How to Fix Your Nonprofit Accounting

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Your nonprofit accounting system might not be the most exciting part of your organization, but it’s one of the most important aspects. An effective accounting system helps you stay in compliance with tax and legal regulations–helping you maintain your exempt status.

However, effective accounting isn’t just about following rules. An effective nonprofit accounting system also helps your organization stay transparent, manage funds wisely, and build trust with donors and the public.

If your organization’s accounting has gotten a little off track, there are things you can do to fix it. Keep reading to learn more.

nonprofit accounting

Take a Close Look at Your Current Accounting Practices

You can’t know what needs fixing in your accounting system until you dive in and examine your current practices. Before you start trying to fix things, consider doing a full review of your accounting system. Taking a close look at your current system helps you identify problem areas in your financial recording methods.

Your analysis should show you where your accounting system is working for your organization and any gaps or areas of concern. For example, you may find that your system is great at recording nonprofit revenue, but lacks an efficient process for categorizing various revenue streams.

Consider making a list of the challenges or issues you find in your accounting system. This list will help you better define how these inaccuracies or incomplete records are affecting your overall accounting strategy.

Get Your Financial Policies and Procedures in Order

Does your organization have written financial policies and procedures in place? Do all of your employees and volunteers know what to do when faced with common financial tasks?

If not, one of the first steps to fixing your nonprofit accounting is setting up these policies.

Having documented financial policies for your nonprofit organization is essential and helps with:

  • Compliance: Documented procedures help your organization maintain accurate records and stay on top of compliance regulations.
  • Accountability: A defined accounting policy makes it easy for anyone in the organization to know what’s going on with funds–which helps build donor and board member trust.
  • Operational Efficiency: Having set financial guidelines makes it easy to track and record financial transactions, improving the overall efficiency of your nonprofit.

To fix your accounting system, you’ll need to create a standardized set of policies and procedures for transactions and reporting. As you create your policies, make sure everything aligns with legal and regulatory requirements.

Focus on Budgeting and Financial Planning

Like standardized financial policies, budgeting is an important aspect of your nonprofit accounting system. Your budget helps you plan out expenses and revenue in advance so you have a better idea of the financial health of your organization. It’s also an important tool for transparency within your nonprofit. A budget shows stakeholders like the board of directors or donors how you’re using funds to advance your mission.

You’ll need to develop a realistic budget for your organization based on real nonprofit needs and goals. The easiest way to create an accurate budget is to use budget tracking based on historical financial data. You’ll use past revenue and expenses to estimate future funding and expense needs.

You should expect your budget to have minor variances from month to month. Try to review your budget every couple of months and make adjustments as needed to meet current financial needs.

Track and Report Donations and Grants

Properly recording and reporting nonprofit revenue should be a top priority in your new accounting system. If you don’t have them in place already, you’ll need to establish protocols for recording donations and grants. Your system should take into account any donor restrictions so you stay in compliance with donor or grant requirements.

You’ll also need to create a reporting system for donations and grants. Generally, organizations that receive funds are expected to report on the use and impact of the funds. Not only does reporting on fund use help you stay in compliance with donor wishes or legal requirements, it’s simply a great way to maintain transparency in your organization and with the public.

Monitor Cash Flow and Financial Health

An organization’s cash flow is often a good indicator of financial health. Regular review of your cash flow statements can help you spot financial problems before they grow into major issues. As you fix your accounting setup, you’ll want to start analyzing financial ratios for liquidity and sustainability. If you find your nonprofit is regularly over budget, it’s probably time to address expenses and revenue.

There are a few strategies to improve your cash flow management, including:

  • Reducing expenses, from cutting back on staff to delaying new programs or services
  • Looking for additional revenue streams, such as new donors or applying for grants
  • Adjusting timelines for accounts receivable invoices
  • Offering new payment options for donations or service fees, such as automatic payments or online payments

nonprofit accounting

Seeking Professional Assistance

Cleaning up a messy accounting system is often a tedious and overwhelming task. Not to mention, most nonprofit leaders have plenty of other things on their plates. Working with a professional accounting firm specializing in nonprofit accounting is a great way to fix your accounting system and save time.

Nonprofit accounting firms have specialized knowledge related to financial management for nonprofits. They know how to navigate the complicated legal landscape surrounding nonprofit accounting, so you can be sure your financial records comply with governing regulations. In addition, a nonprofit accounting team provides financial guidance tailored to your organization to help you use your funds more effectively and efficiently.

The Charity CFO is a nonprofit accounting firm that can help you clean up your current accounting issues and establish a strong accounting system going forward. Our team of nonprofit accounting specialists understands the needs and challenges of nonprofits.

Need help fixing your accounting issues? Contact us today to get started.

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Can Nonprofits Use QuickBooks?

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QuickBooks is a popular accounting software used by businesses and individuals nationwide. As a nonprofit leader, you’ve probably heard of QuickBooks or may have even used it before. And you might be wondering if you can use QuickBooks for your nonprofit accounting.

The answer is yes, QuickBooks Online can be configured for nonprofit use. Let’s dive into the benefits of using QuickBooks Online for your nonprofit and explore how to get the most out of the program.

QuickBooks

Specific Accounting Needs of Nonprofit Organizations

Before you can choose an accounting software–QuickBooks or otherwise–it’s important to understand the unique needs of nonprofit organizations. For-profit businesses often don’t have to follow the strict accounting rules of an exempt organization.

In addition, nonprofit groups are generally under more scrutiny from government agencies, donors, board members, and the general public when it comes to financial matters.

You’ll need to keep these things in mind when choosing accounting software and an accounting setup. Specifically, nonprofit leaders should consider these factors when looking for software:

  • Requirements for fund accounting
  • Staying in compliance with reporting and filing

Fund Accounting Requirements

Fund accounting is an accounting system used by nonprofits that focuses on transparency and accountability rather than profits. Nonprofits use fund accounting to properly record and allocate funds based on where they come from and what they’re meant for.

Generally, this includes having specific funds or categories where nonprofit revenue is allocated. For example, a food bank has a category for donations restricted to purchasing food for the bank. The money in this category, therefore, is only used to purchase more food for patrons.

Fund accounting differs from traditional accounting methods in that it’s designed for accountability and compliance. When you look at a nonprofit’s books, fund accounting helps ensure you can see exactly where donations, grants, and other funds are going.

Compliance and Reporting

In addition to fund accounting for accountability, nonprofits are expected to follow strict tax and reporting rules to stay in compliance. This includes documenting the source of funds like donations, grants, or other revenue streams. Nonprofits also need to record expense receipts.

A nonprofit’s accounting software must help it accurately record these transactions. Missing records, sloppy categories, or inaccuracies in reporting could endanger an organization’s nonprofit or exempt status. Maintaining accurate records helps you stay in compliance with federal and state tax department regulations and follow donation rules. Additionally, accurate records can help improve public and donor trust in your organization. 

Advantages of Using QuickBooks Online for Nonprofit Accounting

Nonprofits can use QuickBooks for their accounting needs and can configure the software to fit their unique accounting situation. There are 5 main advantages of using QuickBooks for nonprofit accounting:

  • QuickBooks can be configured and customized to meet nonprofit needs.
  • It’s well-established with few bugs, so you get great speed and reliability.
  • QuickBooks is cloud-based and can be used by anyone, anywhere.
  • Most accountants have worked with QuickBooks before and know the program.
  • You can integrate QuickBooks with a ton of different software and tools for a truly customized experience.

Adapting QuickBooks for Nonprofit Use

One of the biggest benefits of using QuickBooks for nonprofits is customization. QuickBooks allows you to tailor its features to fit your organization’s needs.

Features like class tracking and fund accounting can help you accurately record revenue and expenses. Additionally, you can configure your setup to focus not on sales tracking, but on donations or grant funds tracking. Then, you can use QuickBooks’ reporting system to create streamlined and visually appealing reports that can be presented to board members, donors, and other organization stakeholders.

Speed and Reliability

As one of the most popular accounting tools worldwide, QuickBooks has a reputation for providing speed and reliability of service. Unlike newer nonprofit accounting tools, which may be plagued by bugs or errors, QuickBooks is a tried and true solution.

Having reliable accounting software is essential to maintaining accurate financial records, and QuickBooks makes it easy to stay on top of transactions, invoices, and more.

Cloud-Based Accounting Solution

Having a cloud-based accounting system is almost required in today’s modern nonprofit landscape, but many accounting programs don’t offer virtual access. Luckily, QuickBooks Online lets your team connect and work with financial data from anywhere with secure internet access.

Whether you have a remote team or one that travels regularly, using a cloud-based solution like QuickBooks Online helps your accounting team stay connected and in the loop.

Well-Known Software for Accountants

Almost anyone who works in the accounting or bookkeeping industry has used QuickBooks. Using a widely-known program like QuickBooks can make managing your accounting easier, especially if you regularly work with other organizations.

For example, you need to hire an additional team member for your accounting team. More than likely, they’ll already know how to use QuickBooks, saving you time and money on training. Likewise, if you partner with another organization or business, you may have to work with their accounting team to settle accounts or share financial data. By using QuickBooks, you’re increasing the chance of efficient and effective communication between accounting teams.

Software Integrations

QuickBooks offers almost endless integrations that make it easy for your accounting software to “talk” to your management system. This seamless flow of data reduces the work you have to do and makes your organization more efficient.

Common integrations you can use with QuickBooks Online for your nonprofit include:

  • Dext: A tracking tool for receipts and deposits
  • Bill: Accounts receivable and accounts payable management
  • Fathom: Extensive reporting system for customized financial reports

Dext

Dext is an easy-to-use mobile app and software that lets your employees or volunteers scan and store receipts, bills, invoices, and other important financial documents. Users simply snap a picture of the receipt in the Dext app (and properly code it) and the app automatically records the transaction.

Dext works with QuickBooks to sync any uploads from the app into QuickBooks Online, making it easy for your accounting team to access any receipts or documents through the QuickBooks platform.

Bill

Formerly Bill.com, Bill is a financial software that helps you manage your accounts receivable and accounts payable. The platform syncs perfectly with QuickBooks and eliminates the need to manually enter bills or payables into the QuickBooks system.

One of the best features of Bill is the ability to limit who can approve payments. For example, you can create a rule that certain categories of invoices must be approved by a specific person before they can be paid out.

Fathom

The main downside many nonprofits have with QuickBooks Online is the slightly limited reporting features. While the standard reports from QuickBooks may not meet the needs of all nonprofits, Fathom bridges the gap.

Fathom integrates with QuickBooks to pull financial data and create customized financial reports and dashboards. Using Fathom with QuickBooks gives you the ability to create nearly any type of customized report you might need–whether you’re presenting to the Board of Directors, a public meeting, or your employees.

What to Know Before Using QuickBooks for Your Nonprofit

The features and customization of QuickBooks make it a great accounting software for many businesses and organizations.  However, there are a number of things to consider before you start using QuickBooks, including:

  • Standard reporting limitations: You may need to adjust the standard reporting features within QuickBooks to meet your organization’s needs.
    • Accuracy in class tracking: You’ll need an accurate chart of accounts and class tracking to maintain accuracy in recording.
  • Managing multiple funds: QuickBooks requires you to manage multiple funds and restricted grants within the system.
  • Using integrations for extra features: QuickBooks lacks some specialized features designed for nonprofit accounting, but luckily there are many integrations you can use to customize the program to your needs.

QuickBooks

Searching for a Nonprofit Accounting System?

Using technology to help you record and manage your organization’s financials can help you save time and run a more efficient nonprofit. QuickBooks offers a range of customized settings and features that could make it a great solution for your organization.

The Charity CFO team can help you compare your accounting software options and customize QuickBooks Online to fit the needs of your organization. Our team has extensive experience working with nonprofits and accounting software. We’re able to analyze your organization and make expert recommendations based on your organization’s financial setup

Reach out to us for support in setting up your QuickBooks accounting setup today!

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Grant Writing Do’s and Don’ts

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Grants can be an important source of funding for nonprofit organizations. While individual donors are important for fundraising, grants often let you access more funds in one application than collecting multiple donations.

Grant writing can feel intimidating, especially if you’re just starting with seeking funding. The process is an art that takes practice to perfect it. However, learning grant writing skills can help your organization secure new funding sources and earn more grants.

This article goes over the most important do’s and don’ts of grant writing.

grant writing

The Do’s of Grant Writing

As you dive into the skill of grant writing, you’ll find there are some unspoken rules to follow. Let’s go over the things you should do when applying for a grant.

Research Thoroughly

Much of great grant writing happens before you even start an application for funding. The research phase of grant writing is one of the most important. If you apply for grants that don’t align with your mission, you’re unlikely to secure funds.

However, if you take the time to thoroughly research grant providers or grant-making agencies with requirements that your organization can meet, you increase your chance of success. 

Our tip: Try to seek out grants that come from agencies with similar missions to your organization and look for specific grants that align with your nonprofit goals.

Follow the Grant Guidelines

Each grant has specific guidelines and requirements. Many grants, for example, restrict how funds can be used. You’ll need to find grants that fit your goals and follow the application (and grant funding) requirements as closely as possible.

You can help your proposal stand out by addressing each area, guideline, and requirement of the grant in your application. Addressing each area of the grant helps you cover all aspects of the grant and reduces your chances of missing a requirement.

Tell a Compelling Story

At its most basic, a grant application and proposal is simply a chance for you to tell your organization’s story. The more compelling your narrative, the more likely you are to catch the application reviewer’s attention and set yourself apart from other applications.

Your story should clearly communicate the need for your project, its impact, and how it aligns with the grantor’s priorities or mission. Specific examples and hard data or stats are especially helpful in creating a compelling story.

Be Specific and Concise

Your grant proposal should be a story, but it also needs to be concise. This means you need to avoid rambling and stick to specifics to keep your application engaging. Your proposal should be clear, easy to understand, and to the point.

To do this, you’ll need to provide details about your project, including its:

Use AI to Help with Grant Writing

AI has so many applications, one being grant writing. You can ask AI to rewrite content that has specific requirements. For example, ask AI to “take this 2000-word description and make it 500 words”. It’s as simple as that! 

You can also use it to generate ideas, give you a solid outline, and help you structure your proposal.

For more info on this, we suggest you check out this podcast! 

Demonstrate Sustainability

When grant writing, you should show how the project will last beyond the grant period. Tell your grantors how the funds from the grant will go beyond a single project to drive your mission for the long term.

There are a few ways to show the sustainability of your nonprofit and the programs or projects you want to fund with a grant, including highlighting:

  • Existing partnerships
  • Community support for your organization and the project
  • Plans for future funding that supports the long-term success of the project

The Don’ts of Grant Writing

Just as there are things you should do when grant writing, there are some things to avoid when filling out a grant proposal.

Submit a Generic Proposal

Don’t take a one-size-fits-all approach to grant writing, unless you never want to win a grant. Submitting a generic grant proposal is one of the easiest ways to ensure your application is discarded as soon as it’s reviewed.

Instead, you should tailor each grant application to the specific grant for which you’re applying.

Overpromise or Exaggerate

Be honest and realistic about what your project will achieve with grant funds. You don’t want to exaggerate the reach of your organization or the potential success of your project. Additionally, don’t make unrealistic claims about how you’ll use the funds or the impact they’ll have on your mission.

Being open, honest, and transparent in your grant application can go a long way in securing funding.

Ignore the Review Process

Before submitting your proposal, be sure to understand the review process and timeline. Additionally, make sure you’re aware of the deadline for the grant application. It won’t help your organization to spend weeks preparing a grant application, only to miss the application deadline.

Once you submit your proposal, be aware of the timeline for the grant funding. You may want to follow up with the grantor as needed to better understand your application’s status.

Neglect Proofreading

Sloppy grammar or spelling can hurt even the best of grant applications. Take the time to check for errors in spelling, grammar, and content before submitting your proposal. A well-written grant reflects well on your organization and aids in creating a compelling narrative for your proposal.

Miss Out on Feedback Opportunities

Even a rejected grant application can be beneficial to your nonprofit. Take any feedback you get from your proposals and use it to improve your future applications. Like many things, grant writing is a skill that takes time to develop and hone. By ignoring feedback opportunities, you’re missing out on the chance to improve your skills.

Underestimate the Work

Managing a grant can require a lot of work. Some require rigorous reporting and time that needs to be spent in areas you don’t have the manpower for. Be clear on the requirements before applying for and accepting the grant so you can uphold your end of the deal. 

Similarly, be cautious of taking funding that may trigger unintended consequences. For example, if you accept a grant that’s only $10k per year, but it requires you to have an audit that we didn’t have – which is typically $20k a year or more – you’re now in the hole. 

Again, grant writers must understand the terms of accepting grants before accepting them.

grant writing

Master Grant Writing to Better Support Your Nonprofit

Grant funding is an essential revenue source for successful nonprofits. The funds you get from grants can help you fund services, increase programs, and free up resources for other aspects of your organization. Mastering grant writing will make it easier to secure grants.

Once you have the funding you need from grants, you also need to manage the money. Most grants have strict requirements for how to use – and track – the funds. The Charity CFO offers grant management services to help you stay on top of tracking and allocating your grant fund while staying in compliance with grant requirements.

Contact us to learn more about grant fund management.

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Nonprofit Leadership: Using Data for Better Decision-Making

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

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

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

nonprofit leadership

What Does Nonprofit Data Look Like?

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

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

Types of Data for Nonprofits

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

  • Financial data: Financial data includes any data relating to the finances of the organization, such as revenue or expense data.
  • Program-based data: Program-based data helps organizations create insights into the effectiveness of their programming or services.
  • Donor and stakeholder data: Donor and stakeholder data can refer to informational data, such as names and addresses of donors, as well as more in-depth data, such as donation amounts or communication preferences

Challenges of Nonprofit Data Collection

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

  • Limited resources: Purchasing software or digging through data insights can strain resources, and many nonprofit organizations worry they don’t have the money or time to use data.
  • Data quality issues: Data-driven decisions are only as good as the data they come from, so nonprofits must ensure their data is clean and high quality.

Leveraging Data in Nonprofit Leadership

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

Cultivating a Data-Driven Culture in the Organization

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

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

Investing in Data Technology

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

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

Aligning Data with Organizational Goals and Mission

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

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

Using Data for Program Evaluations

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

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

Improving Fundraiser Efforts Through Donor Analytics

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

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

Improving Financial Management

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

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

nonprofit leadership

Improve Decision-Making

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

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

Contact us today to use data to drive decisions.

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When You Should Consider Merging a Nonprofit

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You might think of big businesses and billion-dollar takeovers when you hear the term “merger,” but for-profit corporations aren’t the only organizations that can benefit from mergers. Many nonprofits use mergers to strengthen their organizations. Ultimately, nonprofit mergers can help an organization better fulfill its mission.

Are you considering merging with another nonprofit? Let’s take a look at why an organization might want to merge with another to help you understand if it’s a good idea for your nonprofit.

merging

Reasons a Nonprofit Merger Would Be Beneficial

Ongoing Financial Struggles or Instability

Organizations that have regular financial struggles or face ongoing financial instability can’t meet the goals of their mission. A struggling nonprofit might have to close its doors if it can’t find the money to operate.

A merger, then, could be a good solution to ongoing financial struggles. There are two ways a merger might help alleviate your financial issues:

  1. Being absorbed by a larger organization.
  2. Merging with a similarly-sized organization with a similar mission.

Joining the ranks of a larger nonprofit could generally give you access to more funds and resources you might not have in a smaller organization. Being part of a larger nonprofit could be the stability your organization needs to meet goals and help your community.

But you may not want to be absorbed by a larger nonprofit. In this case, you might want to consider merging your organization with another of the same size that shares your mission or goals. In some cases, your two smaller organizations may be able to overcome financial struggles simply by being a larger–and more recognizable–force in the community.

There’s a Lack of Sustainable Funding and Resources

Does your organization struggle to attract repeat donors or find other sustainable sources of funding?

If you’re a small organization, it could be your size. Some donors shy away from a smaller operation because they’re unsure of the impact the organization could make. By joining forces with another organization through a merger, you produce a larger overall nonprofit. A larger organization might have more appeal for donors, which could give you access to more fundraising opportunities.

In addition, your larger organization will likely have more resources available, including:

  • More staff
  • More volunteers
  • Access to a wider donor network
  • Shared organizational resources
  • Additional funding sources

Your larger organization might be able to reach new donors, create a diverse fundraising network, and secure long-term funding better than a small organization. It could also help make long-term nonprofit financial forecasting easier for your accounting team.

Operational Costs are Breaking the Bank

Nonprofit organizations have a wide range of costs they need to operate. For example, most nonprofits have expenses such as:

  • Leasing commercial office space
  • Electricity, internet, and other utilities
  • Training staff and volunteers
  • Advertising and marketing
  • Fundraising events or campaigns

These operational costs can quickly add up and could cause financial issues for your organization.

An easy solution could be to merge with a sister organization or one with similar goals and missions. As individual organizations, both have to pay for office space and utilities. By merging, the organizations could share many operational costs.

Overlapping Programs, Services, and Missions

Two nonprofit organizations that operate in the same space might be competing for resources. This leads both nonprofits to suffer. Even more, this could harm the impact on your community or those who benefit from your mission.

A merger between two nonprofits with the same goals, missions, and services removes competition. Donors won’t have to decide between donating to one organization or the other, which can help the merged organization have a bigger financial impact than the two nonprofits had alone. Likewise, nonprofits serving the same mission might reduce operation costs and improve efficiency by removing redundancies in the community.

Greater Capacity for Impact

A strategic merger between nonprofits could help advance your mission. As a larger organization with more efficient financial and administrative operations, you’ll have a greater capacity to impact your community.

Where two separate organizations may be able to make small impacts, combining forces could give you the financial backing you need to be a greater force for good.

merging

Weigh Your Options Before Merging a Nonprofit

There are obvious benefits to merging nonprofits, but is it right for your organization? There are many things to consider before merging with another organization. You’ll need to go through a careful due diligence process to ensure you’re making the right choice for your nonprofit. This includes carefully analyzing:

  • Financial audits
  • Legal reviews
  • Comprehensive analysis of benefits versus risks

Additionally, it’s important that you–as a nonprofit leader–involve the organization’s stakeholders in the decision-making process. Your board of directors, nonprofit staff, and donors (especially major or repeat donors) should all have a say in the merger decision if you want to have a successful potential merger.

One of the biggest things to think about when considering a merger is your organization’s financial and tax status. It’s important to partner with a trusted accountant so you’re sure you understand the financial implications of a merger, such as The Charity CFO. We leverage our experience as nonprofit accountants and financial experts to help nonprofits consider their financial options–including potential mergers.

If you’re considering a merger for your nonprofit, schedule a call with The Charity CFO for financial help and advice today.

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

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

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

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

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

What Is a Financial Forecast for Nonprofits?

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

  • Budgeting
  • Strategic planning
  • Fundraising
  • Grant applications
  • Even cash flow management

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

What is the Difference Between a Forecast and a Budget?

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

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

Key Components of Financial Forecasts

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

  • Revenue projections
  • Expense projections
  • Cash flow analysis

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

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

Using Financial Forecasts for Nonprofits

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

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

Budgeting

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

Strategic Planning

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

  • Program expansion
  • Fundraising initiatives
  • Resource allocation

Fundraising and Grant Applications

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

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

Cash Flow Management

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

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

Need Help with Financial Forecasting for Nonprofits?

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

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

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

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

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Why You Shouldn’t Start a Nonprofit

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If you dream of devoting more time to a cause you believe in and taking it to the next level, you might ponder starting a nonprofit. The prospect of serving your community is certainly a calling worth pursuing, and nonprofits serve an essential role in their clients’ lives. This is particularly true in domains where it doesn’t make sense for the government or private sector to provide aid.

However, starting a nonprofit has completely different considerations in comparison to starting your own business. There are completely different laws, norms, and obligations that frequently take well-meaning founders by surprise. Nonprofit founders can easily find themselves facing emotional and financial burnout. 

For the following five reasons, you should reconsider starting a nonprofit.

5 Reasons Why You Shouldn’t Start a Nonprofit

1. There is a TON of Competition for Funding

While you may receive moral support from your loved ones, professional colleagues, and community, it’s going to be far more difficult to get financial support. 

Nonprofits fiercely compete for funding, similar to businesses seeking traditional sources of capital. Even if your cause is worthy and your budding nonprofit strives to fill a gap that other nonprofits cannot, you’re essentially competing for the same donor pool as massive, well-established organizations.

This donor pool consists of individuals, corporate giving programs, private foundations, and government grants. While it isn’t impossible to secure funding through one or more of these routes, it’s certainly difficult. When you don’t have a track record or proof of what your nonprofit has accomplished, the competition for grants and donor funds is a lot stiffer.

2. You’re Underestimating the Time and Resources Needed to Start a Nonprofit

According to the Bureau of Labor Statistics, the vast majority of nonprofit employment is in just four industries: 

  • Healthcare
  • Social assistance
  • Hospitals
  • Educational services

Only 7% of nonprofit employment belongs to other sectors like religious organizations, the arts, historical societies, and other such institutions. What does this spell for the nonprofit you wish to start?

While most people may think of large organizations like United Way and the American Cancer Society, the lion’s share of nonprofits is actually quite small. Statista claims that nearly one million nonprofits have less than $50,000 per year in annual revenue. $50,000 is barely enough for your annual pay without considering operating expenses, let alone having the ability to hire employees.

Volunteers can help occasionally, but starting a nonprofit requires bootstrapping for longer than you might expect. It takes significant time and effort. To compare it to starting a small business, that also carries significant bureaucracy but it’s also easier to become operational virtually overnight. Nonprofits need to incorporate, create by-laws, obtain tax-exempt status, find the right people for the board, and fundraise, which is a challenging endeavor on its own.

3. Nonprofits Require Extensive Legal and Accounting Compliance

Nonprofits are subject to several layers of federal and state laws and financial reporting standards. Properly recording revenue, maintaining proof that your organization is eligible for tax-exempt status, and meeting operational transparency guidelines that are both mandated and simply expected by the public all create major financial and legal challenges. You also need to find legal and accounting professionals who specialize in nonprofits, as the financial and tax considerations are completely different than what you encounter in the private sector.

4. Nonprofits Face Unique Staffing Challenges

Small nonprofits have great difficulty attracting and retaining staff, as the Bureau of Labor Statistics has demonstrated. There are several reasons for this, but a major one is that tenuous funding makes it difficult to pay people. 

  • If you have a government grant through the end of the year, the program could get defunded next year or the funds go to another nonprofit. 
  • Individual donors are facing record inflation that leaves them with less disposable income to donate to causes they care about. 
  • Private trusts and foundations are less likely to provide significant funding to a new and unproven nonprofit.

Because of these problems, nonprofits have incredibly limited staffing and relatively high turnover. Employees suffer burnout because they have to take on the roles of multiple people and eventually leave for higher pay at larger nonprofits, if not the government or private industry.

5. Many Nonprofits Fail

Because it’s so hard to get consistent funding and thus provide quality services to the public, most new nonprofits will fail. The lack of financial resources, limited organizational capacity, and management styles that don’t translate from the private sector frequently lead to the downfall of promising nonprofits. Founders, employees, and volunteers burn out and move on.

In order to succeed in the nonprofit world, it requires:

  • Fundraising skills
  • Proper communications
  • Management skills tailored to nonprofits
  • Ability to develop and maintain programs

Think it Through Before Starting a Nonprofit

Starting a nonprofit is a huge decision and one that needs to be carefully considered. Think about it from every angle and decide if it’s the right call to start your own nonprofit, or if there are other ways that you can better support causes you care about.

But if you’re ready to take the plunge and learn more about the backend and financial requirements for starting a nonprofit, reach out to our team at The Charity CFO.

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Discovering The Tax Implications of Nonprofits Owning For-Profit Businesses

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Does your nonprofit have ownership of a for-profit entity? Whether your organization owns a for-profit company outright or has limited ownership, a for-profit subsidiary can have serious tax implications for your nonprofit.

Let’s work through some of the most pressing tax implications you might face as a nonprofit with ownership in a for-profit company.

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Tax Implications of Nonprofits Owning For-Profit Businesses

Unrelated Business Income Tax (UBIT)

Recognized nonprofits generally receive tax-exempt status from the federal government. Tax-exempt status makes it easier for your organization to retain nonprofit revenue and meet the goals of your mission.

However, your nonprofit may engage in revenue-generating activities that don’t relate to the purpose of your organization. The money that comes from these activities is known as unrelated business income because it’s earned from activities that are unrelated to your exempt mission.

The IRS can potentially charge your organization federal income taxes on your unrelated earnings. Known as unrelated business income tax (UBIT), you may face this tax liability if your nonprofit regularly carries on a trade or business that doesn’t substantially relate to your exempt mission or purpose.

UBIT Exclusions and Exceptions

Not all unrelated business income is subject to federal income tax. The IRS provides UBIT exceptions and exclusions to account for situations where a nonprofit uses for-profit activities to advance its exempt purpose.

Common nonprofit income that could be excluded from UBIT includes:

  • Dividends and Other Investment Income
  • Interest Earnings
  • Royalties
  • Certain Rental Income
  • Gains or Losses from the Disposition of Property

Additionally, income generated using a majority volunteer labor force may qualify for an exception. For example, hosting a fundraising auction operated by volunteers may not require UBIT payment.

Tax On Excess Business Holdings

The IRS uses taxes on excess business holdings to limit how much ownership a nonprofit can have in a for-profit company without paying federal taxes. Taxing excess business holdings helps reduce conflicts of interest and limits the power a tax-exempt entity has over a business.

Excess business holdings are shares or interests a nonprofit holds in a for-profit company that exceeds the IRS’s limits. Generally, any ownership share over 20% of voting stock in a company is considered an excess business holding. Nonprofits with excess holdings may face an excise tax on the value of shares over the limit.

Joint Ventures and Tax Implications

Many nonprofits partner with for-profit entities to help advance their mission with the financial backing of their partner. For example, a mental health organization might create a joint venture with a for-profit healthcare system to establish mental health facilities in underserved areas.

Depending on the nature of the joint venture, nonprofits could jeopardize their tax-exempt status if they don’t follow certain limitations, including:

  • The joint venture must seek to further the nonprofit’s charitable purpose.
  • Any benefits to the for-profit entity must be insubstantial compared to the public benefit of the partnership.
  • The nonprofit must have control over the charitable activities of the venture.

You may want to work with a nonprofit financial advisor or accountant to set up a joint venture with a for-profit entity. Your advisor can help you avoid pitfalls that could affect your tax-exempt status.

Impact on Charitable Contributions

Donors to nonprofits often receive tax benefits for their charitable giving. In most cases, a donor may be able to deduct certain charitable donations from their taxes. Many donors use nonprofit donations to lower their taxable income for the year.

Giving money to a nonprofit with for-profit business ownership could limit the donor’s ability to deduct donations, however. If your nonprofit engages in for-profit activities, you’ll need to communicate with donors to let them know. Proper communication helps donors understand the tax implications of their gifts and improves your organization’s transparency.

Maintaining Separate Accounting

Any nonprofit with for-profit ownership needs to maintain separate accounting for each area of business. This includes keeping separate financial statements, revenue records, and bank accounts.

Separating business activity is essential for maintaining accurate records of income, expenses, and activities associated with each business. Properly-recorded books can help reduce your chance of noncompliance in a nonprofit audit.

State Tax Considerations

The tax implications we’ve already covered mostly relate to federal tax-exempt status.

However, state tax agencies may also have rules for nonprofits that operate for-profit businesses. You’ll need to check your state’s tax laws and regulations to see how they might affect your organization.

Seek Professional Guidance for More on the Tax Implications of Nonprofits Owning For-Profit Businesses

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Few parts of nonprofit accounting are as complicated as a nonprofit owning a for-profit business. Your organization may be liable for certain taxes on excess business holdings or income from unrelated business activities. In some cases, operating a for-profit entity could put your nonprofit at risk of losing its tax-exempt status.

Nonprofit leaders like you don’t have to navigate tricky tax implications on your own. Working with a trusted nonprofit tax advisor, like The Charity CFO, gives you the resources to avoid unwanted tax implications.

Our team of dedicated nonprofit accountants and financial advisors is ready to put our specialized knowledge to work for your organization. Reach out to us today to get started!

Employee Benefits to Offer as a Small Nonprofit

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Employee benefits packages play a big role in attracting and retaining top talent. According to Forbes, 10% of workers say they’d take a pay cut to get access to better benefits.

As a small nonprofit, it can be difficult to determine what benefits mean the most to your employees, especially if you’re working within a strict budget. This nonprofit employee benefits guide goes through the most common types of benefits and how you can add them to your benefits offerings.

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What to Consider Before Offering Employee Benefits

Just like volunteer management, nonprofit employee management should seek to show employees they’re valued and important to the organization. However, small nonprofits may not have access to the same resources as for-profit businesses or large nonprofits. You’ll need to carefully consider your options when building an employee benefits package.

Some things to consider when creating your small nonprofit benefits include:

  • Budget constraints: How much can you afford to spend on benefits?
  • Staff needs and employee preferences: What do your employees need or want from their benefits?
  • Legal compliance: Does a benefit offering meet legal requirements or standards?
  • Missions alignment: Are you offering benefits that stay true to the mission of your organization?
  • Competitive analysis: What are similar organizations offering their employees?
  • Long-term stability of programs: Can your organization sustain a benefit offering for years to come?

Common Benefits Employees Love

Health Insurance

Health insurance is perhaps one of the most important employee benefits you can offer. While organizations with fewer than 50 full-time employees aren’t required to offer health insurance, it’s still a great tool for employee retention. For many employees, a good health plan is almost as important as financial compensation.

Group health insurance plans are one of the most common ways to provide insurance for employees. A group plan offers lower insurance rates to members (in this case, your employees) because the insurance company spreads risk among the group. With a group health plan, you’ll work with an insurance company or healthcare provider to purchase a health plan and then offer employees the chance to join the plan.

Another great way to provide health coverage for employees is through a Health Savings Account (HSA). An HSA is a specialized savings account that allows people with high deductible health plans to save money for health costs. The money in an HSA grows tax-free when used for qualified health expenses, such as doctor visits or prescription drug purchases.

Many employers offer a group health plan and an HSA for employees. If within your budget, you could also contribute to employee HSAs as an added benefit.

Retirement Plans

Like health insurance, a good retirement plan is a major incentive for employees. Two great retirement plan options for small nonprofits include:

  • 401(k)
  • SIMPLE IRA

Both types of plans allow employees to save for retirement by contributing a portion of their paycheck to the plan.

A 401(k) is generally a more complex retirement plan option, but it gives you more flexibility as an employer. For example, employers can set the vesting schedule of employer contributions. By spreading the vesting period out over several years, you can encourage employee retention. Additionally, 401(k) employee contribution limits are higher than SIMPLE IRA limits, which could be beneficial for employees. Employers are not required to contribute to 401(k)s, but offering a contribution match can encourage plan participation.

SIMPLE IRAs, on the other hand, require employer contributions, and all contributions vest immediately. Being vested immediately could lead to employee turnover if other aspects of the job aren’t meeting employee expectations. However, a SIMPLE IRA is a straightforward approach to retirement plans. They generally have lower fees than 401(k) plans and offer more investment options.

Flexible Working Hours or Location

After the COVID pandemic, many employees realized the benefits of working from home or working flexible hours. If your organization can offer these options, it could be a great way to attract and retain great employees.

Some ways to offer flexible working conditions include:

  • Work from home and fully remote roles
  • Hybrid work schedules
  • Flexible scheduling for employees to set their own hours

Not all organizations can offer remote work. An animal shelter, for example, needs on-site employees to care for animals.

However, you can still add flexible working options or incentives as perks of the job. For example, a 4-day work week gives employees a longer weekend while still providing necessary staff.

Offer Paid Time Off (PTO)

Employees with little to no time off will quickly get burnt out–no matter how much they love your mission. Providing ample PTO is essential to helping employees stay motivated and excited to work.

There are many ways to give employees the time they need to reset and rest, such as:

  • Earned vacation days
  • Sick leave or a designated number of sick days
  • Holidays, including paid holidays

Your budget will likely be one of the biggest factors when creating an employee PTO plan. However, you should still aim to give your employees plenty of options for paid time off, even if you’re working with a small budget. Consider giving employees days off that schools are regularly closed. This can really be a stand-out for working parents when considering which employer to go work for. An employee who has the time they need to take care of themselves or their family will be more efficient and effective at work.

Wellness Programs

Wellness and fitness programs have become a popular employee benefit in recent years. Wellness programs generally include options like:

  • Gym membership reimbursement
  • Wellness challenges and support, such as a monthly steps goal challenge
  • Fitness classes
  • On-site workout rooms
  • Immunization clinics or medical screenings

In addition to physical health programs, consider offering mental health support for employees. For example, you could offer access to a stress management program or weekly meditation sessions.

Family-Friendly Policies

Family-friendly work policies are an excellent way to encourage employee retention and create satisfied employees. Familial leave policies, such as maternity and paternity leave, paid bereavement for loss of a pregnancy, and allowing new parents to step away from work and focus on their new child.

Additionally, you can improve work-life balance through flexible working conditions. For instance, allowing parents to shift their working hours to accommodate dropping kids off and picking them up from school.

Before you consider whether a paid parental leave is an option, consider all of the costs. We advise our clients to ask themselves:

  • Would allowing a team member take a paid leave actually cost the organization any additional money? This could be through paying a temporary employee or loss of revenue that the team member in question would be earning through contracts or other earned revenue options. 
  • How many employees would actually be at risk for utilizing this benefit each year? And, how does this compare to the cost of offering and paying for a portion of a short-term disability plan? In many cases, short-term disability is even more expensive.
  • Would a paid parental leave help with recruiting and retention of highly sought after talent? 

We have seen that many clients realize that the cost of offering these policies are not as much as they would have thought.

Transportation Benefits

Organizations in urban areas can offer transportation benefits for employees, such as transit or parking passes. You might also want to encourage the use of public transportation or employee carpools using incentives for employees who do so.

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Remember to Weigh Your Benefits Options

A good employee benefits program can motivate employees and attract top talent. Once you have a benefits plan in place, it’s important to also share it with employees and new hires so they can start taking advantage of it.

If you’re wondering how to maximize employee benefits while staying on budget, contact The Charity CFO today.

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How to Properly Record Revenue for Nonprofits

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While the nature of a nonprofit means you’re focusing more on your mission than making money, bringing in revenue is still essential.

This can lead to unique accounting and recordkeeping challenges that for-profit businesses don’t have to face—especially related to revenue classification. Accurate revenue recognition, classification, and records are some of the most important aspects of nonprofit accounting.

Not only does it help with transparency in your organization, but properly recording revenue keeps you in compliance with nonprofit regulations.

Let’s take a look at common revenue streams and how to record revenue for a nonprofit.

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Nonprofit Revenue Streams

To be able to properly record nonprofit revenue, you first have to understand what types of revenue streams a nonprofit might have. Many nonprofit organizations receive a variety of funding from many different sources—from membership fees to annual fundraisers. This revenue helps run your programs, pay staff, build operating reserves, and cover administrative costs.

The most common types of revenue for nonprofits include:

  • Donations and Contributions: These are monetary contributions made to your organization, often from individuals.
  • Grants and Sponsorships: Grants are typically monetary donations that come from other organizations and often have restrictions on their use, such as a government grant. Sponsorships are donations from an organization or business in exchange for promotion, such as displaying a banner at a fundraising event.
  • Program Service Fees: Many nonprofits charge fees for the services they provide, such as a ticket fee for a nonprofit theater.
  • In-Kind Contributions: In-kind contributions are non-monetary donations to your organization and might include food donations to a food bank.

There are further breakdowns within your revenue streams, most notably restricted versus unrestricted funds.

Restricted funds are donations that must be used in a specific way or for a certain purpose. Unrestricted funds are just the opposite—this money can be used for any purpose the nonprofit sees fit.

Accrual vs. Cash Basis Accounting for Nonprofits

There are two main types of accounting for nonprofits: the accrual method and the cash basis method.

  • Accrual Method: The accrual method records revenues as they are earned or pledged. Likewise, expenses are recorded when they are incurred.
  • Cash Basis: The cash method of accounting records revenue when it’s received and expenses when they are paid.

In essence, the accrual method focuses on recording revenues and expenses when you learn of them. The cash basis method, on the other hand, focuses on recording revenues and expenses when money changes hands.

Which method is best?

That depends on your organization’s size and complexity. Generally, most small nonprofits can use the cash basis method as it may be simpler. A larger nonprofit (or one with a lot of complicated transactions) may need to use the accrual method.

Recording Revenue for Nonprofits

Donations and Contributions

When recording donations for your nonprofit, technology is your best friend. There are plenty of software and tech options that make it easy to properly record nonprofit donations.

Why use technology to track donations? Because donations are generally an organization’s most common revenue transactions and may have restricted and unrestricted funds coming in equally.

You can also use a donor acknowledgment system to help track donations and make donors feel appreciated.

For example, you might set up a donation portal on your website. When someone donates, they receive an email thanking them for their contribution immediately.

As donations can come from many sources, it’s very important to separate restricted and unrestricted funds when recording to help you keep up with donation rules.

Grant and Sponsorship Revenue

While grants and sponsorships have similarities, you must keep each type of fund separate. Like restricted and unrestricted funds, keeping grant and sponsorship money can save you headaches at tax time (and when communicating with donors).

Sponsorships are often one-time donations in the form of advertisements or promotions for the sponsoring business. For example, a local restaurant sponsors your annual fundraising gala. In return, you display posters around the event thanking the restaurant.

Grants, on the other hand, usually involve a much lengthier application and approval process. You’ll need to make sure you record grant revenue based on the conditions outlined in the grant agreement.

In addition, grant-funded programs often have their own set of rules and requirements for recording. Proper record-keeping for grant revenue is important to stay in compliance with rules for grant funding.

For a deeper dive into revenue accounting for grants, check out this article by the FASB which clarifies how grants fit into the new standard.  

Program Service Fees and Earned Income

Just because a nonprofit isn’t aiming to turn a profit doesn’t mean they can’t charge for their services. Many nonprofits charge service fees or program fees to help cover the cost of running the organization.

For instance, an animal shelter charges an adoption fee to adopt a pet. These adoption fees help pay for animal care, veterinary services, and shelter employee wages.

Any program service fees and other earned income your organization brings in should be recorded separately from donations and contributions. Differentiating between program service fees and constrictions helps maintain clean records and can lower your risk of compliance issues if your nonprofit is audited.

Recognizing In-Kind Contributions

In-kind donations can pose a range of accounting challenges for nonprofits. The most important aspect of recording in-kind donations is proper valuation.

Establishing an in-kind donation valuation and recording process will help you avoid mistakes when receiving non-monetary donations.

A strong in-kind donation recording system will help you stay in compliance with accounting standards for in-kind contributions.

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Need Help Recording Revenue? Reach Out to the Charity CFO!

Understanding your nonprofit’s revenue stream and knowing how to record it is essential to staying in compliance with nonprofit rules and regulations. Properly recording your revenue is also a big factor in building trust with the public, as it shows transparency.

Feeling a little overwhelmed about your revenue streams and other accounting processes? The Charity CFO provides expert tax and accounting services for nonprofits. Our team has decades of collective experience working with nonprofits. We put our knowledge to work to help address and resolve the unique accounting challenges nonprofits face.

Let us help your nonprofit get financially organized through proper revenue recordkeeping. Contact us today for a free consultation.

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Volunteer Management: What Every Nonprofit Needs to Know

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Volunteering is an essential piece of any nonprofit. Some nonprofits can’t function without the help of their volunteers.

But how can nonprofit leaders ensure their volunteers are effective while creating a space that encourages volunteers to return?

The key lies in a strong, well-run volunteer management program. This guide will walk you through volunteer management best practices so your organization can optimize volunteer contributions, retain volunteers, and create a lasting impact for your cause.

Follow These Steps for Effective Volunteer Management

Set Clear Volunteer Rules

You don’t want to treat your volunteers as employees. They’re donating their time to you, after all. However, it’s also not a good idea to overlook the importance of setting clear expectations for volunteers.

This starts by creating volunteer positions that detail how and where people can help your organization. Think of creating something like a job listing, which details what is needed, how a volunteer is expected to help, and the time commitment to do so.

You don’t need to overthink it, simply make sure your volunteer expectations answer these questions:

  • What is the specific task?
  • Is this a one-time or recurring role?
  • How often is the volunteer needed? Daily? Weekly? Monthly?
  • What skills do volunteers need for the task?
  • Where does the volunteer need to work from? Can this task be done remotely?
  • How does this task impact the organization?

That last question, in particular, is important. Volunteers are giving their time freely, so they want to know how they’re helping your cause and making a difference.

Develop a Volunteer Recruitment and Screening

Some volunteers will seek out your organization and ask about volunteer opportunities, but the majority won’t. That’s why it’s important to have a volunteer recruitment strategy. Volunteer recruitment strategies work like your nonprofit marketing strategy: it walks volunteers through a pipeline from awareness to onboarding.

Volunteer recruitment strategies can include:

  • Detailing the skills, experience, and passion necessary for various volunteer roles.
  • Providing a wide range of ways to get involved: from one-time projects to ongoing help.
  • Recruiting in person at local events, such as a community picnic or your own fundraising events.
  • Encouraging existing volunteers to refer friends.
  • Reducing the effort it takes to sign up for volunteer opportunities.

Once you have interested volunteers, you also need to screen them. Screening volunteers might seem counterintuitive, especially if you need all the help you can get.

However, screening your volunteers helps cut down on turnover by ensuring that each volunteer is the right fit for your organization. It can also help you identify potential conflicts of interest.

If your nonprofit works with children or other at-risk individuals, the screening process is even more vital. You may want to use background checks to ensure the safety of those you serve.

Provide Proper Training

Volunteer training programs can improve the effectiveness of your volunteers while also making them feel welcomed into your organization. Establishing a training program also makes it easier to onboarding new volunteers.

A strong volunteer training program should explain your organization, including its mission and values. This sets the tone for volunteers on what is expected while helping your organization.

Volunteers should also be trained on the specifics of their role. If you run an animal shelter, for example, you want your volunteer kennel cleaners to know the step-by-step process to safely clean and sanitize kennels and cages.

The most important part of your volunteer training? Clear and effective communication. Volunteer training should give volunteers the tools and resources they need to effectively complete their tasks.

Provide Recognition and Appreciation

Your volunteers are donating their time to your organization. It’s essential to show your appreciation for their time and efforts. Volunteers who feel needed, recognized, and appreciated tend to return.

A few ways to recognize and show your appreciation to volunteers include:

  • Sending personalized thank-yous highlighting how the volunteer’s work impacted the organization.
  • With their permission, shout out individual volunteers in newsletters, on your website, and across your social media platforms.
  • Give out free swag like t-shirts, hats, pens, and more.
  • Throw a volunteer appreciation event, such as a holiday party or family picnic.

Encourage Volunteer Feedback

Getting feedback from past and present volunteers can help you see the effectiveness of your volunteer program. An easy way to do this is through volunteer response surveys.

Send your survey to volunteers and encourage them to fill it out. You may need to offer a small incentive, such as a gift card for a local coffee shop, to increase participation.

In your survey, be sure to ask volunteers what they feel is–and isn’t–working within the volunteer program. Additionally, try to make completing the survey simple by using mostly multiple-choice questions. Give volunteers a chance to speak their minds by ending the survey with an open-ended format question.

Volunteer feedback isn’t just important for improving your volunteer program. It can also provide valuable insights into your organization as a whole, especially from an outsider’s perspective.

Focus on Volunteer Retention

A volunteer who keeps coming back to your organization requires fewer resources for training, onboarding, and recruitment. You want to build a group of volunteers who keep coming back.

The key to volunteer retention is making volunteers feel appreciated, letting them see their impacts, and creating a fun volunteer experience. Some ways to help retain volunteers include:

  • Providing meaningful work
  • Offering opportunities for advancement and growth in the organization
  • Making sure volunteers feel valued through incentive programs

Improve Volunteer Management for a Stronger Organization

As you set your nonprofit goals, don’t forget the importance of volunteers. You can reach your volunteer recruitment, retention, and project goals by creating and following an effective volunteer management program.

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Should Your Nonprofit Have Debt?

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If you’re like most nonprofit leaders, you probably have questions — and possibly mixed feelings — about nonprofit debt. That’s because you’ve also probably received mixed messages about nonprofits and debt.

Nonprofits aren’t often encouraged to take on debt. But while studies show that Charity Navigator gives higher ratings to organizations with lower liability-to-asset ratios, studies indicate that holding no debt isn’t optimal, either.

When the right type of debt is taken on methodically, thoughtfully, and for the right reasons, it can be a useful tool that helps a nonprofit gain financial flexibility. The key lies in ensuring debt is carefully managed, and aligned with the organization’s mission and financial capacity.

Here’s what you need to know about nonprofit debt.

Reason for Nonprofit Debt

Let’s start with the basics, a.k.a. the why behind nonprofit debt. As a general rule, the purpose of any debt must be centered on furthering the mission.

Perhaps this means taking on debt in order to grow programs and services. The money could be used to hire staff, expand a service area, or launch new initiatives. Maybe your organization needs to fund a capital campaign, cover operating expenses, or make payroll in the event of donation or grant shortfalls.

Whatever the reason, the decision to take on debt should only be made if it advances the organization’s goals.

Types of Debt for Nonprofits

There are a variety of different types of debts, each with advantages and disadvantages. While this isn’t an all-inclusive list, let’s look at a few common types of debt.

Long-Term Loans

Long-term loans usually have a term of one year or more. They may be used to finance capital projects, to purchase real estate, make building improvements, or to expand services.

A long-term loan provides improved financial flexibility, with the ability to make payments over a longer period of time. That means monthly payments may be lower. In some cases, an organization may have to provide collateral to obtain a long-term loan.

This type of loan is typically a term note payable over a period of time with fixed payments.

Lines of Credit

A nonprofit line of credit offers access to funds on an as-needed basis. Credit lines can be useful to cover short-term budget shortfalls or unexpected expenses. 

Most lines of credit would require collateral and likely a guarantee from someone at the nonprofit (typically the founder or a board member). Given that these are short-term advances, it is imperative that a nonprofit has a plan to replay the line of credit. 

Pro Tip: we strongly advise against giving any sort of personal guaranty for a line of credit. 

Program-Related Investments

Program-related investments, also known as PRIs, are loans made by grantors, such as foundations. When used to further a specific purpose of the foundation, this type of debt incurs some tax benefits on the lender.

While PRIs must be paid back, they generally offer below-market interest rates.

Mortgages

A mortgage loan might be a reasonable type of debt for a nonprofit that owns property. A mortgage can be used to purchase or renovate a property.

A mortgage loan may offer low-interest rates over the long term.

Each type of debt offers pros and cons. Be sure to speak with a trusted accountant before taking on any debt.

What To Do Before Taking On Nonprofit Debt

Carefully consider your options before taking on debt. Identifying your organization’s needs, financial capacity, and risk tolerance level will help you decide which type of debt, if any, would be a good choice for your nonprofit.

Consider Other Financing Options First

Before taking on debt, look at other funding sources. Explore other options for bringing in revenue, such as fundraising campaigns, grants, and government funding.

Measure the Organization’s Financial Capacity

Take stock of your nonprofit’s financial capacity so you can make fully informed decisions about debt. It’s imperative to assess your financial situation to ensure that you’ll be able to repay the debt. Take revenue, expenses, assets, and liabilities into account.

Board Approval

Taking on debt isn’t a decision you want to make unilaterally. Discuss debt options and alternatives with the board. Don’t make any moves without the board’s full knowledge, buy-in, and approval.

Risk Management

Financial decisions often come with risks as well as rewards. Develop a plan to mitigate the risks associated with taking on debt. Consider developing a contingency plan if unexpected financial problems arise.

Budget for Repayments

In most cases, nonprofits do not consider debt repayments in their financial budgets each year as most budgets include simply revenues and expenses to be received or incurred during that year. If your organization does not have an existing reserve balance that can help repay debt payments, consider how much cash you need for both ongoing operating expenses and debt repayments when figuring out your fundraising targets. Simply put, add up your expenses plus your debt repayments plus your cash outlay for capital payments to come to a total fundraising goal for the year.

Thinking of Taking on Nonprofit Debt?

Debt can help nonprofits be more financially agile — but only if it’s managed correctly and taken on for the right reasons. Debt should always be in mission alignment and further organizational goals.

Before taking on debt:

  • Compare the pros and cons of different types of debt, such as long-term loans, credit lines, PRIs, and mortgages
  • Assess your organization’s financial capacity and risk tolerance
  • Explore other funding avenues such as grants
  • Get board approval
  • Develop a risk management and contingency plan
  • Include cash needed for debt repayment into your financial budget

Nonprofit debt can offer rewards, but it’s not risk-free. It’s a complex decision… and that’s where The Charity CFO comes in.

Our team will help you navigate this complex financial issue, so you can determine if (and which type of) debt is the right choice for your organization’s unique needs. Contact us today to learn more.

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What is a W-9 and Why is it Important?

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Keeping your taxes in order is vital for any nonprofit. Unfortunately, it can get complicated and confusing when it comes to employees, especially if you’re hiring both traditional staff and regular contractors or freelancers. 

The W-9 is among the most crucial forms to help keep everything straight, but many don’t know much about it or when it’s used. 

Let’s take a closer look at the document and why it’s so important for nonprofits.

What is a W-9 Form?

A W-9 form (officially titled “Request for Taxpayer Identification Number and Certification”) is a simple, standardized federal form that allows employers to collect the necessary tax and personal information from those who work for them. 

The titular Taxpayer Identification Number is the most critical element of the form. In most cases, this will be an employee’s social security number, but it can also be a business’s EIN or less common identifiers like Individual Taxpayer Identification Number (ITIN) and Preparer Taxpayer Identification Number (PTIN). 

The payee also certifies that they’re not subject to any backup withholding, which would typically only be the case if they failed to provide information to previous employers or were caught underreporting income by the IRS. 

In addition, the W-9 requires details like the type of entity (individual, C corporation, S corporation, etc.) and an official address.

Why is the W-9 Form Important for Nonprofits?

Anyone who’s helped lead a nonprofit knows that keeping the organization’s tax-exempt status is the most critical factor to its survival. A crucial part of that is abiding by tax reporting and compliance requirements. This includes filing the appropriate tax forms with the feds, which, for contractors or freelancers, would be a 1099-NEC or 1099-MISC. 

The W-9 is designed to collect the information necessary to fulfill these requirements. Aside from legal requirements, diligently collecting W-9 information from contractors or vendors shows a commitment to transparency and fully documenting its work. Insisting on complete W-9s can also help avoid doing business with potentially unsavory partners who may not want to complete one for various reasons. 

No matter which reason applies most to your organization, they all show why getting this form completed should be a priority when working with contractors, freelancers, and vendors.

When Would a Nonprofit Need a W-9 Form?

There are three primary situations where an organization should typically get a W-9 completed by outside parties. 

The first, as we’ve mentioned, involves paying independent contractors and consultants. While 1099s must be issued to any person or business that receives more than $600 from your organization during the year, it’s good practice to require completed W-9s from every payee to avoid the need to track down the information later. 

In addition, W-9s are required for any vendors or companies that are engaged for outside services. On the flip side, your organization may occasionally need to fill out a W-9 itself. This generally happens if you’re contracted out by another organization to do some sort of limited work on their behalf. Large donors or grant givers may also request your organization fill out a W-9 to confirm relevant tax details.

Tips for Completing the W-9 Form

Tax forms can always feel a bit intimidating, but the W-9 is quite simple to fill out. 

  • First, identify who’s requesting the form and ensure it’s necessary. 
  • Then, collect your own information, like your organization’s TIN/EIN and official business name. Before you start, double-check to make sure you have the correct and most up-to-date version of the W-9 as well. 
  • Then, simply provide the information where indicated, including any exemptions if they’re applicable. 
  • Finally, complete the form by signing and dating it before returning it to the individual or organization requesting it. As with all pertinent tax records, you should keep a record and copy for yourself as well, just in case.

Reach Out to The Charity CFO for Help with the W-9

The W-9 is one of the most crucial tax forms to understand, whether your organization is soliciting them from freelancers and contractors or filling them out itself. But it’s relatively simple once you’ve looked over the particulars. 

While it might just seem like extra paperwork, it ensures all parties have the tax information they need to meet their reporting requirements.

Still, amid all the other tasks and requirements of running a nonprofit, it’s easy to allow things like prompt W-9 collecting, completing, and processing to fall through the cracks or end up delayed by everyday issues. That’s where The Charity CFO comes in. Our experienced team can help you stay diligent about your tax reporting and filing requirements, from W-9s to the many other tax forms and deadlines that always seem to be looming. 

Contact us today to learn more about how we can help your nonprofit and get started.

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How Nonprofits Can Choose the Right Banking Partner

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

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

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

Determining Your Nonprofit Banking Needs

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

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

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

Reviewing Nonprofit Banking Partner Options

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

Nonprofit-Friendly Services

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

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

Good Reputation

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

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

Consider Your Investment in the Bank

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

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

Compliance and Regulatory Considerations

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

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

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

Keep a Strong Relationship in Perspective

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

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

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

Selecting the Right Nonprofit Banking Partner is Essential

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

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

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How Accounting Setup Can Affect an Organization Long-Term

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

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

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

Understanding the Role of Accounting Setup for a Nonprofit Organization

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

  • Income
  • Expenses
  • Assets
  • Liabilities

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

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

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

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

Common Mistakes in Accounting Setup for Nonprofits

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

Lack of proper training and expertise

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

Poor choice of accounting software

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

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

Inadequate data entry and record-keeping

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

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

Ignoring compliance and regulatory requirements

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

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

Long-Term Consequences of Nonprofit Accounting Setup Errors

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

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

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

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

Preventing and Mitigating Nonprofit Accounting System Setup Errors

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

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

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

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

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

Understanding Donations and Loans and Their Impact on Nonprofits

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

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

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

Legalities of Donations and Loans

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

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

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

Advantages and Disadvantages of Nonprofit Donations

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

Benefits of Donations From Foundations

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

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

Drawbacks of Donations From Foundations

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

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

Advantages and Disadvantages of Loans

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

Benefits of Loans from Foundations

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

Drawbacks of Loans from Foundations

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

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

Evaluating the Effectiveness of Donations and Loans

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

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

Donation vs. Loan: Still Need Help Understanding?

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

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

Contact us today to learn how we can transform the way you fund your organization!

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Working as a Team: Forming your advisory financial committee

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

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

Why Financially-Minded People Matter

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

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

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

Building an Advisory Finance Committee

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

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

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

Steps to Establish an Advisory Financial Committee

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

Identifying Potential Members

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

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

Articulating the Committee’s Purpose

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

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

Structuring Committee Meetings

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

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

Ensuring Effective Collaboration

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

Empowering the Advisory Financial Committee

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

Providing Access to Information

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

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

Encouraging Thought Leadership

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

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

Recognizing and Acknowledging Contributions

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

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

Showcasing the Impact

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

Incorporate a Financial Advisory Committee into Your Nonprofit

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

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

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Nonprofit Communications: Navigating Donor Conversations

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Nonprofit communications can be complicated, and sometimes awkward.

It’s an avoidable fact of charity life that organizations are often in need of money – and donors are the primary source. But while it’s relatively easy to raise funds in dire situations or emergencies, getting donors to invest can be trickier when your charity seems financially stable.

The secret comes down to how well nonprofit leaders understand what donors are thinking and feeling and how charities communicate with them. Let’s take a closer look at the best ways to navigate this common but tricky situation.

The Donor Perception Challenge

All too often, donors (even large and involved ones) have relatively little idea about how a nonprofit’s operations and finances truly work. While some organizations have significant endowments and reserves, many are operating without much sustained and reliable revenue.

Under these circumstances, it can be difficult to make large investments in growth or plan for the future. 

Furthermore, when donors believe things are fine and money is abundant, it can result in lower giving. This can lead to further cuts, lower programming impact, and a downward spiral that’s hard to exit. 

Fortunately, this can all be avoided by being straightforward and transparent with those responsible for keeping the lights on with their donations.

Operating Reserve Policy: Demystifying Financial Stability

The key to stable operations for any organization is an operating reserve. Think about an operating reserve as a sort of savings account and safety net for the nonprofit. It’s a general fund with no specific uses or restrictions, available to cover unexpected expenses of all types. 

This could include everything from a dip in donations caused by a recession to a surprise major expense like equipment upgrades or even unexpected opportunities to expand programming. 

The exact amount of reserves will vary from organization to organization, but most try to sock away three to six months’ worth of expenses, which gives ample time to right the ship if donations start falling. 

It might appear to be a lot of money just sitting around unused, but these reserves can sometimes be the difference between the survival or failure of a nonprofit or charity.

Spend Down Policy: A Deeper Dive

As critical as creating reserves is clearly defining the circumstances that will lead a nonprofit to use them. With a clear policy on when it can be spent down, there’s no need for the sometimes extended, emotional debates that can result from dipping into reserve funds. 

With a transparent spend-down policy, mission-driven organizations can quickly take action to cover financial shortfalls, allowing them to continue their work without the disruptions that funding slowdowns can cause. 

Each charity will need to determine its own circumstances, but all should seek to balance immediate impact with long-term sustainability.

Nonprofit Communications Strategies for Navigating Donor Conversations

So what’s the best way to approach this with donors on a practical level? Remember these key principles to make donor discussions simple and low-stress.

Open and Honest Nonprofit Communications

While it can feel strange to reveal your organization’s financial details to outsiders, it’s imperative that donors have a complete and detailed picture of the nonprofit’s economic realities. That way, they can understand the budget and give the appropriate amount to keep things running successfully. 

At the same time, paint a picture of the organization’s financial goals and needs in the future.

Educating Donors

It’s also vital to educate donors and other sources of financial support about the reason behind the large sums of money sitting in operating reserves. Break down the organization’s policy for building and maintaining reserves, as well as the rationale behind how and when leaders will use them. With these concepts in mind, it’s a lot easier to see the true financial picture for a nonprofit.

Demonstrating Impact

One of the best ways to grow donors’ confidence in you and ensure reliable future funding is to make them understand everything they’re getting for their money. 

Showcase the organization’s ongoing programs and initiatives, taking particular care to highlight the success stories. Then, connect the dots and show how continued support is vital to keep making a difference.

Crafting a Compelling Fundraising Message

Fundraising doesn’t just happen on its own; organizations must carefully craft a compelling message and strategy to show donors why they’re the best recipient of scarce donation dollars. 

  1. Ensure the message is tailored to address donor concerns while also emphasizing the organization’s commitment to managing its finances responsibly. 
  2. Consider how any fundraising message is aligned with the organization’s mission and values.
  3. Create engaging content that educates donors, which can be distributed using both traditional outreach and digital platforms, like social media.

These can encourage an open, direct dialogue between the organization and its supporters.

Don’t Stop Requesting Money

Reaching out to donors for money can feel awkward, but it’s the most crucial part of delivering on a nonprofit’s mission. Still, it’s critical to do it in the right way so all sides can feel great about where the funds are going. Focus on: 

  • Transparency
  • Education
  • Open communication

This is especially true when it comes to operating reserves and how and when they’re spent down. 

Reach out to The Charity CFO today for help navigating these complex issues and putting together your Operating Reserve Policy and Spend Down Policy.

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Provide a ‘WOW’ Experience in your Nonprofit Marketing

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About David

Welcome everyone to A Modern Nonprofit Podcast. Today, we explored the importance of websites, nonprofit marketing, and how to bridge the gaps between departments to achieve digital success.

When we think marketing, we think of getting the word out and expressing the  mission behind the help non-profit organizations (NPOs) provide. In 2023, this goes much deeper than we could imagine. There are many tools and resources that can be utilized to enhance NPOs, especially online. 

We invited David Pisarek of Wow Digital, Inc. to give us a behind the scenes look at SEOs, attracting and retaining visits to websites, digital marketing  and much more! 

David started Wow Digital Inc. with the goal of providing effective websites, branding and design for Canadian based charity organizations. With over 20 years in the nonprofit sector, passionately working to revolutionize it one website at a time. An expert in design and programming, he’s also an educator at the college level. With a track record of 240+ complete projects since 2016, David and his team are the go-to experts.

We welcome David to the show! 

Continuous Improvement 

We engaged in an in-depth conversation with David, where we unraveled a series of questions regarding nonprofit website redesign and the importance of web analytics.  

  • When should nonprofits consider a full redesign on their website?
  • What does that process look like?
  • What should it include?
  • How often should a NPO consider a redesign? 

Of course, there is much to learn about in each of the posed questions. David stresses that websites are not something that are sat and forgotten about. Or ‘one and done’ as he calls them. 

They need constant love and care. A part of that care comes from measuring analytics. A free tool that can help organizations achieve this is Google Analytics. It’s important to note that Google Analytics 3 is the system that has been used for years. And as of July 20th, 2023, this was updated to GA4. So, if analytics are the next move for business, make sure GA4 is the system used. 

GA isn’t just for tech-nerds; it’s a great tool that can help businesses identify what consumers, donors, or website searchers are looking for and take them back to the website over and over again. Keep an eye on:

  • What keywords are being used?
  • Which call to actions are listed?
  • Where are consumers landing on the business website?
  • Are they navigating 3 to 4 pages in order to find what they are looking for?

All of these are key questions that businesses should be asking when it comes to analyzing their web traffic. 

David makes a great point regarding website analytics. The word ‘conversion’ is a data point that can be measured. So for example,  on a for-profit’s page this may mean that a conversion leads to an eventual sale. This has a different definition for NPOs. A conversion data point may indicate converted volunteers, donations, or simply subscribing to an email or newsletter. 

Not only is it important to understand what data points to pay attention to, but also how they differ from business to business. 

Revamping a Website 

Before Tosha and David take a deeper dive into the topic of SEOs, David compliments Tosha’s question about a website revamp. 

He and his team did an audit that lead to 5 indicators for revamping a website: 

  1. Is the page layout unique or common in comparison to other websites?
  2. How old does the site look?
    1. Building more off of this point, how does the website look on a smartphone? Is it compatible? Google will rank the site lower if it isn’t mobile friendly – certainly something to consider. 
  3. Is your mission and purpose clear as day on the website?
  4. Is the website accessible? 
    1. World Wide Web Consortium (W3C) is a website that creates accessibility guidelines. For example, when defining accessibility is the website accessible for an individual that may be physically impaired? The tiny detail that goes into naming a photo on a website could play a huge role in this consideration. 
  5. Finally, how identifiable is the business contact information?

Number 5 may seem like a small task in the big scheme of things, but this is actually a great segway into the SEO conversation. Even if your organization is completely remote, putting a PO Box on your website can do wonders. Why? When people search for things near them (like volunteer opportunities), Google uses their location to find the best match. 

In most cases, each device holds an IP address that gives Google some idea of your location. Because of this, when searching for ‘volunteering opportunities’ while the IP is in, let’s say the St. Louis, MO region, then Google can direct individuals to a website associated with that area. 

Measuring Frequency 

Piecing the conversation together, NPOs are a different breed than for profit businesses. They still require constant measurement and effort, but the data points that are studied are much different. How this plays into the website traffic and SEO conversation, is what makes all the impact. 

For example, revenue may increase in the winter months because of a historically associated ‘giving season’. Therefore, measuring data on a quarterly basis may be more effective when it comes to the NPO’s website as opposed to week over week or month over month analytics. 

NPOs also work on a conservative budget basis, meaning that they can stretch a dollar. 

With this, they may not be able to pay an individual, group, or department to only analyze data points for their website development. Looking at the numbers on a quarterly basis can help whomever lands this task a better window for analysis and time management. 

Want to connect with David and his team?  Email him at [email protected] or check out their website, wowdigital.com. His team also works with NPOs and website development by providing templates and website management through a website called, Mighty NPO. By using the coupon code charitycfo, this may qualify your business for a lifetime discount up to 70%. 

To hear the full story, listen to our podcast here.

You can also find Tosha and The Charity CFO team on Youtube or our website, thecharitycfo.com!

Using AI to Maximize Impact for Nonprofits

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Brace yourselves, Nonprofit Leaders! Artificial intelligence is advancing incredibly quickly. We promise it’s not as scary as it sounds, and it’s already changing the game in every industry, including nonprofits.

Fortunately, savvy nonprofit leaders will be able to harness the power of AI to maximize their impact on the causes that matter to them.

Understanding AI in Nonprofits

First things first, let’s demystify Artificial intelligence (AI for short). Imagine a computer program that “thinks” and “learns” in ways similar to a human brain. This allows AI to:

  • Help solve complex problems
  • Tackle complicated projects
  • Adapt as needed based on conditions and inputs 

It’s been in development for decades, but recent advances have made the technology more impressive and accessible to the average person. 

AI is everywhere, making our lives easier, from writing formal emails to debugging computer code to helping select recipes for a user’s meal plan. More importantly, it’s a superpower for nonprofits. It helps streamline processes and automates tasks that can make employees more efficient. 

While some nonprofit leaders may be skeptical about AI or wary about whether it’s truly accessible to their organization, there’s no need for concern. AI is increasingly integrated into modern tech, and even standalone models or programs are affordable to just about any organization.

Key Benefits of AI for Nonprofits

The benefits of AI can be as varied as your imagination. Let’s take a closer look at a few of the most important.

Enhanced Data Analysis and Decision Making

Tired of number crunching? AI can do the heavy lifting making the task far easier and faster.

The programs can automatically flag valuable insights from large data sets that may have otherwise gone unnoticed. This can be a game-changer for nonprofits making data-driven decisions, improving program effectiveness, and making the most of your limited resources.

Personalization and Donor Engagement

Artificial intelligence can also provide a better user experience for critical funders and other partners who work with your nonprofit. 

AI is one of the easiest ways to create personalized donor experiences and targeted communication, vital pieces of cultivating and retaining donors. 

Ever wanted a personal assistant, AI chatbots might be your solution. They can assist with communication, engagement, and support for donors freeing up your team’s valuable time.

In many cases, these bots can take care of most of the needs of those reaching out, reducing the time that human staff needs to spend on it.

Fundraising and Resource Optimization

The power of AI can also be used to optimize your fundraising campaigns. Through predictive modeling and other tech, you can let AI do the detective work in your fundraising campaigns to find your potential donors.

AI-powered automation can also be used to streamline administrative tasks and other menial but necessary functions. Reduce costs, optimize resources, and make your team happier.

Impact Measurement and Evaluation

There’s no need to wait for the end of the month or the quarter for your financial team to total up the numbers. 

AI can provide real-time assessment of your organization and evaluate the performance of financial or program goals. It can even support important program development by constantly analyzing and providing guidance on better-adapting operations to your needs. It’s like having a constant advisor at your side.

Overcoming Challenges in Adopting AI

Like any new technology or system, there are also some potential hiccups for organizations new to using AI. Make sure to keep these possible concerns in mind.

Budgetary Constraints and Resource Allocation

Money matters. Every nonprofit works hard to make the most of limited funding, and there’s no denying AI services can add another cost. 

It’s vital to explore the most cost-effective solutions for your needs. In some cases, other options include grant opportunities or collaborating with tech-focused organizations, like TechSoup.

Data Privacy and Ethical Considerations

In a world full of sensitive personal data, it’s natural for donors and others to be concerned about their data privacy. Leaders will need to take steps to address these concerns while still leveraging AI to its fullest extent. 

Organizations also need to ensure AI is being used ethically and transparently, particularly when it comes to critical decision-making processes.

Training and Skill Development

Using artificial intelligence can represent a significant shift for many nonprofits, one that may unsettle longtime employees used to more traditional operations. 

Success requires creating an AI-friendly organizational culture, both from leaders at the top and average employees and partners. This can require investing in staff training or other upskilling programs to help them thrive in an AI-enhanced work environment, which is like making an investment in your organization’s future.

Practical Tips for Implementing AI in Nonprofits

Convinced about Artificial intelligence but not sure where to start? Here are some practical tips. 

  • Start with pilot projects that allow AI to be introduced gradually to various tasks. This will allow you and your staff to test it and gauge its effectiveness. 
  • It’s also vital to partner with AI experts and other tech-savvy specialists and consultants. Their experience can help unlock otherwise missed opportunities and smooth overall implementation by integrating the services into your existing systems and processes. 
  • Finally, every organization should set and monitor clear metrics for AI, including defining what success looks like. Leaders should meet regularly to discuss the high and low points of the process to make adjustments for the future.

Maximize Your Organization’s Impact with AI

Artificial intelligence has the potential to completely transform the behind-the-scenes work of nonprofits, allowing employees to spend more time on things that matter and save time and money on things that don’t. And there’s no denying that artificial intelligence can amplify the nonprofit world’s ability to create positive change for people and causes of all kinds. 

Join The Charity CFO newsletter for the latest trends in fundraising, nonprofit branding, and optimizing your team!

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Conflicts of Interest: Why it’s Important and How Often it Should be Done

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Addressing conflicts of interest in a nonprofit is essential for success. It directly impacts the credibility, public trust, and overall effectiveness of the nonprofit in achieving its mission. By actively identifying and managing conflicts of interest, these organizations can protect their credibility, maintain donor confidence, and ensure that their resources are utilized solely for the benefit of their intended recipients. 

This article emphasizes the importance of addressing conflicts of interest in nonprofit organizations and how often it should be done.    

What are Conflicts of Interest?

A conflict of interest in a nonprofit organization occurs when an individual’s personal interests or loyalties interfere (or potentially interfere) with their objective decision-making in their capacity as a representative or member of the organization. This conflict may arise when a person’s financial, familial, or personal relationships create a competing interest that could compromise their ability to act in the best interest of the nonprofit and its beneficiaries. 

An example of a potential conflict of interest in a nonprofit is when a church accepts pass-through gifts. Although they may be well-intended to help a member of the congregation, churches often have little control over the funds and how they are used. These gifts or funds can be misused or lead to other ethical issues if not handled correctly.  

Failure to address conflicts of interest can result in internal and external dysfunction within the nonprofit organization, potentially causing disruptions in its operations and relationships with stakeholders. Not to mention the integrity is compromised, leading to a bad reputation and loss of public trust. Moreover, in some cases, unmanaged conflicts of interest may lead to legal complications, subjecting the nonprofit to potential legal issues and regulatory investigations.

Understanding Legal and Ethical Obligations

Nonprofits must be well-versed in the specific legal requirements and regulations governing conflicts of interest to avoid potential legal pitfalls. Additionally, nonprofit directors have three primary fiduciary responsibilities: duty of care, duty of loyalty, and duty of impartiality-  to act in the best interest of the organization. Beyond legal obligations, ethical considerations play a central role in ensuring fair and unbiased decision-making and fostering an environment of trust and accountability.

Identifying and Disclosing Conflicts of Interest

Encouraging proactive identification of potential conflicts of interest empowers stakeholders to address issues early on, minimizing the risk of undue influence on decision-making. Establishing clear policies and procedures for disclosing conflicts of interest provides a structured framework for individuals to come forward with relevant information, ensuring transparency and accountability. Open communication within the organization guarantees that conflicts are managed appropriately, helping to uphold the nonprofit’s mission and maintain the confidence of donors, beneficiaries, and the public.

Evaluating and Managing Conflicts of Interest

Evaluating and managing conflicts of interest requires conducting thorough and impartial evaluations to understand the extent of the conflicts. It is essential to assess their potential impact on decision-making processes and the overall integrity of the organization. Once conflicts are identified, implement appropriate measures to manage and mitigate them effectively. If necessary, decisive action should be taken promptly and impartially to address any conflicts that arise, ensuring the organization’s continued adherence to ethical standards and its mission-driven objectives.

Establish Strong Conflict of Interest Policies

Implementing defined conflict of interest policies helps ensure the decision-making process remains unbiased and aligned with the nonprofit’s mission. Promoting transparency and monitoring potential conflicts builds trust among stakeholders, demonstrating the organization’s commitment to ethical conduct and responsible stewardship of resources.

A comprehensive approach should define conflicts of interest, provide specific examples, and detail procedures for disclosing and managing potential conflicts. It is essential to ensure that all directors and stakeholders thoroughly understand the policy’s provisions, their responsibilities, and the possible consequences of non-compliance. Regular reviews and frequent check-ins enable the board to adapt to evolving circumstances and reinforce a culture of accountability and adherence to the guidelines.

How Does the Board Come into Play?

The board of directors plays a crucial role in managing conflicts of interest within a nonprofit organization. They are responsible for understanding and upholding the policies, ensuring compliance among all stakeholders, and making decisions that prioritize the organization’s best interests. The board exercises oversight by regularly reviewing and updating conflict of interest policies and disclosures, as well as conducting periodic self-assessments to evaluate their performance in handling conflicts and identifying areas for improvement. By actively fulfilling these responsibilities, the board reinforces the organization’s commitment to transparency, accountability, and ethical conduct.

Annually Review Conflicts of Interest

By conducting regular reviews, the organization can assess its policies and procedures, identify any potential gaps or emerging issues, and proactively address conflicts before they escalate. This practice emphasizes prioritizing the organization’s mission over individual interests and fosters a culture of accountability and trust among stakeholders. Through transparent and ethical decision-making, nonprofits can strengthen public confidence, attract donors, and ensure they remain true to their charitable objectives, making the annual review an indispensable process in the governance of nonprofit organizations.

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Hiring your nonprofit’s first employee? Here’s what you need to know

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When hiring your first employee at a growing nonprofit, it is crucial to understand the essential steps to hiring. Ultimately it involves finding the right individual to propel the organization forward while navigating the complexities of the hiring process. It can be overwhelming. In this article, we will explore the questions you should carefully consider during this hiring process

First Things First: Do You Need to Hire?

Hiring is a significant decision that requires thoughtful consideration and financial preparation. Before hiring a new employee for your organization, it’s crucial to ensure it’s the right move. Evaluate your organization’s growth and workload demands, then pinpoint areas where you need additional support. Understand your budget and resources to ensure you can sustain the new hire long-term. Consult with your accountant to determine if it’s the right time financially and to understand the potential impacts on your financial stability.

Definition: What Will the Role and Responsibilities Be? 

Before beginning the hiring process, it’s crucial to define the role and responsibilities of the new employee. This involves crafting a comprehensive job description outlining tasks, duties, and expectations. Be sure to note the qualifications, skills, technical expertise, and experience needed to excel in the role, as well as the values and attributes that align with your organization’s culture, goals, and mission. By establishing a well-defined position and identifying the necessary qualifications and cultural fit, you’ll be better equipped to attract and hire the ideal candidate.

Establish your Nonprofit Hiring Process

Streamline the journey to finding the right employee and increase the likelihood of a successful recruitment outcome by outlining and establishing a transparent hiring process. Start by defining the key steps and setting clear timelines: What needs to be done, and when? Establish milestones for tasks such as creating the job description, advertising the position, conducting interviews, and making a final decision. 

Additionally, determine how you will attract potential candidates. Consider utilizing job boards, social media platforms, and your organization’s website to reach a broader audience. A well-defined plan and timeline will keep the process on track and prevent unnecessary delays.

5 Tangible Steps to Hiring your first Nonprofit Employee

Create a Well-Written Job Posting

Create a compelling and accurate job posting that conveys the nonprofit’s mission, vision, and values to attract candidates passionate about the cause. Highlight the qualifications, responsibilities, and benefits of the role to draw in individuals who align with the organization’s objectives and possess the required skills. A well-crafted job posting that communicates the nonprofit’s purpose and provides a comprehensive overview of the position will attract top talent and lead to a successful and purpose-driven hiring process.

Selecting and Interviewing Candidates 

The next step in the hiring process is reviewing resumes and applications to shortlist candidates. Once narrowed down, conduct initial interviews to assess skills, experience, and values alignment with the organization. Further, evaluate shortlisted candidates through in-person or virtual interviews. Before making a final decision, conduct background checks, call references, and ensure compliance with all legal requirements.

Manage Financial Operations

Before hiring your first employee, it’s crucial to ensure you have the proper accounting setup for payroll compliance. Determine the appropriate payment method, whether it’s a salary or hourly wages, and set up a reliable payroll system to process payments accurately and on time. Familiarize yourself with tax regulations and obligations related to employee payroll, ensuring you correctly withhold and remit taxes. Implement a reporting system to keep track of payroll expenses, deductions, and filings, as well as to maintain transparency and compliance with regulatory authorities. 

Making an Offer and Onboarding

Now it’s time to make an offer. Present a comprehensive compensation package that includes salary, benefits, and any other relevant perks to showcase your commitment to the candidate’s well-being and career growth within the organization. Upon acceptance, make a formal written offer detailing all terms and conditions. 

Following the candidate’s acceptance, ensure a smooth transition by going through an onboarding process that acclimates the new hire to the organization’s culture, policies, and responsibilities, setting them up for a successful and fulfilling journey with your nonprofit. Provide the new hire with all the necessary information to get started while also collecting the required details from them to ensure a smooth and seamless integration into the organization.

Provide Continuous Support

To ensure the success and growth of new hires, providing continuous support is paramount. Offer them access to resources and training that empower them to excel in their roles and contribute meaningfully to the nonprofit’s mission. Additionally, schedule regular check-ins to address concerns, offer guidance, and foster a sense of belonging within the organization, ultimately helping them become valued and engaged team members.

Is Your Nonprofit Ready to Hire? 

If your nonprofit needs an extra hand and has the resources and means, it’s probably time to hire your first employee. As the organization expands its impact and operations, bringing in the right team member can significantly contribute to its success and mission fulfillment. We realize this can be scary and exciting all at once, and we’re here to help. Contact us to get started with our experienced financial professionals.

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Nonprofit Statuses: 501(c)(3) vs 501(c)(4) and more!

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To outsiders, it’s often assumed that all any nonprofit status is basically the same. But those starting and operating these critical organizations know there’s much more to the various nonprofit statuses, with varying rules and qualifications for each. 

So what do you need to know about the differences between nonprofit statuses? Let’s take a closer look.

What Does it Mean to Have a Nonprofit Status?

Two things typically distinguish nonprofits from other organizations.

Their goal 

    • Unlike typical businesses, nonprofits aren’t set up to bring in profits for owners and investors. Instead, they’re designed to help people, advocate for an issue or goal, or conduct other activities to benefit members or other groups. While they bring in money via fundraising and other sources, that money is reinvested directly back into the organization to support its mission. This charitable goal is what leads to the other distinguishing factor. 

Their tax status

    • Qualified nonprofits typically receive significant tax benefits or breaks federally, and are often exempt from or have limited state taxes as well. In return, nonprofits need to abide by sometimes strict rules regarding financial transparency, governance, and other regulatory issues.

What’s the Difference Between 501(c)(3) vs 501(c)(4) and other statuses?

While they may work similarly in a variety of ways, there are vital differences between statuses. 

  • The organization’s purpose can dictate which status is applicable (as can other eligibility issues).
  • Certain activities can only be legally conducted by nonprofits of a certain status. 
  • There are critical differences in tax benefits, which are key to how an organization operates.

What’s the Difference Between an NPO and an NFPO?

In general usage, NPO (short for nonprofit organization) and NFPO (not-for-profit organization) are often used interchangeably. However, they do have a vital technical difference that can determine which category your organization falls under. 

NPOs are more strictly required to operate in the public interest, like charity work or furthering a cause or issue. There’s no such restriction for NFPOs, which can also include:

  • Sports or social clubs
  • Professional organizations
  • Homeowners associations
  • Etc. 

However, NFPOs must still reinvest any surplus to take advantage of tax and other benefits.

Common Nonprofit Statuses

With all this in mind, new and future nonprofit leaders may wonder which status fits their organization. Here’s what you need to know.

501(c)(3) – Charitable Organizations

501(c)(3) organizations are the most common charitable group. They’re focused on “public good” activities, like:

  • Educational
  • Scientific
  • Religious
  • Sports
  • Public safety
  • Etc. 

Federal tax law gives these groups an advantage by making donations to them tax-deductible, allowing donors to reduce their tax liability while helping these nonprofits stay afloat. However, this strictly prohibits them from taking political stands or engaging in politics.

501(c)(4) – Social Welfare Organizations

As their name suggests, 501(c)(4) groups work to improve social and living conditions for people. This can cover a wide range of activities, from:

  • Helping less fortunate community members
  • Hosting educational courses
  • Helping mediate area disputes
  • Fighting neighborhood deterioration

They can also advocate for public policies and laws that benefit the people they serve, as long as this isn’t their primary or sole activity. As a result, donations to 501(c)(4)s aren’t tax deductible for donors.

501(c)(5) – Labor and Agricultural Organizations

501(c)(5)s are formed to advocate for better conditions for workers, as well as improve agricultural products and help promote associated industries. This category includes labor unions and groups that advocate for farmers, livestock and dairy producers, and others. 

These groups naturally have a significant interest in public policy related to their industries, so they’re allowed by law to advocate for policies and get involved in political issues. However, once again, this can’t be their primary mission, and donations are not tax-deductible.

501(c)(6) – Business Leagues and Trade Associations

501(c)(6) organizations sit at a unique crossroads of the for-profit and nonprofit worlds. They consist of:

  • Business groups
  • Chambers of commerce
  • Boards of trade
  • Real estate groups
  • Etc. 

While these organizations don’t work for profit themselves, they advocate for better business conditions and policies for specific industries, types of companies, or geographic areas. 

They have even fewer restrictions than other nonprofits when it comes to political activity and advocacy in their area of business, but it still can’t be their primary purpose. Naturally, 501(c)(6) donations are not tax-deductible.

501(c)(7) – Social and Recreational Clubs

The final category of nonprofits, as far as the feds are concerned, are 501(c)(7) groups, which cover social and recreational clubs. These groups collect funds from members via fees and other methods and operate strictly for fun and social purposes, with no significant external activities. Some examples include:

  • Country clubs
  • Yacht clubs
  • Swim clubs
  • Fraternal organizations
  • Amateur sports leagues

Their tax-free treatment hinges on not receiving any significant income from non-members or outside business. Typically, these groups engage in little, if any, political activity but still aren’t tax-deductible due to their lack of public benefits.

Seek Professional Guidance When Selecting Nonprofit Statuses

Selecting the proper choice among the many nonprofit statuses is a critical first step to getting any organization off on the right foot. Making the wrong move here can lead to significant tax troubles down the road. 

Fortunately, The Charity CFO can offer a helping hand on the financial decision-making side of things. Our skilled financial professionals will help you assess your situation, plot your future financial plans, and make a choice that will form a solid foundation for years of nonprofit work to come. 

Contact us today to learn more and get started!

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How to Define and Track Your Nonprofit Goals

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Setting nonprofit goals is critical to growing in a manageable way that supports your mission and employees. 

And one of the most vital steps toward reaching those goals is setting up the proper system to track key aspects of your progress. Let’s take a closer look at everything you need to know to define and track your nonprofit goals.

Categories of Nonprofit Goals

Nonprofit goals can be split into three broad categories: 

  • Programmatic
  • Financial
  • Operational

Programmatic goals are ones that deal with your organization’s services, whether it’s sheltering animals, providing food for the homeless, raising environmental awareness, or any other services contributing to the greater good. 

Financial goals align with your nonprofit’s fundraising and expenses. 

Operational goals cover internal issues like staffing, efficiency, improved management, and other factors that contribute to keeping your organization running. 

While programmatic goals may be the most alluring, your attention should also be on the other categories, which are vital for keeping your nonprofit moving forward.

Setting Mission-Focused Nonprofit Goals

No matter the category, your nonprofit goals should always tie back into your organization’s mission and vision. Pausing and allowing leaders and stakeholders to frequently re-assess the goals is key to keeping them on track. Clarity and focus at this stage can provide major benefits down the line. 

For the best results, nonprofit goals should align with the “SMART” goal-setting strategy. 

  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Time-bound. 

Specific and measurable goals make tracking more straightforward, while the reasoning behind relevant and achievable goals should be obvious. Finally, adding a time element creates urgency, accountability, and motivation.

Tracking Nonprofit Goals

Have you ever heard the saying, “If you can measure something, you can manage it”? 

Well, this definitely applies to nonprofit goals. 

Without setting up a robust, reliable, and accurate tracking system or method, it’s impossible to know whether you’re making progress or if your plans need to be adjusted. However, when you appropriately track your goals, you can see the impact of different techniques or decisions, as well as enjoy the satisfaction of seeing tangible progress toward improvements.

The most common way to track your goals is to decide on key performance indicators, often referred to as KPIs. KPIs are the measurable factors that represent progress toward your goals. 

For example, a nonprofit with a financial goal of increasing fundraising by 10% this year can set KPIs like the number of fundraising events, amount of calls or letters to donors, the number of new recurring donors each month, or even the total of the revenue brought in to date. 

It’s important to note that your KPIs will vary by the nature of your goals and organization. Still, the most essential factor is that they are a direct representation of your organization’s idea of success.

Strategies for Tracking Progress Toward Nonprofit Goals

As you begin defining and tracking your organization’s goals, take the opportunity to implement practices that will make the process easier in the future.

Leverage Your Team

As a nonprofit team member, you understand the crucial role each person plays in growing your mission. So when it comes to tracking progress toward your goals, team member involvement is critical. Check in with them regularly to ensure they understand: 

  • How the goals apply to the mission
  • What their role is in achieving the goal
  • How they should be measuring progress 

Stakeholders, from the board and donors to employees, can help prioritize goals and allow leaders to zero in on the ones that are most critical to success moving forward. 

Use Technology

Technology is another key element in tracking progress toward nonprofit goals. You can use accounting software, fundraising tools, CRM’s, and other services to collect and analyze data. With this data, you can make more informed decisions for your organization.

Be Flexible

Things change and it’s okay if your goals need to change as well. If you notice you’re continuously off-track with your goals, identify the areas you are falling short and make adjustments. 

Remember not to see these changes as a failure but as a step toward pushing your organization where you hope it can be.

Reach Your Nonprofit Goals

Without clear, achievable goals, it’s easy to see how an organization can drift away from its core mission and values. 

Fortunately, with the right resources, it’s simple to:

  • Set goals
  • Develop a plan to reach them
  • Monitor your progress along the way 

However, it can be tough to find time for this kind of long-term planning in the busy world of a nonprofit, especially new or growing organizations. 

That’s why The Charity CFO team is here. Our experienced and highly skilled accountants can help you set meaningful, but achievable nonprofit goals to get your organization tracking your way to success. 

Contact us today to learn more about the financial services we offer nonprofit organizations!

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