pay special attention to the segregation of duties to ensure no single individual has control over all aspects of a transaction.
Key Areas to Focus On
1. Revenue and Donations
An organization’s revenue and donations are perhaps the most important aspects of running a nonprofit. Without revenue, you can’t serve your mission and help your community. They’re also often closely scrutinized during an audit.
Before your audit, ensure all donations are recorded accurately. This includes reconciling donation records with bank deposits. You’ll also want to verify that donor restrictions are properly documented and adhered to when using funds. Remember, to keep copies of all documentation received with your gifts (donor acknowledgement letter, cancelled check, grant agreements, etc.).
2. Expenses and Disbursements
Make sure to review and verify all expense transactions before your audit. Likewise, be sure to ensure you have the proper documentation for all disbursements from the organization. You may want to go over your organization’s budget and financial policies to check for adherence to these policies.
3. Grants Management
Grant funds often come with strict restrictions for their use and it’s up to your organization to use proper grant accounting practices. Your organization should be maintaining detailed records of any grant-funded activities.
As you prepare for your nonprofit audit, collect your grant agreements and the records of related expenditures. Carefully compare these documents to ensure compliance with grant terms and conditions.
4. Payroll and HR Records
You’ll need to verify the accuracy of your payroll records and employment tax filings as part of your audit prep. Verifying records also includes gathering and organizing proper documentation for all employees and contractors.
During this step, you may also want to review your compliance with labor laws and regulations. If you find issues with employee or contractor documentation, you can remedy them now.
5. Compliance with Regulations
In addition to tax and employee regulations, your organization may fall under specific federal, state, and local regulations for your type of nonprofit. Plan to review your adherence to those regulations prior to your audit.
Specifically, you’ll want to make sure you comply with IRS requirements for nonprofits. Use industry-specific standards to document your compliance with any regulations that govern your organization.
Final Review and Preparation
1. Conduct a Pre-Audit Self-Assessment
Before you face your official audit, conduct a self-lead financial review of your organization. Think of it as a dress rehearsal for your official audit using the audit checklist.
Once you’ve gathered all the necessary documents for your audit, you can start organizing them for the auditor’s review. Start by setting up a dedicated workspace for the auditors with easy access to your documents. Be prepared to provide auditors with any additional information or support they may need.
Need Help Preparing for a Nonprofit Audit?
Thorough audit preparation makes a nonprofit audit run smoothly, reducing your stress and the time to complete the audit. This checklist will help you be ready for your nonprofit audit so you can catch–and resolve–potential issues in your financial documents.
In addition to this comprehensive audit checklist, you can reach out to the Charity CFO for help with audit preparation. We specialize in helping nonprofits with financial management–including audit readiness. Our team will help you go through the checklist and prepare documents for a smooth, stress-free audit process.
No time to read this article now? Download it for later.
https://thecharitycfo.com/wp-content/uploads/2025/05/308.png6301200Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2024-08-23 15:57:212025-08-17 07:55:36Is Your Nonprofit Ready for an Audit? Here’s a Checklist to Help You Prep.
No time to read this article now? Download it for later.
The effectiveness of a nonprofit’s finance committee can be a major factor in an organization’s success. An effective, engaged committee helps the organization proactively and effectively manage its finances to advance its mission. An ineffective committee, however, can hold your organization back and could even lead to poor financial health.
Are you worried your finance committee isn’t as effective as it should be? Look for these five warning signs that your committee isn’t effective.
Lack of Financial Expertise Among Members
The finance committee’s main goal is to provide financial oversight for your organization. This means each member of the committee should have enough financial knowledge to make informed decisions.
Many ineffective finance committees have only one or two members with this important financial knowledge, meaning they must rely on a single expert. While your finance committee doesn’t need to be made up of finance professionals, each member should be able to understand the complexities of your organization’s finances. If they don’t, you could face frequent misunderstandings between the committee and your accounting team. Your committee might also lack the ability to accurately interpret financial data or reports, making the committee less effective overall.
The good news is it’s relatively easy to combat a lack of knowledge. Consider providing financial committee members with financial training to improve their financial literacy. When it’s time to bring on new members, look for members who have experience and expertise in finance, even if they’re not direct financial professionals.
Poor Meeting Attendance and Engagement
Getting things done in a meeting where attendees are disengaged and uninterested is almost impossible. It’s even more difficult if members are skipping meetings or leaving early. Low engagement and attendance rates can also pull down the overall morale of other committee members.
Even if members make it to meetings, they might come unprepared. An unprepared committee makes it more difficult to make decisions and stretches out the time it takes to complete tasks.
A committee full of engaged members, however, is ready to tackle difficult questions and make smart decisions for the nonprofit. Much like an engaged board of directors, an engaged finance committee can become your organization’s greatest ambassadors and advocates.
Three ways to improve your finance committee’s attendance and engagement include:
Set clear attendance expectations and requirements for committee members so they understand the required time commitment.
Improve the meeting structure for a better flow from topic to topic and provide detailed agendas to members before meetings.
Foster a culture of accountability by delegating small tasks to each member, further improving their engagement and ownership in the committee.
Inadequate Financial Oversight
The finance committee plays an important role in the financial success of your organization by monitoring the budget and reviewing financial statements. However, one of the key roles of the committee is to provide financial oversight and ensure the organization follows set financial processes and policies. Without proper oversight, the organization risks financial instability, mismanagement, and even potential legal or compliance issues.
An ineffective finance committee doesn’t provide the financial oversight your organizaiton needs. Signs of inadequate oversight include:
The committee misses discrepancies in financial statements.
To solve these issues, the finance committee members may need to create their own processes and controls. For example, the committee can set up a financial review calendar that includes monthly budget reviews, quarterly financial statement analysis, and annual financial overviews.
Ineffective Communication with the Board
The board of directors and finance committee must work together to create a successful nonprofit organization through clear and timely communication. A finance committee that isn’t effective might delay reporting to the board or not provide enough information for the board to accurately assess the organization’s finances.
Poor communication with the board of directors can leave board members uninformed about the financial health of the organization. This could lead to miscommunications and poor decision-making from the board of directors.
Organizations can improve communication between the board of directors and the finance committee by fostering an open dialogue and establishing regular reporting schedules. You can also encourage your finance members to use clear and concise communications to help reduce the risk of miscommunication between members.
Reactive Financial Planning
One of the biggest signs of an ineffective finance committee is reactive financial planning. A committee that reacts to financial challenges–rather than proactively anticipating them–is likely unengaged and inefficient. This might include a lack of budget forecasts or the absence of a financial strategy.
Your organization needs a finance committee that will proactively address issues and pave the way for financial success. Providing targeted financial training and professional development opportunities to committee members can help them move from reactive to proactive.
Evaluating Your Finance Committee
Disengaged committee members, lack of financial understanding, and poor internal financial controls can all lead to an ineffective finance committee. As a nonprofit leader, you can help improve the effectiveness of your committee by evaluating it and implementing solutions as needed. Taking the time to review your finance committee can help your organization improve its financial health.
Need help with nonprofit finances? The Charity CFO specializes in providing expert financial advice to nonprofits. Our team understands the complex financial needs and challenges of nonprofits. We can help you better understand your organization’s financial health.
Contact us today to learn more about our nonprofit financial services!
No time to read this article now? Download it for later.
https://thecharitycfo.com/wp-content/uploads/2025/05/299.png6301200Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2024-07-29 16:05:182025-08-17 07:55:375 Signs Your Finance Committee is Not Effective
No time to read this article now? Download it for later.
Nonprofits are facing increasing pressure to modernize their operations to stay effective and efficient.
They are quickly learning that outdated processes hinder an organization’s ability to reach its goals, connect with the community, and engage with donors.
If this feels relatable, this article will walk you through the steps you need to modernize your nonprofit operations–from adopting technology solutions to improving data security.
Assess Current Operations
You can’t know what your organization needs to modernize unless you know where you’re currently at. The first thing you need to do to modernize your operations is assess your current processes and policies with an operations audit.
During your audit, take a look at your current systems, workflows, and procedures to identify areas that are working well–and those that need improvement. An effective audit will examine every part of your operation from administrative processes to program delivery methods. Your audit will help you pinpoint inefficiencies, redundancies, and bottlenecks that hinder performance.
Once you have a clear picture of your current operations, you can start prioritizing pain points. Some common nonprofit operations issues include:
Outdated donation or fundraising technology
Unorganized donor and beneficiary data
Inefficient communication channels
Cumbersome manual processes
Duplication of effort and entry into multiple systems
All of these problems can slow down your operations, leading to wasted time, increased costs, and decreased productivity.
Adopt Technology Solutions
One of the first places to look when modernizing operations is your current technology. Many nonprofits rely on outdated technology, such as paper files or clunky software. Adopting modern software and technology solutions is the fastest way to improve your operational efficiency.
There are three areas of technology where the majority of nonprofits will benefit most:
Using cloud-based software: Cloud-based solutions ensure everyone on the team has access to the information they need, whether they’re in the office or at a program event.
Implementing financial management software: Accounting and financial software tools, like QuickBooks, streamline accounting, bookkeeping, and financial reporting.
Introduce a CRM: CRM (customer relationship management) systems let you easily manage donor and beneficiary relationships from your computer, rather than overstuffed filing cabinets.
Replace manual processes with apps: Consider using other third-party apps that integrate with your existing tech stack. Prioritize those processes that are time-consuming, paper-driven, and manual, such as expense reimbursement, time tracking, or bill payments.
Improve Data Management and Security
Good data management and security practices help you protect sensitive information about your donors, beneficiaries, and employees. A data breach can lead to severe consequences, such as:
Financial losses
Damage to your organization’s reputation
Distrust from donors
Legal repercussions
Implementing secure data handling practices modernizes your operations while also reducing the risk of a data breach. Some things you can do to improve data handling include:
Employee and volunteer training on data security
Require strong passwords and two-factor authentication
Utilize encryption for sensitive data
Keep software and technology up to date
While the most important benefit of good data security is keeping sensitive information safe, that’s not the only reason you should take it seriously. Data security may also be an important part of staying compliant with federal, state, and local regulations. States like Oregon, Delaware, and Colorado, for example, have introduced data privacy laws that require businesses–including nonprofits–to follow certain protocols regarding personal data.
Modernize Fundraising Strategies
Gone are the days when nonprofits had to rely on physical donations like spare change, cash, or paper checks from donors. With modern technology, nonprofits can easily plan, market, promote, and collect fundraising efforts digitally.
Successful digital fundraising campaigns often combine creativity with strategic planning. For example, Giving Tuesday has become a global movement, with nonprofits using it to launch compelling online campaigns using social media and email marketing. Additionally, crowdfunding platforms like GoFundMe and Kickstarter enable organizations to fund specific projects using powerful storytelling to engage supporters.
Introducing AI tools into your marketing and fundraising efforts is another way to help improve the efficiency of planning and producing a campaign. When used correctly, AI tools help streamline the process by reducing manual tasks that can hinder efficiency.
Partner with Trusted Experts
It can be tempting to try to manage every aspect of your organization internally. But sometimes, the best way to modernize your nonprofit and improve operations is to outsource to trusted experts. This might include working with a technology consultant to help you create and implement digital solutions or hiring a nonprofit accounting firm to act as your nonprofit CFO.
Partnering with experts helps you get your digital transformation right with less trial and error. Additionally, working with experts helps reduce the stress of modernizing your operations, which could lead to employee burnout.
Modernizing Your Nonprofit Operations
Modernizing nonprofit operations can help your nonprofit improve efficiency, engagement, and impact. By conducting a thorough operations audit, identifying pain points, and leveraging technology solutions, your organization can:
Streamline processes
Improve data management and security
Optimize fundraising strategies
Increase community engagement
Partnering with trusted experts can also help streamline your operations. At the Charity CFO, for example, we help nonprofits improve efficiencies through expert accounting and financial advice.
Our full range of nonprofit accounting services focuses on using technology to modernize and simplify nonprofit accounting. And since we only work with nonprofits, you can be sure our team has the knowledge and experience to navigate the complicated nonprofit financial landscape.
Contact us today to learn how we can help you modernize your accounting operations.
No time to read this article now? Download it for later.
https://thecharitycfo.com/wp-content/uploads/2025/05/282.png6301200Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2024-07-02 13:00:452025-08-17 07:55:38How to Modernize Your Nonprofit Operations
https://thecharitycfo.com/wp-content/uploads/2025/05/Charity-Articles-4-7.png6301200Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2023-11-02 15:37:192025-08-17 07:55:51How to Run a Successful Giving Tuesday Campaign
https://thecharitycfo.com/wp-content/uploads/2025/05/88.png6301200Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2023-08-14 17:51:032025-08-17 07:55:55Why Nonprofit Founders Need to Take a Salary
https://thecharitycfo.com/wp-content/uploads/2025/05/1.png12602240Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2023-06-19 19:52:422025-08-17 07:55:58Unlocking Success: The Crucial Roles of a Nonprofit Financial Advisor
Is nonprofit financial management the accountant’s job? The CFO? The Board? All of the above…and more! Learn to make finances a team effort for better results!
/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.png00Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-08-18 12:57:212025-08-17 07:56:17Can You Fundraise While Your 501(c)(3) Application Is Pending?
Starting this year, most nonprofits must comply with ASC 842 which detailes new accounting standards for reporting leases. Here’s what you need to know.
As a nonprofit Executive Director, the amount of time you invest with your board of directors can vary wildly depending on your organizational culture and the time of year.
But make no mistake: Nonprofit board development is critical to your success. And it’s becoming increasingly important to your funders too.
Foundations want to know that your board is doing its job and doing it well. And even private donors want to know that board members are investing in your mission.
The trouble is that many nonprofit leaders don’t know where to begin when it comes to board development. So we sat down with Linda Lysakowski recently on A Modern Nonprofit Podcast to get her secrets to successful board development.
Linda works with nonprofits all over the world, and she’s helped tens of thousands of organizations with fundraising and nonprofit board development.
Here are three key takeaways from our conversation:
#1: Leverage your committees to boost participation
Did you know that not all board committee members have to be board members?
It’s true! Committees report to the board of directors, but they can be staffed by non-board members. This strategy can be a great way to recruit new, highly engaged board members!
When you engage volunteers, professionals, and other community members to help out on a committee, board members are less likely to feel burned out. Plus, you open the door for other positive things to happen.
Your circle of supporters widens. And the more people who come to a deeper understanding of your mission and vision, the more people will donate to your cause.
Board members can learn new skills. People like to expand their experiences and deepen their understanding of new subjects. Board members can learn from a pro, which, in turn, helps them feel more empowered in their role.
The recruiting process gets easier. When your leadership team works with an individual on a particular project, they can see how that person and their skills fit with the rest of the board. Likewise, the individual can envision a longer-term relationship as a board member.
As you can see, using committees effectively can have ripple effects across your organization.
#2: Get all board members involved with fundraising
You might be afraid to demand too much of your board. But fundraising and development are something that all of your board members can and should participate in.
Expect 100% board participation
As Linda put it during our conversation for A Modern Nonprofit Podcast, boards of directors are like parents of a kid headed to college.
When parents ask for financial aid to help fund their child’s college education, the government agency or the school will first ask what the family can contribute. Before anyone gives them money, they want to know that the parents are willing to put some skin in the game.
Similarly, foundations and private donors may cross-reference your IRS 990 with your donor list to ensure that your board members are giving. Because if you can’t count on them to support your cause, who can you count on?
So you should absolutely let them know (before appointing members to the board) that you expect 100% board participation when it comes to donations.
At the same time, Linda cautions against setting a minimum donation level for board members.
There are at least two issues with this type of policy because it can:
Exclude lower-income people, who might not be able to meet that minimum, from serving on the board
Limit the amount given by higher-income board members who interpret that minimum as the maximum. A board member who may have been prepared to give $10,000 might see the $1,000 minimum and only make the minimum required donation.
Rather than defining a dollar amount, set the expectation that all board members should make your organization one of their top two or three giving priorities.
Every board member can play some role in fundraising
Beyond giving their own money, board members should also be helping to bring more donations to the table. It can be a sensitive topic with board members, so you may need to approach it delicately and teach them how they can best be involved.
Fundraising and development consist of four distinct phases — identifying, cultivating, soliciting, and stewarding.
You’ll notice that only one of these consists of actually asking for money. So, while many people are hesitant to solicit, there are three other ways board members can get involved in developing new donors.
Even board members who never become comfortable asking for donations may still be excellent at cultivating relationships or managing relationships with existing donors. So encourage your nonprofit board members to utilize their unique skills. If they believe in the cause, they should all be involved in development at some level.
#3: Never stop recruiting new board members
If you spend a lot of time in the nonprofit space, you’ll know that there tends to be a “recruiting season.” Once a year, the nominating committee gets together to think about the holes they have to fill. And then there’s a mad scramble to find appropriate candidates.
But board development should always be a process rather than a one-and-done project. That’s why Linda recommends you get rid of your nominating committee and replace it with a Governance Committee. The Governance Committee is in charge of continually evaluating the board’s effectiveness and identifying opportunities to improve.
Your governance committee should ask questions like:
How are we performing as a group?
How is each individual performing?
What do we need so we can increase our efficacy?
Wrestling with these questions (and being honest about the answers) will help the committee make strong recommendations to the board about possible new candidates and positions they should fill.
Plus, if you do this process correctly, it can help all board members get something extra out of their service. As much as they put into your organization, each person has unique motives for serving. Board members want to grow, learn, network, and explore.
Ultimately, asking these evaluation questions will help improve the overall health of the board. Your board members will feel more engaged and fulfilled. And that will make it easier for them to invite others into committees, help with donor development, and recruit passionate colleagues to the board.
Want more tips on nonprofit board development?
When your board of directors is healthy and engaged in your organization’s mission, that commitment will directly impact your bottom line. And help make growing your mission as easy as possible.
For more tips on nonprofit board development, check out this clip with Linda’s top strategies for finding better board members:
https://thecharitycfo.com/wp-content/uploads/2025/05/Blog-Featured-Image-2.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-05-20 09:00:032025-08-17 07:56:203 Tips for Successful Nonprofit Board Development
Starting a nonprofit organization can be confusing and tricky, especially if it’s your first time and you don’t have any experience filling out a 501c(3) application. However, filling out the application is an essential step in setting up a nonprofit charity with the full benefits of tax-exempt status.
Follow along below as we discuss tips on how to fill out your 501c(3) application correctly so that your request is approved and your organization can get off to a great start.
What is a 501c(3) application?
A 501c(3) application is a document nonprofit organizations file with the Internal Revenue Service (IRS) to request tax-exempt status as a charitable organization. IRS Form 1023 is the document you must complete to apply for tax-exempt status with the IRS as a 501c(3).
Once granted tax-exempt status, your organization is exempt from paying federal taxes on revenues from donations, grants, and income your nonprofit generates in carrying out your stated mission. When you’re not giving a percentage of your income to the IRS, you can use those financial resources to carry out your nonprofit’s mission.
PRO TIP: Only income from activities “related to your mission” are exempt from tax. For more details on this, check out our article on which taxes nonprofits do (and don’t) have to pay here.
What should I include with Form 1023?
IRS Form 1023 is 28 pages long, and some applications can reach more than 100 pages when you count the attachments and schedules needed to substantiate your application. The more information you include with the form, the lower your chances the IRS will have additional questions.
Think of Form 1023 as a business plan for your nonprofit organization, including your governing structure, planned programs, and purpose. The IRS wants to see detailed information on how you plan to carry out your stated objective. And they want to ensure that your organization has the resources to follow through with your planned programs.
The IRS will also look out for possible conflicts of interest that can be grounds for denying your application for tax-exempt status.
What should you have before filing Form 1023?
Before you file your application, you’ll need to choose a type of legal entity for your nonprofit organization. The most common legal entity for a nonprofit is a C Corporation, but you can also be an LLC, unincorporated association, or a trust.
Which organizational type is right for you depends on what kinds of activities or services your organization will provide. But you’ll need to decide on your business entity type before applying for tax-exempt status because you need to file formation documents before submitting Form 1023 to the IRS.
You’ll also need to have an Employer Identification Number (EIN) before completing Form 1023. (You can get one for free by filing Form SS-4 with the IRS.)
Form 1023 vs. Form 1023-EZ
Now that you are ready to apply for a 501c(3) status with the IRS, you need to decide whether to file a Form 1023 or a Form 1023-EZ.
Form 1023 is considered the long-form version. It is a thorough questionnaire about your nonprofit organization over 40 pages long. You’ll have to pay $600 to file the form, and processing times can be as long as 6 to 12 months.
The shorter Form (1023-EZ) is more manageable to file, so many eligible nonprofits elect it over the longer form. If your nonprofit expects to have less than $50,000 in annual gross receipts in each of the next three years and does not have assets exceeding $250,000, you can file the shorter form. The form is only three pages long. It costs $275 to file with the IRS. And you’ll typically get a response within 2 to 4 weeks.
PRO TIP: Consider your choice carefully before deciding which 1023 to file. The EZ form is simpler, but there are some potential drawbacks to taking the easy path, like a higher audit rate and trouble securing large grant funds. Thoroughly assess your plans and goals before deciding which best fits your needs.
What documents should you include with your 501c(3) application?
Starting a nonprofit organization can be confusing, so you should seek professional legal advice. Unfortunately, many people shy away from seeking legal help because they think it will cost them a lot of money. In reality, you might spend more money correcting your mistakes if you decide to do it yourself, especially if you make errors in your application or incorrectly file forms.
You must submit a complete form to the IRS, including all the required attachments, or they won’t be able to approve your application. In some cases, it can take up to 18 months for the IRS to approve. Ensuring all your paperwork is in order can help avoid further delays.
Here are the documents that you should with your application:
Formation documents
If you formed a corporation, you must ensure that you have all the legal formation documents required in your state and attached to your application. These can include Articles of Incorporation and a list of your Board of Directors and officers.
You may also need to include the business plan for your nonprofit and bylaws. The more information you have with your application, the less likely they will come back to you for additional questions or ask for other documentation.
The bylaws are fundamental to your operation as a nonprofit. They can be beneficial for regulating your members and officers and the Board of Directors to make sure that no unexpected conflicts of interest arise.
Financial Statements
You have to supply financial statements for the year and a proposed budget plan for at least the next two years for newly-established nonprofits. If you have been operating for at least three years, you need to show the current and prior year’s financial statements.
Primary and specific project plans
You declare your organization’s purpose to the IRS, which is the primary objective that your nonprofit wants to achieve. You’ll also need to give details on your planned projects. The IRS wants to ensure that your nonprofit will provide legitimate services to the community you choose to serve.
So you’ve filed your 501c(3) application—what’s next?
After you’ve filed your 1023 for 501(c)(3) nonprofit status, it’s mostly a waiting game. Depending on which form you filed and how complete your application is, you may receive a letter of determination in as little as a few weeks. Or it may take up to a year or more.
In the meantime, the IRS says you should act as if your application will be approved. That means you should go about your activities as if you are exempt from federal taxes. And you should file IRS form 990 at the end of your fiscal year instead of a tax return.
The one tricky topic during the waiting period is donations. Your donors’ contributions will only be tax-deductible for them if your application is approved. Once you get your approval, all donations are tax-deductible retroactive to the date of your application. But if your application is rejected, those donors will not be able to claim a tax benefit from any money they’ve donated to you.
Hopefully, your application will be approved quickly, so you and your team can start raising money and executing your mission to help make this world just a little bit better!
Don’t sweat your bookkeeping & accounting!
After your 501(c)(3) application is approved, you will have A LOT to keep track of— donations, grants, expenses, program fees, and more. Keeping up with all that, bookkeeping and accounting often distract young nonprofits from accomplishing their mission.
Nonprofit accounting is a challenging task that requires experience, know-how, and familiarity with the specific rules that nonprofits need to follow. An outsourced nonprofit accounting service can help keep you from getting bogged down in the paperwork, keep you out of trouble with the IRS, and help you create a well-planned path to financial success.
If you’re looking for a skilled nonprofit accountant to accompany you on your journey, reach out to The Charity CFO to see if we can help you!
https://thecharitycfo.com/wp-content/uploads/2025/05/Blog-Images-1080-x-675-px-3.jpg6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-04-08 20:26:322025-08-17 07:56:25How to Fill Out a 501c(3) Application for Your Nonprofit
If you’re brand new to nonprofit accounting, the Chart of Accounts might be the best place to start. Because even if you only have one bank account, bill, investment, or expense, you’ll need one.
What is a Chart of Accounts?
It’s a list of the accounts you use in your organization to track your financial transactions. Specifically, it tracks your assets, liabilities, income, expense, and equity.
You don’t record any financial data in the chart itself. Instead, the Chart of Accounts provides an organizational map of your accounting structure.
In a nonprofit’s Chart of Accounts, each account is identified in four ways: number, name, category type, and a short description. But the first two, number and name, determine the overall structure and organization of accounts and subaccounts.
How to Organize a Nonprofit Chart of Accounts
A Chart of Accounts organized properly helps people outside your organization (like your CPA or a bank) easily read your books.
For that reason, your account numbering, category names, and structure should follow standard guidelines and numbering conventions established by Generally Accepted Accounting Principles (GAAP).
Pro-tip: Expenses are the only category that (typically) include more than one number range. Mid-size or larger organizations might use 5000s-9000s as expense categories.
When numbering accounts, keep things simple and group similar accounts together.
For example, you don’t need separate accounts for different types of office supplies (pens, paper, markers). But, you might want to have breakroom supplies or office equipment listed next after office supplies.
Your financial reports (such as a Statement of Cash Flows, for example) will be organized according to the accounts in your Chart of Accounts. So it will be much easier to make sense of them if you list accounts in a logical order.
What goes on the Chart of Accounts?
Every Chart of Accounts operates similarly, with the same five categories, in this order: Assets (1000s), Liabilities (2000s), Equity (3000s), Income (4000s), and Expenses (5000s+).
Here’s how that works for each account category.
1000: Assets
Assets are anything your organization owns, like cash in your bank account, accounts receivable, inventory, or fixed assets.
You’ll need to create a separate account for each individual checking or savings account.
Here’s how this would look on your Chart of Accounts:
Account #
Account Description
Type
Description
1000
Checking Acct #1
Bank
Rename with your bank account and account number
1001
Checking Acct #2
Bank
Rename with your bank account and account number
1010
Savings Acct #1
Bank
Rename with your bank account and account number
1100
Accounts Receivable
Accounts Receivable
Money owed for program service fees
1110
Pledges Receivable
Accounts Receivable
Promises made by donors to give contributions
1500
Furniture and Equipment ‘
Fixed Assets
Furniture and equipment with useful life exceeding one year
2000: Liabilities
A liability is anything you owe to other people or companies, including accounts payable, credit cards, and short-term or long-term debt. Your Chart of Accounts will be unique to your organization, but here’s an example of what it might look like:
Account #
Account Description
Type
Description
2000
Accounts Payable
Accounts Payable
For normal bills due to others
2100
Credit Card
Credit Card
Rename with your Credit Card bank name and account number
2310
Accrued PTO
Other Current Liabilities
Unpaid paid time off including sick leave and vacation
2700
Notes or Mortgage Payable
Long-Term Liability
Long-term notes, mortgages, or capital leases
3000: Equity / Net Assets
Equity is referred to as Net Assets in the nonprofit world. But no matter which name you use, it’s the accumulation of any surpluses (profit) that your organization has built up over time.
You calculate your equity by subtracting your liabilities from your assets. This calculation is called “the accounting equation,” and it’s the central principle behind all double-entry accounting systems.
Here’s how the Equity section might look on your Chart of Accounts:
Account #
Account Description
Type
Description
3000
Opening Balance
Equity
3100
Unrestricted Net Assets
Equity
Accumulated surplus that is not restricted for any purpose
3200
Temporarily Unrestricted Net Assets
Equity
Accumulated surplus that is held for a purpose or time
3300
Permanently Restricted Net Assets
Equity
Accumulated surplus held in permanently
4000: Income / Revenue
Revenue (or income) is all money coming into your organization, including contributions, pledges, grants, and revenue. You should separate contributions by source (individual, federated funds, corporate gifts, government grants). And also, create separate accounts for program service fees, in-kind, special event revenue, and other miscellaneous income.
The Revenue section of a Nonprofit Chart of Accounts may look like this example below. Feel free to add any additional accounts or sub-accounts you may need to keep track of your various sources of revenue.
Account #
Account Description
Type
Description
4000
Individual Contributions
Income
Cash donations from individuals
4200
Federated Contributions
Income
Contributions from federated campaigns (like United Way)
Expenses are the money you spend, including operational expenses like salaries and rent and everyday expenses like office supplies and postage.
Pro tip: Notice that Expenses is the only category that uses multiple number categories. Leave plenty of room to add new expenses down the road. One way to do this is to use a new number range for each expense category, like Employee Wages and Benefits (5xxx), Operational Expenses (6xxx), etc.
The expenses portion of a Chart of Accounts might look something like this:
Account #
Account Description
Type
Description
5000
Salaries and Wages
Expense
Cost of payroll including salary and wages
5200
Payroll Taxes
Expense
Employer portion of payroll taxes
6100
Professional Development
Expense
Training and development of staff and volunteers
6300
Printing and Postage
Expense
Printing and postage of correspondence, appeals, etc.
6600
Rent
Expense
Rent of office and equipment
7100
Insurance
Expense
Cost of liability, property, etc. insurance
8100
Interest
Expense
Interest expense incurred as a result of leases or debt
8300
Gain/Loss on Sale of Assets
Expense
Gain or loss resulting from the sale of property or equipment
Download the Nonprofit Chart of Accounts Template!
Now, let’s put each of those 5 required categories together to get a full look at a nonprofit Chart of Accounts.
If you’re ready to create a Chart of Accounts for your nonprofit, you can start with this template, made for you to customize by The Charity CFO.
Click to access the template
Use it as a guide. If you don’t need all of these accounts, you don’t need to create them today. And you may need to add others you don’t see here. But following this basic structure should give you a strong starting point for your organization.
Chart of Accounts and Nonprofit Financial Statements
But, not every section of the Chart of Accounts will be used on these statements.
The income statement uses the revenue (4000-4999) and expense (5000+) sections.
The Balance Sheet includes Assets (1000-1999), Liabilities (2000-2999), and Equity/Net Assets (3000-3999) accounts.
Get Started with Accounting for Nonprofits
There are 3 elements to set your accounting up for success; the overall accounting program, the accounting solution (or team), and the reports or documents.
Accounting processes: A Chart of Accounts is best managed through a detailed accounting program. This program includes the organization’s accounting processes and accounting procedures. A detailed set of steps, due dates, tasks, and policies to be followed by your accounting solution or accounting team. (An example would be choosing and implementing an accounting software.)
The accounting solution or team: As outlined in this resource, keeping track of governance and finances for nonprofits is more cumbersome than keeping your accounts clean. It often takes a dedicated provider or even an accounting team of individuals, depending on the size and scope of your organization. Hiring an in-house accounting staff or contracting a qualified solution are two examples of how many nonprofits handle their financial management.
Accounting documents: The process and team dictate the documents and additional accounting reports necessary to show progress and maintain compliance with all laws and regulations regarding your nonprofit’s status.
A Trusted Partner in Nonprofit Accounting
You should now have a good starting point for understanding and creating a Chart of Accounts for your nonprofit.
But the Chart of Accounts is just the structure for organizing your accounting data. Now you’ll need to fill those accounts with all your financial data and keep them up to date week after week and month after month.
And use that data to create financial statements to share with donors and run your business effectively.
So if you’re ready to turn your chart of accounts into a living accounting system, we’d recommend you start with our free masterclass on nonprofit accounting and reporting.
It’s a great primer on nonprofit accounting, designed for non-accountants like exec directors, founders, board members, and volunteers.
The masterclass is 3 easy-to-understand video lessons you can watch in a single afternoon, so don’t miss it!
Do You Struggle to Make Sense of Your Financial Statements?
Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.
https://thecharitycfo.com/wp-content/uploads/2025/04/Blog-Images-1080-x-675-px-16.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-02-25 17:12:152025-08-17 07:56:27Set Up a Nonprofit Chart of Accounts (Free Template)
But there’s little doubt that nonprofits with reserve funds in place were more likely to survive when their offices closed suddenly and funding disappeared almost overnight in 2020.
If you’re still operating month-to-month or know that one disappointing fundraising quarter could shutter your operations, now is the time to build an operating reserve.
What is a nonprofit operating reserve?
An operating reserve is a balance of unrestricted funds (cash or highly liquid assets) that you can access in the case of emergency need.
They’re funds that you can use to keep your organization afloat in the case of unexpected events— like a pandemic, a natural disaster, or just a bad fundraising month.
PRO TIP: An operating reserve solves temporary, emergent problems, not structural financial problems. At best, it keeps you afloat and buys you time to develop new revenue streams or funding strategies.
An operating reserve is a “surplus” of resources that can help get you through tough times. But it’s also a key financial indicator that large donors, grantmakers, and watchdog agencies will want to see.
In the eyes of those outside sources (like donors, foundations, or the Better Business Bureau), your operating reserve is more than just cash on hand– it includes all of your Net Assets that don’t have Donor Restrictions, less the value of your fixed assets (like real estate, automobiles, and furniture/equipment).
If you have too little in reserve, it indicates you’re not planning ahead.
But if you have too much, they may think you’re not investing enough into your programs…
So, how much money do you need in your operating reserve?
There’s no official rule about how much you need in your nonprofit operating reserve, but United Way wants to see between 25% to 75% of your annual expenses in non-capital unrestricted net assets.
Doing some simple math (25% x 12 months = 3 months), we can safely say that you should start with a goal of at least 3 months of expenses as your operating reserve.
Once you reach that goal, keep saving and increase that reserve to 6 months of operating expenses. Depending on your organization, it may make sense for you to push that even higher.
Consider these factors when deciding how big of an operating reserve you need:
Are you dependent on 1-2 major donors? Or a single fundraising event?
How stable are your revenue and expenses?
What’s the economic health of your community?
Is your region at risk for severe weather or natural disasters?
How long has your organization been around?
How well does your organization budget? And do you hit that budget consistently?
Is there uncertainty (like new, unproven services) in your near future?
Your circumstances might tell you that you need an operating reserve outside of the recommended range.
And that could be okay. But you need to detail the reasons and put them in writing as part of your official operating reserve policy.
Do you really need a policy? Or can you just set some money aside?
And the most effective way to make sure the reserve is built, administered, and allocated appropriately is to create an operating reserves policy.
After all, it’s easy to say you will set aside 3-6 months of operating expenses. But a policy forces you to give real thought to how big your operating reserve needs to be. And it helps you and your team be accountable for reaching your goals.
With a policy in place, your board and executive team will know what to do with surplus funds, how reserves should be authorized and used, and the standards for reporting and monitoring their use.
If you don’t have an operating reserve policy in place, your reserves tend to be whittled down unexpectedly.
It’s like in your personal finances when you use your vacation fund to go out for pizza or pay for an oil change. Eventually, your vacation fund gets wiped out, and you have to start over.
An operating reserve policy also makes you more attractive to donors. Because it displays the proactive, prudent management practices that donors value.
How do you build an operating reserve policy?
Detail your policy in a clear and straightforward document (typically no more than 2-3 pages) that outlines your reasons for building a reserve, how you plan to structure it, and criteria for when reserve funds can be used.
But before you start building your operating reserve policy, you’ll first need to talk to your board of directors and get buy-in on the concept.
Often, the finance committee will set up a committee to determine the targeted reserve amount and prepare the policy. But in a small organization, you may need to design it yourself and present it to your board.
Here are 8 questions your operating reserve policy should answer:
1. What is your purpose for building and maintaining an operating reserve?
2. What types of reserves will be utilized (cash or other assets)?
3. What is your target level of operating reserve (of operating budget)?
4. How will you fund your operating reserve? (initially, and ongoing)
5. Who will have authority to spend the operating reserve? And what specific approvals do they need?
6. What are acceptable (and unacceptable) uses of reserve funds?
7. How will you report reserve fund balance and usage on your financial documents? (You might consider adding the reserve fund as a line item on your Statement of Financial Position)
Once the draft policy is complete, you must present it to the Board for review and edits. Then, the committee and Board will finalize the policy and start implementing it.
Need Help Planning your Operating Reserve?
Developing a policy for operating reserves can help you prepare your organization for what’s to come. But if you’ve never done it before, you may not know where to start.
That’s where having an experienced partner in your corner can help.
At The Charity CFO, we focus exclusively on the unique financial challenges of nonprofit organizations everyday. And with 150+ nonprofit clients and over five decades of combined experience as nonprofit CFOs, auditors, accountants, financial directors and board members, we’re prepared to handle anything your organization can throw at us.
Expert nonprofit financial advice is part of our DNA.
When you work with our bookkeeping and accounting services, you get our expertise and advice free of charge. Whether establishing an operating reserve policy, drawing up your annual budget, or game-planning expansion options, we’re here to give our expert opinions on your organization.
So if you need an experienced financial partner to help your organization plan for a successful future, reach out to us for a free consultation.
https://thecharitycfo.com/wp-content/uploads/2025/04/Blog-Images-1080-x-675-px-14.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-02-17 15:58:052025-08-17 07:56:27How to Create A Nonprofit Operating Reserve Policy
Do a Google search on nonprofit bookkeeping, and you’ll find page after page of articles on nonprofit accounting. And that’s a problem.
Because while nonprofit bookkeeping and accounting are related, they’re not the same thing.
Sure, you’ll find overlap between the two roles In many small organizations. And it’s sometimes not clear where the line should be drawn. But the experience, responsibilities, and deliverables required of bookkeepers are very different from those required of accountants.
It breaks down like this:
A bookkeeper records and organizes financial data; an accountant interprets and presents that data.
Furthermore, nonprofit bookkeeping differs in some critical ways from for-profit bookkeeping too. Because nonprofit bookkeepers must manage restrictions, grants, and expenses in significantly more detailed ways than a for-profit bookkeeper.
The nonprofit bookkeeper is the front line in the battle for the accurate financial data you need to run your business, so let’s review the core responsibilities of a nonprofit bookkeeper.
Nonprofits must maintain thorough and accurate financial records to comply with both Generally Accepted Accounting Principles (GAAP) and maintain their tax-exempt status with the IRS. And it’s impossible to do that without accurate bookkeeping.
Recording all of your expenses, revenue, and financial transactions in a timely and accurate manner is the key to achieving accountability and transparency–the primary goals of nonprofit accounting. Here are some of the primary tasks required of a nonprofit bookkeeper:
Track income and expenses
Record and classify payments and bank transfers
Organize and maintain receipts
Create invoices for goods, services, and donations
Allocate revenue and expenses to restricted fund accounts
Prepare the data accountants used to create income statement, balance sheet, and cash flow statement
Let’s take a deeper look at the four key bookkeeping tasks: payroll, invoicing, expense allocation, and recording business transactions.
What are the basic nonprofit bookkeeping tasks?
Bookkeepers lay the foundation for the accounting processes that will follow. They organize the data and ensure accuracy so the accountant can create reliable and timely financial reports.
Payroll
Managing payroll is a complicated and time-consuming task. And it’s one of the essential roles of bookkeeping in a nonprofit organization.
Allocating payroll expenses according to their impact on restricted funds and functional expenses.
On top of that, nonprofit bookkeeping requires staying updated on income tax changes and filing requirements to ensure compliance.
So it’s much more complex than it may seem at first glance. That’s why we recommend most nonprofits work with a payroll processing service rather than trying to do it themselves.
A payroll processor makes bookkeeping for a nonprofit easier. They can apply the necessary deductions for each employee, cut checks (and make direct deposit) for each payroll period, and file state and local taxes to help keep you compliant with the most up-to-date tax requirements.
Invoicing
Many nonprofits have earned revenue streams, like membership subscriptions, tuition fees, course enrollments, or sales at company stores. In those cases, nonprofit bookkeeping includes creating accurate invoices (that account for and collect any required sales tax) to track every sale.
You should create invoices for incoming donations as well. Both to track money coming into your organization and share with your donors as proof of their gift.
Invoices should include a header with your logo and contact information, client contact information, invoice number and date, itemized breakdown of services, and terms and conditions.
Recording & Allocating Expenses
Any money that flows out of your organization must be recorded. And ensuring that every receipt, bill, check, credit card charge, and bank transfer gets into your system is a core function of nonprofit bookkeeping.
Each expense must be recorded in your accounting software and allocated to the correct expense account, like office supplies, rent expense, payroll, etc. This way, you can track precisely how the money was spent.
But expense allocation is even more complex in nonprofit bookkeeping, thanks to the need for functional expense reporting.
You can read more about allocating functional expenses here, but the quick version is that you must allocate all expenses based on how they fit into these 3 categories:
General & administrative expenses
Program expenses
Fundraising expenses
A crucial responsibility of nonprofit bookkeeping is tracking exactly how money was spent so that your nonprofit can create a functional expense report at the end of each year.
Recording business transactions
Of course, the central role of nonprofit bookkeeping is to keep the books of your organization current and accurate.
Bookkeeping for some small nonprofits may be as simple as creating invoices for donations received and paying salaries and day-to-day expenses.
Most organizations will also need to track payments they are owed (accounts receivable), bills that they haven’t paid (accounts payable).
And beyond invoices and bills, the nonprofit bookkeeper must record bank deposits, manage donor acknowledgment letters, make adjusting bank entries, review the accuracy of their data, and reconcile bank and credit card statements.
PRO TIP: The secret to better bookkeeping is sticking to a set schedule for processing and recording transactions that establishes tasks to do on a daily, weekly, monthly, quarterly, and annual basis.
What does a nonprofit bookkeeper not do?
It’s important to note that bookkeepers are not certified public accountants (CPAs). Bookkeeping does require training and experience but not a specialized degree.
There is often some overlap in smaller organizations. But here is a list of tasks that some nonprofits push onto their bookkeepers that are instead the role of an accountant.
Bookkeepers do not…
Analyze transactions and business performance
Prepare financial statements and reports
Determine budgets and wages
Compile and file tax returns
Getting started with nonprofit bookkeeping isn’t easy, but it is essential.
The impact of accurate bookkeeping trickles down to every aspect of your nonprofit. Efficiency, transparency, and compliance are the hallmarks of an organization with effective bookkeeping.
Nonprofit bookkeeping solved, once and for all
We’ve done our best to give you a crash course into nonprofit bookkeeping. But if you’re already falling behind in your books, you can’t rely on a google search or blog article to get you back on track.
At The Charity CFO, we handle the books and all of your accounting needs. It’s like having an in-house team dedicated to your organization, without the overhead cost of a full accounting department.
With our nonprofit bookkeeping and accounting services, we’ll ensure your books are always audit-ready. Plus, give you timely financial reports and expert advice that help you carry out your mission.
We’re honored that over 120 nonprofits trust us with their bookkeeping and accounting. And we’d be excited to show you how we can help your organization meet your goals.
/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.png00Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-02-04 13:30:562025-08-17 07:56:28The Basics of Nonprofit Bookkeeping
The Statement of Financial Position is the Balance Sheet of a nonprofit organization.
It gives you a snapshot of a nonprofit’s financial health at a point in time by displaying what the organization owns (assets), what it owes to others (liabilities), and its value (net assets).
The Statement of Financial Position can help you answer critical questions about your business. Like, “Do we have the cash available to pay our bills?” And “If we had to pay back all our debts tomorrow, could we do it?”
This article will show you what you’ll see on the Statement of Financial Position, what you can learn from it, and what your CPA will look for on your Balance Sheet to see just how healthy your business is.
PRO TIP: The Statement of Financial Position is the same report that a for-profit company calls the Balance Sheet. If your team or board are more familiar with the for-profit terminology, referring to the Statement of Financial Position as ‘Balance Sheet is fine.’ There are no hard-and-fast rules when it comes to internal reports.
What’s on the Statement of Financial Position?
There are three sections on the Statement of Financial Position, and together they illustrate the nonprofit accounting equation:
Assets = Liability + Net Assets
To better understand what the equation means, let’s take a look at each of the three elements in the order that they appear on the report:
Assets: What do you own?
Assets are anything of value your organization possesses or is entitled to, such as cash, pledged donations, property, equipment, investments, etc.
On the Statement of Financial Position, your assets break down into current assets, fixed assets, and other assets.
Current assets are cash or assets you can reasonably expect to convert to currency within a year. Examples include bank balances, accounts receivable, pledged donations, investments, and prepaid expenses.
Fixed assets are long-term assets that are typically tangible items. Examples include buildings, furniture, vehicles, inventory, large equipment, and accumulated depreciation.
Non-current assets (or other current assets) are assets that you can’t convert into cash quickly. Examples include long-term investments, endowments, trademarks, and patents. Many small nonprofits won’t have any non-current assets on their books.
TIP: When organizing your cash assets, ask yourself: “Am I likely to receive this cash (or convert this asset into cash) within a year? If so, that’s a current asset. If not, it’s a non-current asset.
Liabilities: What do you owe?
Liabilities are anything your organization owes to someone else, like vendors, creditors, or employees.
You’ll find your organization’s liabilities organized by current and non-current liabilities on the Statement of Financial Position.
Current liabilities are liabilities you must repay within one year. Examples include outstanding bills, accrued expenses, payroll and payroll tax liabilities, lines of credit, and short-term loans.
Non-Current liabilities are liabilities that will not become due within the next year. Common examples include mortgages and loans.
Net assets: What is your value?
If we rearrange the accounting formula a bit with some 7th-grade algebra, we’ll see that it looks like this:
Net Assets = Assets – Liability
In other words, the value of your organization is the difference between what you own and what you owe.
For-profit businesses call this difference Equity. Your personal financial advisor calls it your Net Worth. In nonprofit accounting, we refer to it as Net Assets.
It’s the accumulation of all the surpluses of revenue over expenses (profit) that you’ve seen on your Statement of Activities since the start of your organization.
And it’s the answer to the simple question–what is the financial value of my organization?
How is a Nonprofit’s Balance Sheet Different?
The name is the most significant difference between a Statement of Financial Position and a for-profit Balance sheet.
But there is one other major difference, and it’s the issue of restricted funds.
Nonprofits use a system of accounting called fund accounting to track sources of revenue that they can only use in specific ways. Fund accounting requires that organizations keep track of these funds and report them on their Statement of Financial Position.
So, on a nonprofit Balance Sheet, you’ll see some extra lines detailing restricted assets, like this:
And you’ll also see them again in the Net Assets section:
Breaking out restricted funds on the Statement of Financial Position helps you answer a simple question:
Can I spend the money that I have to pay off my debts?
But that’s not the only question that your Statement of Financial Position can answer.
So, now let’s look at the questions a CPA or auditor will be asking themselves when reviewing your Balance Sheet…
What will your CPA look for on your Statement of Financial Position?
Your Statement of Financial Position is a snapshot of your business at a point in time. And it’s incredible how much a financial professional can learn about your business from it.
Here are some of the questions your CPA or nonprofit auditor will be asking when reviewing your Statement of Financial Position:
Do you have enough cash to pay your bills? (More importantly, do you have enough unrestricted cash to pay your bills?)
Are your accounts receivables increasing or decreasing over time?
Are you paying down your liabilities or gaining new ones?
Is your debt temporary or long-term?
But the biggest question they’ll be asking is this…
Do you have more assets than liabilities?
That’s the bottom line (literally) of your Statement of Financial Position and the easiest thing for you to take away from it at a glance.
Because if your Net Assets are increasing over time, you know you’re creating value and building a surplus you can use to achieve your future goals.
And if your Net Assets are decreasing, then something is wrong, and you’d better fix it or find yourself out of business.
Want to Put Your Accounting on Auto-Pilot?
When it comes to financial statements, reading them is the easy part!
It’s creating them that presents the more significant obstacle for time-challenged nonprofits.
Your team needs to spend countless hours entering receipts, invoicing clients, running payroll, and reconciling your books BEFORE you can get the reports you need to run your business the right way.
If you’re looking for an easier way to get accurate and on-time financial reports, consider outsourcing your nonprofit bookkeeping and accounting to The Charity CFO.
We’ll automate your bookkeeping processes to help you save a ton of time. And our expert accounting team will help you handle your trickiest tasks (like fund accounting and functional expense reporting) so that your books are always audit-ready!
https://thecharitycfo.com/wp-content/uploads/2025/04/Blog-Images-1080-x-675-px-8.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-01-25 20:15:502025-08-17 07:56:29Statement of Financial Position: Reading a Nonprofit Balance Sheet
If you’re like most nonprofit leaders, you’re not researching nonprofit accounting basics to satisfy your curiosity.
It’s a necessity.
You need to get a better grasp of your organization’s finances now. So you can understand what’s happening in your business and communicate effectively with your board members, donors, and financial team.
Well, you’ve come to the right place!
Start right here ( ) with this overview of nonprofit accounting basics.
Read through each section for a quick overview. And then, click on the links to dive deeper into the ones you need to master.
What is nonprofit accounting?
Investopedia defines accounting as “the process of recording financial transactions pertaining to a business.”
That’s really all that accounting is, so don’t let the terminology intimidate you.
You can grasp nonprofit accounting basics in just a few minutes, even if you’ve never taken an accounting course (and even if you hated math in high school).
Accounting rules exist to help you record transactions accurately and consistently over time.
And then, there are a series of reports and financial statements you’ll use to communicate the financial reality of your organization to potential donors, the IRS, watchdog agencies, and other stakeholders.
The basic accounting principles for nonprofit organizations are the same as accounting for for-profit companies.
So let’s start with the basics, and later we’ll dig into some of the things that make nonprofit accounting unique.
The simple equation behind nonprofit accounting:
Behind all the fancy formulas and financial statements, accounting exists to answer one question: how much financial value, or wealth, has your organization created?
And you can answer that question with a simple equation that looks like this:
(Assets) – (Liabilities) = (Net Assets)
Now before you run away, hold up!
Let’s break that down into simpler language:
(Everything you own) – (Everything you owe) = (The wealth you’ve created)
That wasn’t so bad, right?
And guess what? Your core financial reports, which we’ll look at below, exist to answer this one simple question– how much value has your organization created?
[xyz-ips snippet=”Post-inline-CTA-code-snippet”]
The concepts in nonprofit accounting basics:
To understand nonprofit accounting basics, you’ll need to grasp some simple accounting terminology. Let’s start by defining the 3 terms we used above and giving you some examples of each. Then we’ll move onto some other common accounting terms:
Assets
Assets are anything that your nonprofit organization owns or is entitled to. So the cash in your bank account is an asset. But so are physical property, real estate, and computers. And money that was pledged to you but you haven’t received yet. Plus, even intellectual property– like patents or trademarks– may have value in certain cases.
Your liabilities are anything that your organization owes to anyone else. Obvious examples are loans or lines of credit. But it also includes accounts payable (unpaid bills), credit card bills, outstanding payroll, and more.
Examples of nonprofit liabilities:
Bank loans
Lines of credit
Credit card balances
Unpaid bills (accounts payable)
Unpaid payroll
Payroll tax withholdings
Net Assets
Your Net Assets are the accumulation of all the surpluses and deficits you’ve created since you’ve been in operation.
In other words, it’s the wealth or value that you’ve accumulated over time.
And it’s the core metric that outside observers will use to measure your organization’s financial value (and viability).
Revenue
Revenue is inflows that increase economic wealth. Frequently, this is cash from donations, grants, or fundraising activities. However, it can also be cash from sales of products, courses, or subscriptions. And it may also include non-cash donations (or in-kind donations) of goods or services.
Examples of nonprofit revenue sources:
Cash donations
Grant funds
Sales of products or services
Donations of goods (food, clothing, supplies)
Donations of services (free rent, legal services, accounting, nonprofit discounts)
Expenses
Expenses are outflows of cash that decrease economic wealth. They include anything you pay for, from rent to payroll to purchasing supplies. Plus, non-cash outflows, like when you use or give away, resources you received as a donation.
Examples of nonprofit expenses:
Rent
Utilities
Payroll
Marketing
Office supplies
Program supplies
Distribution or use of donated goods
Accounts Payable
Accounts payable is an account containing any outstanding bills or invoices that you haven’t yet paid. It shows as a liability on your financial reports, so it reduces your net assets.
Accounts Receivable
Accounts receivable is an account containing any revenue that you’ve earned, or that was committed to you, that you haven’t yet received. For a nonprofit, this often includes donations or grants that have been promised but won’t be delivered until a future date.
Accrual Accounting vs. Cash Accounting for Nonprofits
There are 2 main accounting systems that US businesses can use: cash basis or accrual basis accounting. There are distinct advantages to each, but first, let’s take a look at what each one is:
Cash-Basis Accounting
In a cash accounting system, you record transactions only when cash changes hands.
So, if you pay your electric bill in January, the expense is recorded in January even though you used the electricity in December. Similarly, if you receive a $100 donation in January, you’ll record it in January. Even if it was pledged to you last November.
Because this method of accounting tracks directly with money going into or out of your bank account, it’s by far the simplest method of accounting. And it’s preferred by many small nonprofits without experience in bookkeeping or the budget to hire a full-time accountant or outsourced accounting service.
Accrual-Basis Accounting
An accrual accounting system records transactions in the period where they are earned, pledged, or incurred. As a result, it matches your revenue with related expenses in the same period to give you a clearer picture of when you’re making or losing money.
Revisiting the above examples, you would book your electric expense to December in an accrual accounting system because that’s when you used the electricity (regardless of when you paid for it).
And you would record the $100 donation in November (when it was pledged), rather than January (when it was received).
An accrual is simply a manual adjustment to your books made without an exchange of cash. Accrual-basis accounting requires extensive use of both accounts payable and accounts receivable to keep track of these accruals.
How it works in real-life:
Let’s say you host a fundraiser in September that generates a significant number of donations. But you don’t pay your vendors until October and November.
Under cash accounting, you would show the revenue in September and the expenses in October. You would show a large “gain” in September and large “losses” in October and November. So it’s hard to tell how successful the event was.
Under an accrual system, both the event revenue and the expenses are booked to October, giving you a clearer picture of how much money generated by the event.
Accrual vs. Cash: Which is better?
Both cash and accrual accounting systems have their advantages for different types of organizations.
Cash accounting is much simpler and cheaper to maintain. It’s easier for simple tax filings and less susceptible to financial misconduct. Cash accounting may be a good choice for some small nonprofits with funding challenges.
Accrual accounting is required by Generally Accepted Accounting Principles (GAAP), which means that you’ll need accrual-based reports to complete a nonprofit audit. It also more accurately captures your ‘economic reality’ and helps you predict your finances better. Accrual accounting is the preferred method for any organization that needs to be audited or anticipates significant growth.
The core principles of nonprofit accounting are the same as for-profit accounting. However, there are a few significant differences that you need to know.
Difference #1: Terminology
While accounting principles are the same for both types of organizations, they don’t always speak the same language. Nonprofit accounting has its own terminology. Here are the key terms you’ll need to know
Net Assets – This term is used in 2 different ways.
When it’s on the Statement of Activities (or Income Statement) it represents the net revenue for the period, what a for-profit business calls NET PROFIT.
When shown on the Statement of Financial Position (or Balance Sheet), it represents the wealth you’ve created over time, or what for-profit business calls EQUITY.
Statement of Financial Position – This key financial statement (which we’ll discuss below) is called the BALANCE SHEET in a for-profit business. Some nonprofits will use the for-profit terminology to keep things simple, but the official nonprofit name for this report is the Statement of Financial Position.
Statement of Activities – Like the report above, this core financial statement has a different name than its for-profit version– the INCOME STATEMENT, or PROFIT AND LOSS (P&L) STATEMENT.
Difference #2: Fund Accounting
Most for-profit companies can use their revenue however they choose.
But nonprofits often have revenue that is restricted for certain reasons–the funds may be reserved for a certain program, be required to be spent at a certain time, or have other unique requirements for its usage.
To help track and manage these restrictions, nonprofits and governments use a system called fund accounting. It’s distinguished by its focus on accountability over profitability.
Fund accounting lets nonprofits set up individual “funds” to manage their revenue streams based on criteria like donor, grantor, timing, designated purpose, and restrictions for how, when, where, and/or why it is to be used.
Each fund can have its own revenue and expense report, accounting equation, and balance sheet. Or each fund may have its own line within revenue, expenses, assets and liabilities.
This allows you to see which funds are available for general use, and which are restricted for specific purposes. Check out this article to learn more about fund accounting.
Difference #3: Functional Expenses
Both GAAP and the IRS require nonprofits to report their expenses broken down into 3 categories:
Program services expenses
Management and general expenses
Fundraising expenses
Because some expenses– like rent and payroll, for example– may fall into multiple categories, you’ll need to allocate your expenses according to how much they contribute to each function,
GAAP requires that all pledges to donate are recorded when the pledge is made, not when the donation is received.
The general idea of accrual accounting is to match revenues and expenses in the same period. But this rule for nonprofit revenue recognition can throw a wrench into the works and lead to some big “gains” or “losses” on your financial statements.
Nonprofit accounting systems and best practices are established to keep you accountable to the public, your board, funders, grantors, and the government. And your nonprofit’s financial statements are the proof of that accountability.
Here’ we’ll overview the financial reports all nonprofit organizations are required to create regularly, as well as some optional reports that may help you run your business more effectively.
These financial statements are required for a nonprofit audit. But, more importantly, they are often generated monthly (or quarterly) to help you keep an eye on your financial health.
1. Statement of Financial Position (or Balance Sheet)
The Statement of Financial Position the nonprofit version of a balance sheet. It summarizes your assets, liabilities, and restricted funds and gives a snapshot of what your organization owns and what it owes to others at a specific point in time
2. Statement of Activities (or Income Statement)
This report summarizes your revenue and expenses as net surplus or loss. It shows how much you’ve “earned” or “lost” during a specific period.
3. Statement of Cash Flows
The Statement of Cash flows shows how cash has increased or decreased across 3 segments of your business: operations, financing, and investing. This report can help you and your board members quickly understand which areas of your operation created or consumed cash over a period of time.
This matrix-style report breaks down your functional expenses according to the natural and functional expense categories. It’s required for both an audit and your IRS 990 filing, but it’s often created on a quarterly or annual basis (rather than periodically, like the statements above).
Budget vs. Actual Report
Budget vs. Actual is an internal report which displays your planned budget and your actual performance side-by-side. So you and your team can easily see where you’re beating your plan or coming up short. It’s not required by GAAP or IRS, but it might be the single most useful report for nonprofit leaders on a day-to-day basis.
The Basics of Nonprofit Taxes
Thought you didn’t have to worry about taxes as a nonprofit? Think again!
Nearly every nonprofit is required to file some form of the IRS 990 every year. If you fail to file a 990 for 3 consecutive years, your tax exempt status will automatically be revoked.
For some small nonprofits, the process is pretty easy. Others may want to reach out to an accountant for help.
Nonprofits are exempt from income tax on donations and much of their earned revenue. But if the IRS determines that revenue is from unrelated business activities (not directly related to your stated mission when requesting tax-exempt status), then it could be subject to income taxes. So check with your tax/legal team to make sure you’re prepared for any potential tax bills.
Payroll Tax
Nonprofit organizations must pay federal and local payroll taxes for their employees (and withhold payroll taxes on behalf of their employees, just like any other company.
Sales Tax
Rules for paying and collecting sales taxes are complex and vary from state to state. Check with your accountant and/or attorney to ensure compliance.
Other Taxes
Most nonprofits are exempt from property taxes and capital gains taxes from investments. Gains from real estate sales may be taxable income, depending on the circumstances.
Please consult a professional before making any decisions that may have tax implications. The tax code is complex and varies from state to state. It would be impossible to keep this article updated for all jurisdictions– so do your research and be prepared!
But learning all the details and keeping up with your bookkeeping can be a big challenge for nonprofits of all shapes and sizes.
Working with an experienced nonprofit accounting firm could help you and your team focus your valuable time on growing your mission, rather than getting bogged down in your books.
At The Charity CFO, we work exclusively with nonprofit organizations and offer a start-to-finish solution for outsourcing your bookkeeping, financial statements, and expert advice.
Because nonprofit accounting is all we do, there is zero guesswork on terminology, procedures, and nonprofit-specific reporting like fund accounting and functional expenses.
If you want a professional team that understands your business and what you need, reach out to us today for a free consultation.
/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.png00Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-01-17 12:00:272025-08-17 07:56:30Nonprofit Accounting Basics for Founders, Board Members & Executives
No time to read this article now? Download it for later.
In-kind donations are any non-cash gift of goods or services that your organization receives from donors.
These in-kind gifts can help your nonprofit get the resources it needs to carry out programs without constantly hounding your donors for cash. Some people are more likely to give if they know that their donation will go directly to helping others, rather than paying overhead costs or admin salaries.
For this reason, inkind gifts are an invaluable tool in your fundraising toolkit. But accounting for in-kind donations presents its own unique challenges.
Almost any non-cash gift to your nonprofit can be considered an in-kind donation, but most of them fall into one of two categories: goods or services.
Here’s what this might look like:
A food pantry receives a new walk-in freezer from an appliance store (donation of in-kind goods)
A licensed electrician then volunteers to install and wire the new freezer for free (donation of in-kind services)
Hopefully you already know a bit about what in-kind donations are and how they help grow your mission. In this article, we’ll dig into how to account for in-kind donations on your nonprofit’s books.
Why accounting for in-kind donations matters
Accounting for in-kind donations isn’t just important; it’srequired for many nonprofit organizations.
You need to track and report in-kind donations if your organization is required to…
Prepare financial statements per Generally Accepted Accounting Principles (GAAP)
While it may not be required to track in-kind services on your IRS Form 990, it’s a good idea to do so because many grants, lenders, and even state laws might require it for funding.
One of the biggest reasons to account for in-kind donations is because it helps you reflect the true impact your organization creates in the community.
For the purposes of GAAP, donations of goods and services are valid revenue. If you don’t account for in-kind gifts properly, you risk understating the revenue (and expenses) of your organization, making you look smaller to donors, grant writers, banks and other organizations whose support you need.
How accounting for in-kind gifts works
There are two steps to properly accounting for in-kind donations: establishing fair market value and recording the revenue and expense transactions associated with your in-kind gifts.
Step #1: Establish Fair Market Value
Fair market value is the price you’d pay on the open market if you had to purchase the item or service instead of having it donated.
To establish fair market value, you can check the price on the open market, get a competitor’s quote, use a third-party source, ask your donor, look at a salary survey, etc.
The key is to set a standard for obtaining fair market value for a type of good or service and be consistent in how you use and track that value.
How to calculate fair market value for in-kind goods:
The most common way to establish value for in-kind goods is to look for the average cost, or conservative estimate, of a generic line-item product at a high-volume retailer like Amazon or Walmart.
There’s no need to get specific for every type of donated item. It’s recommended that you lump materials and goods together as much as possible, so you’re not burdened with this task.
Example #1: Canned beans
If you received 10 types of canned beans from two different brands, it’s acceptable to pick one brand and one type of canned bean and account for the total donation with that value.
You can record it like this:
In-Kind Good Received: 14 oz canned beans Qty: 24 cans Estimated Value: $0.79 each Total Estimated Value: $18.96 Date Received: January 12, 2022
We’ll look at one more example that’s not as straightforward…
Example #2: Office chairs
Let’s say you received 10 used office chairs.
They’re in great condition, but an assortment of styles and brands.
The easiest way to get fair market value is to use an online market like Craigslist. Search for office chairs, do a quick scan of the price listed, take the lowest average price, and use that value for all ten chairs. The same can be done with many in-kind goods: clothing, furniture, office supplies, etc.
Once you have those fair market values in place, use the same methodology consistently.
Don’t use Craigslist to get fair market value for office chairs and Facebook Marketplace for a new conference table. Don’t use generic tracking for canned beans, and get specific on brand and type for boxed pasta. Stay consistent, and your books (and to-do list) will thank you.
NOTE: Donated or discounted use of real estate is also an in-kind good. So if you use donated space for your offices or programs, be sure you’re value it at the local market rate and record that value every month.
How to calculate fair market value for in-kind services:
When it comes to in-kind professional services (typically associated with licensure, like an attorney, contractor, CPA, electrician, or architect), you can use their standard hourly rate.
Let’s say you receive pro bono legal services throughout the year. You’d ask your volunteer how much they would have charged you if they were being paid. Typically, they’d use their standard hourly rate and the total number of volunteer hours spent on your organization.
NOTE: You can only apply their professional legal services fee to skilled volunteer hours. If a lawyer volunteers as a delivery driver, they’re just like any other volunteer. And most volunteer hours are not considered in-kind donations of services. According to Nolo.com, “the general rule is that such time may be counted only if the nonprofit would have purchased the services if they had not been donated.”
Step #2: Record Your In-Kind Donations
Now that you’ve established the fair market value, let’s take a look at accounting for the value of these donations on your books.
You’ll want to track all of your in-kind donations along with donor information in a spreadsheet or CRM, too. But here we’ll talk about how to record the financial transaction in your accounting system.
Recording In-Kind Donations of Goods:
Record the fair market value of the donated items on the day that they were received (or pledged, if not delivered immediately). Classify the revenue as “in-kind revenue” or the appropriate revenue account on your chart of accounts.
Record the same fair market value to either an expense account (if the items will be used immediately) or an asset account (if the items will remain in inventory or are tangible assets, like furniture or equipment).
Recording In-Kind Donations of Services:
The estimated market value gets recorded as both revenue and an expense on your profit and loss statement. Let’s say you received $10,000 worth of legal services, here’s how you could record that donation:
Record the $10,000 donation to a revenue account (example: “In-Kind Gift Revenue: Service”)
Then, record the expense side of the transaction in its appropriate functional expense account (example: “Professional Services”)
In the case of in-kind services, the revenue and expense should always cancel each other out within the given time period.
How does accounting for in-kind donations help?
Properly accounting for in-kind gifts increases your revenues and expenses by the same amount. In doing so, it directly impacts how outside observers perceive your organization by accurately reflecting the full impact you are making in the community.
If you want to learn more about in-kind donations and how accounting for them works, check out this video. Our Founder and CEO, Tosha Anderson, and Tim Hudson, Partner and COO, further break down in-kind donations for goods and services.
Our favorite tools for tracking and reporting in-kind gifts:
If you don’t have a system in place for tracking in-kind donations, check out these time-saving resources and tools you can use to get started today:
In-Kind Donation Tracking Spreadsheet: Feeling stressed about creating yet another spreadsheet or template? No worries, Microsoft has a free Excel template (you can export it into Google docs) that tracks the donation, organization, date, value, and tax-exempt status.
Free Online Giving Platform:RightGift.com is an online giving platform built for charities to create, manage, and collaborate virtual wish list campaigns. Right Gift also donates 1% cashback to the nonprofit of the donor’s choice for all purchases made on the platform.
Customer Relationship Management Software:WildApricot by Personify is a customer relationship management tool that helps over 32,000 nonprofit membership organizations grow. They even have an in-kind donation tracking template ready for you to download and use.
The information in this article should make accounting for in-kind donations a bit easier, so you can invest more of your time focused on growing your mission.
Need help keeping track of your in-kind gifts?
The Charity CFO is your best option for outsourced accounting, from bookkeeping and financial statements to accounting for in-kind donations. Why? Because nonprofit accounting is all we do.
Let us worry about your books so you can focus on your mission. We’ll modernize and manage your accounting systems to save you time, money, and stress.
If you’re looking to simplify and optimize your bookkeeping process, we’d love to hear from you. Contact us today to learn more about how we can help your nonprofit and get started.
No time to read this article now? Download it for later.
https://thecharitycfo.com/wp-content/uploads/2025/04/Blog-Images-1080-x-675-px-5.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-01-13 09:58:182025-08-17 07:56:31Accounting for In-Kind Donations to Nonprofits
Functional expense reporting confuses many first-time nonprofit bookkeepers and executives. But it’s not because it’s complicated.
It’s a straightforward concept. But, because most for-profit companies don’t track functional expenses, they’re just not familiar with it.
But it is need-to-know-information in the nonprofit world. Because you’re required to report functional expenses to complete your IRS 990 and maintain nonprofit status.
In this article, we’ll break it all down to show you what functional expenses are, why they matter, and how to track them in your organization.
What are Functional Expenses?
Functional expense reporting is the process of tracking the money you spend according to what the money was used for– like fundraising, administration, or programs.
“Functional expenses” aren’t a specific type of expense. Rather, it’s a way of looking at how you spent your money, according to the function that money accomplished.
For example, “salary” is a straightforward line-item on a for-profit financial report.
But a nonprofit must track what “function” that salary was used to support. But what is a function, anyway?
There are 3 core functional expense categories:.
To complete your IRS 990, you’ll need to report your expenses based on how they fall within 3 categories, they are:
Program Services – This includes any costs associated with executing programs and services to fulfill your officially declared mission. This may include materials, advertising, salary of program administrators, a portion of your rent, and more.
Management and General Administration – This category includes most of what you’d call “overhead costs.” Here you’ll put operational expenses that aren’t involved in executing your mission or fundraising. For example, office rent, executive salaries, utilities, and office supplies will probably fit into this category.
Fundraising – Here, you’ll put costs directly tied to raising money. That may include special event costs, advertising, staff salaries, and more.
These 3 expense categories are mandatory for the IRS, but you may choose to track others internally.
Many of your expenses (like salary, rent, and utilities) contribute directly to the execution of multiple functions. So for those categories, you’ll need to allocate your expenses according to how much they contribute to each function, which we’ll discuss a little further down the page.
Functional expenses versus natural expenses
We’re here to talk about functional expenses, but the Statement of Functional Expenses actually shows 2 types of expenses– functional and natural. So, what’s the difference?.
First of all, to be clear, your organization only has ONE set of expenses.
Functional and natural expenses are the same expenses; they’re just 2 different ways of looking at how you spent your money:
Functional expenses: Categorizes your business expenses by the “function” those funds were used for, like programming, administration, or fundraising.
Natural expenses: Categorizes your business expenses based on the “nature” of those expenses– like salary, rent, utilities, maintenance, supplies, and so on.
Many people are comfortable with natural expenses because most for-profit businesses classify their expenses ONLY by nature.
But non-profits need to classify their expenses according to both nature and function.
A simple example of functional expense allocation:
Let’s say you rent a 20,000 square foot building for your nonprofit, which runs after-school programs in a disadvantaged neighborhood.
Approximately 3,000 square feet of space is used for administration. And the balance (17,000 sqft) is used as classroom space to execute your programs. of rent to the administration function.
15% of your space (3,000/20,000) is used for admin, so you’d allocate 15% of your rent to general administration expenses. And the other 85% of your rent would be allocated to program expenses, as in the example above.
Why do you need to track functional expenses?
So why do nonprofits track functional expenses? There are 3 simple reasons:
It’s the law. You need to include a functional expense report with your IRS 990. And if you don’t file a 990 for 3 consecutive years then you automatically lose your tax-exempt status. So you really don’t have a choice, but if you want more reasons…
To pass an independent audit. Reporting functional expenses has been required by Generally Accepted Accounting Principles (GAAP) since 2017, as detailed in ASU 2016-14. That means you’ll need to present a Functional Expense Report to pass an audit.
To build public trust. Funders, donors, charity watchdog organizations, and others want to see how you’re spending your money. Being clear, consistent, and accountable in your reporting of expenses is a big step toward earning their trust.
How should you allocate functional expenses?
The Financial Accounting Standards Board (FASB) established specific requirements for how nonprofits identify and disclose the types of expenses allocated and the methodology used in ASU 2016-14.
The most important thing is establishing a clear process and methodology for allocating your expenses. And then track everything and apply your process consistently.
Allocating expenses is dividing overhead costs between all of the functions that are indirectly related to that cost. The square footage allocation example we used above is one common example of functional expense allocation.
Because nonprofit team members often wear many hats, personnel costs are another expense that nonprofits need to allocate across multiple functions…
Another example of functional expense allocation:
Suppose you have a full-time employee that spends 2 days per week working in the office and 3 days per week running after-school classes.
In that case, you should allocate 40% of their salary (⅖) to admin expenses. And the remaining 60% would go to program expenses.
Tracking and allocating functional expenses is a major bookkeeping challenge for small nonprofits. However, nonprofit-friendly accounting software can help you make creating your Statement of Functional Expenses fairly easy.
What is included in a Statement of Functional Expenses?
A Statement of Functional Expenses is a matrix-style report that shows the breakdown of functional and natural expenses in an easy-to-read table.
It is a very common report in the financial world and you may want to add it to your in-house reporting schedule. Your auditor will expect to see an explanation of your functional expenses (although the required format may vary).
Here’s an example of a functional expense report for the fictional after-school organization we created above:
Create your own with our Statement of Functional Expenses Template
Creating a Statement of Functional Expenses may be as easy as clicking a few buttons if you’re using the right accounting software (assuming your books are updated and transactions are classified correctly).
To create your report with the template, list all your natural expense categories in the first column.
Then add all your functional expense categories in the first row.
Next, enter your total expenses for each category of natural expenses in the “Total” column.
Then allocate those total expenses to each of your functional expense categories using the process you’ve defined for your organization.
Still have questions about functional expenses?
The key to tracking functional expenses is setting up processes and being disciplined with your bookkeeping.
Yet many nonprofits struggle to keep their books updated or create the financial statements they need on time. And that leads to sloppy accounting, playing catch-up, and wasting a lot of time and money.
If you want to report your functional expenses properly AND always have audit-ready financial reports at your disposal, an experienced nonprofit accountant can help.
At The Charity CFO, we work exclusively with nonprofit organizations to give them accurate books, timely reports, and expert advice on their nonprofit finances.
Because nonprofit accounting is all that we do, we have established policies for handling nonprofit-specific tasks– like functional expense reporting, fund accounting, grant tracking and more.
So if you’re ready to modernize your finances and finally find the time to focus on your mission, click the button below to find out how we can help you.
https://thecharitycfo.com/wp-content/uploads/2025/04/Blog-Images-1080-x-675-px-3.png6751080Paul Cook/wp-content/uploads/2025/03/fileuploads_222926_8055634_252-8e05624973e20b5de823aebdbcfd37df_LogoLeftAligned.pngPaul Cook2022-01-05 20:13:392025-08-17 07:56:31Understanding Functional Expenses for Nonprofits
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
