What to expect from accounting firms specializing in nonprofits

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

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

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

Nonprofit Accounting and Compliance

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

Fund Accounting

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

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

Grant Accounting

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

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

Compliance with IRS Regulations

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

Financial Management and Reporting

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

Budgeting and Forecasting

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

Financial Analysis

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

Cash Flow Management

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

Auditing and Assurance Services

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

Financial Statement Audits

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

Single Audits

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

Internal Control Reviews

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

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

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

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How to maximize efficiency with nonprofit accounting software

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How can nonprofit accounting software help your organization with efficiency?

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

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

Where to start with nonprofit accounting software

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

    • Fund accounting: Easy management and tracking of funds, tracking revenues sources and expenses for restricted and unrestricted funds separately. The software should also be able to generate reports that show the balances and activity for each fund. 
    • Incoming and outgoing payments: Record incoming payments, such as donations and grants, and outgoing payments, such as expenses and salaries. Might also include the ability to track pledges, payments received, and pledge balances.
    • Budgeting: Tools for creating and managing multiple budgets for different funds or projects and budget to actual reporting. Some tools may also provide forecasting based on historical data. 
  • Reporting requirements: General financial statements and other reports that are compliant with nonprofit accounting standards as well as reports that are required by grantors, donors and other regulatory bodies. 
  • Grant tracking: From application to closeout, including the ability to create budgets for each grant, track grant expenditures, and generate reports that show the status of each grant. Some tools will also include reminders for reporting deadlines and other grant-related tasks. 
  • Accepting donations: Tools typically include online donation forms and the ability to accept recurring donations. 
  • Donor Tracking: Allows organizations to track contact information, giving history, and communication preferences. Some tools may also allow you to segment donors into different groups based on criteria such as giving level or engagement level and ability to generate trend reports over time. 

How to evaluate nonprofit accounting software

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

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

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

Software won’t do it all

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

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

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

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

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

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7 Keys to Nonprofit Financial Management

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Nonprofit financial management is one of the primary concerns for organizations.

Nonprofits are special types of organizations, in both their structure and their purpose. They live in the hearts of many as symbols of good in the world. This meaning is the driving force behind what nonprofit organizations do day in and day out. 

However, in the midst of all the support for nonprofits, it may be lost that nonprofits are still organizations that need to be run. The mission can only live on to serve its purpose by having backing from a successfully managed organization. This is why at The Charity CFO, we strive to provide relevant resources and support to ensure that your organization runs smoothly and efficiently. This week, we’ve rounded up 7 keys to nonprofit financial management. If you’d like to dive deeper into any of the topics, we’ve included relevant links to further your knowledge. 

In order to successfully manage the financial health of your nonprofit organization, here are 7 key concepts you should understand:

Compliance and Audit Requirements

Compliance is the act of ensuring the public that nonprofits are abiding by the rules that allow them to take advantage of tax exempt status and other financial incentives. Compliance requirements vary by state and funding sources. Confirming an organization’s compliance can include compliance checks and/or audit requirements, but maintaining compliance is the responsibility of the organization at all times. 

Accounting Standards

In the United States, all organizations must adhere to the Generally Accepted Accounting Principles (GAAP). For nonprofits, however, there is an additional and specific set of standards that organizations must follow, as set out by the FASB 117. This establishes core accounting standards for nonprofits which help with accountability and transparency. It is important that nonprofits understand the accounting standards they are required to adhere to and how these standards differ from for profit accounting. 

Financial Statements

Knowing what goes into and how to properly compile financial statements will greatly support the ability to make decisions, comply with regulations and audits, and provide insights and transparency to donors and supporters. Nonprofit financial statement requirements are a bit different than for profit. They include:

Understanding an organization’s financials is like unlocking a door to the health of an organization, and can help track progress and goals over time.

Budgeting 

Nothing says healthy financial management quite like a robust and well-thought out budget process. Creating, tracking, and adjusting a budget throughout the year can be the difference between achieving organizational goals or falling short. Budgets also support your efforts to complete the above requirements, like maintaining compliance and preparing financial statements. Intentional budgeting can empower employees, inform executives, and drive critical change. While it may seem time-consuming and overwhelming, it’s always worth the effort and you will continue to reap the benefits. 

Taxes

Yes, taxes. Even though nonprofits are regarded as tax-exempt organizations, it is still incredibly important for nonprofit leaders to have an understanding of what this status means and the requirements behind it. Understanding what tax and reporting requirements your organization may have is critical to maintaining that tax exempt status. While 501 organizations are tax-exempt, it does not mean they do not have to file taxes. Requirements may vary depending on the type of 501 organizational category you fall into:

  • 501(c)(3): Charitable, Religious, or Educational Organizations
  • 501(c)(4): Community social welfare organizations
  • 501(c)(6): Business leagues, professional associations, real estate boards, and board-of-trade organizations.

It’s imperative to stay on top of your tax filing and reporting in line with your organizational status.

Employees

While employees might not seem directly related to successful nonprofit financial management, they can have a huge unintended impact. When understanding how employees affect your financial health, consider:

  • Organizational chart – ensuring that you have the right people in the right positions can make an organization run smoothly. Utilize your employees’ skill sets and expertise to your advantage. This is especially true for your finance team, but also applies to teams with indirect impact on the  finances of the organization, such as the fundraising, donor, or grant teams. 
  • Filing and Forms – whether an organization finds themselves able to hire full time employees or relies on contractors, the filing requirements are important to understand. The types of people and the work they do for your nonprofit will determine whether you need to complete a W2 or 1099 come tax season.
  • Payroll Expense – In many organizations, nonprofit and for profit alike, salaries and payments to contractors make up the largest expense. Therefore, it tracks that you will want to understand the structure and the employees that make your organization run and take a look at how these expenses are falling.

Interdepartmental Communication

The final key to successful nonprofit management is to understand your organization as a whole. Open communication can provide you with insights that might otherwise be missed. These can help drive the budget process, financial goals, and strategic decisions. Functions such as marketing or fundraising can show you where money is being spent, the expected results, and how they plan to implement changes to boost donations. 

They can also provide details of change drivers that the finance team may be unaware of. Keeping the lines of communication open across the organization and allowing for transparency, feedback, and support may be the most important key here. This also extends beyond the organization. Having a holistic view, open communication, and an open mind might be the key that unlocks the door to successful and efficient financial management. 

Partner for Streamlined Nonprofit Financial Management

Overall, there are many aspects that make an organization tick, and the financial management function is the engine driving it all. Taking the time to holistically look at your finances, understand the meaning behind them, make realistic adjustments, and maintain compliance can make all the difference in the success and longevity of your organization.

The Charity CFO specializes in helping nonprofits simplify their finances so they can be confident. Reach out to us here for a free consultation.

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Nonprofit Compliance Requirements

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

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

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

 

What Does Nonprofit Compliance Mean?

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

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

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

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

Compliance Checks

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

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

  • Recordkeeping and information reporting requirements
  • Consistency with tax exempt purpose

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

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

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

Staying Compliant

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

Your Organization’s Compliance Requirements

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

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

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

Accounting, Recordkeeping and Forms

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

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

Compliance Questions 

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

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

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

Ongoing Maintenance

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

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

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

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Independent audit requirements for a nonprofit

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

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

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

Should My Nonprofit Obtain an Independent Audit?

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

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

Selecting an Audit Firm

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

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

How to Prepare for an Audit

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

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

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

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

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

Other Types of Audits to Support Compliance

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

Internal Audit

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

Financial Audit

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

Compliance Audit

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

Operational Audit

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

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

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What to look for in nonprofit accounting financial statements

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

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

Here are the main nonprofit accounting financial statements:

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

Let’s take a closer look at each. 

Statement of activities

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

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

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

Statement of financial position

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

Assets = Liabilities + Owner’s Equity

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

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

Statement of cash flows

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

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

Statement of functional expenses

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

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

Getting maximum value from nonprofit financial statements

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

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

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

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

Need help with nonprofit accounting financial statements?

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

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

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How to Grow a Nonprofit: 5 Marketing Strategies

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Growth: likely a key point in any strategic plan and something that is the top of mind for many leaders. How to grow your nonprofit is, after all, the key to strengthening your work, achieving your mission, and making an impact. 

Strategy decisions ultimately come down to being able to continually operate your programs and execute on your goals. Growth can mean many different things to different people. In the case of non-profits though, the thought of growth often invokes an immediate jump to development. However, many nonprofits are missing out on a key component of modern growth: marketing. 

In the nonprofit realm, marketing tends to come as an afterthought, and as something that limited resources shouldn’t be devoted to. There is a prevailing idea that marketing doesn’t make money in the nonprofit world. If you stop to think about the billions of dollars spent on marketing every year by for-profits; it begs the question, why would marketing not work for nonprofits? 

With roughly 1.8 million nonprofits in the US vying for position and donor dollars, organizations must find ways to differentiate themselves to ensure they are recognizable, receiving donations, and expanding their impact; marketing may be the key. We’ve rounded up 5 marketing strategies on how to grow your nonprofit and get you thinking about how your organization might benefit from a marketing strategy.

How to grow your nonprofit with marketing

Commit Resources

Resources can be very limited in nonprofit organizations. Committing what resources you may have may seem like a big ask. However, when done properly, marketing efforts can prove to be well worth the effort. Brands who invest time and money into their brand and marketing are able to grow their presence and capture larger portions of the market, attracting and engaging donors. 

Marketing resources can come in many forms of both time and money. The key to embarking on a marketing strategy is to be honest about where you are in the lifecycle of your organization and develop a growth strategy that fits. Developing a marketing plan doesn’t have to break the bank. When exploring your options consider the following:

  • Talents and skills of those within your organization
  • A marketing generalist can be a good place to start as you understand and build
  • Outsourced marketers can be experts in their field and cost-saving options

When budgets are tight, we know marketing can be the last thing on your mind, but if you spend the resources to do it right, it can pay back in huge dividends. 

Be Intentional

The best marketing strategies are incredibly intentional and suited specifically to your organization’s goals and needs. There is no one size fits all. When creating a strategy, meet your organization where it is and build from there.

  • Identify your target audience for marketing campaigns
  • Narrow in on your nonprofits special niche and tie it to your mission
  • Develop meaningful goals and metrics to track progress
  • Hire specifically for your marketing effort
  • Start small and specific with your campaigns and efforts

Curate Your Brand

Once you’ve begun your strategy with intention, it’s time to lay the groundwork for building a successfully marketed organization. The main difference between for profits and nonprofits is that nonprofits are generally working towards a greater mission. Lean into this with your marketing and use it to help others relate to and care about your mission. Before launching your first marketing campaign, be sure that you have a solid foundation in the following areas. 

  • State your mission: Make sure that what you do is clear on your website and on anything that is externally facing. Ask yourself, would it be easy for an outsider to understand what we do here? 
  • Brand it: Once you’ve ensured that you are clear and concise on what you do, brand it well. Working with professionals in this space can be one of the most important steps you take in your marketing process. In the modern day, consumers are inundated with millions of messages per day; your brand needs to be clear and memorable. There is an art to this process, and a good brand will support future visibility and growth. 
  • Pick your platforms: Use your brand as a starting point to begin diving into social media. You can’t be everywhere and do everything; consider the right platforms for your organization and be active on them, showcasing your professional brand and clear mission. People connect with a good brand, make sure you connect with them where they are. 

Stay Consistent

Once you’ve tailored your plan to your organization’s needs, goals, and current operations, give it some time to start working. Marketing won’t turn things around overnight. It takes time and effort to work its magic. 

If you stick to your strategy, continue putting in the efforts, and optimize the resources you have, you should start to see some results. Especially in areas such as social media, marketing really takes consistency to work over time. So once you’ve decided to start on this journey, commit to your strategy and watch your efforts unfold. 

Measure Results

If you’re being consistent with your plan, the only way to know that it’s working is to track metrics. Make sure to develop SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound) goals and document them. As you continue through your marketing journey you can begin to assess the effectiveness of your strategy. After some time, you’ll be able to gain insights into what’s working well and what’s not and then make some tweaks to really let your strategy start to work for you and provide the monetary results that you’re looking for. 

BONUS TIP: Try New Things 

Marketing may be the new thing your organization is trying, and that’s great! But don’t be afraid to think outside of the box as it relates to the types of campaigns that your organization is running. One benefit of being in an industry that runs on tight resources, is that people tend to get creative, like these examples in Forbes. Use this creativity! Unusual and interesting marketing campaigns can stand out from the crowd and get your brand on the map. If something doesn’t work, don’t get discouraged. Marketing has been proven to work time and time again. So regroup, adjust your strategy and keep going. 

Getting the right people in the right places and enacting a strategy that works for your organization’s time and budget is the key to a successful marketing strategy. If you want to learn more about how to begin this work and really dive into developing your organization’s marketing plan, check out this podcast with marketing consultant, Emily Heck. 

Overall, nonprofits with a clear brand and marketing strategy are the ones people remember and engage with the most. And when it comes time for giving, donors will give to those brands they can remember. Make sure they know it’s you!

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Nine Fundraising ideas for nonprofits

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

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

How do these organizations have the money to operate? 

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

Fundraising ideas for nonprofits to fuel the mission

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

Below are 9 fundraising ideas for nonprofits:

  • Sporting event

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

  • Auction

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

  • Bake sale

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

  • Themed gala

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

  • Craft fair

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

  • Benefit concert

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

  • Trivia night

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

  • Email/Social media

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

  • Virtual event

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

Fundraising ideas will impact your accounting

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

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

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

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

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Does the accounting industry have a diversity problem?

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

Primed for change 

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

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

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

Diversity creates a stronger organization

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

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

Where to start?

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

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

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

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

The future of the industry

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

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

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Nonprofit treasurer duties: Where you should focus

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Does your organization get bogged down with nonprofit treasurer duties?

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

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

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

What does a nonprofit treasurer do?

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

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

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

  • Operations management
  • Oversight and compliance
  • Strategic decision-making

Operations management

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

Oversight and compliance

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

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

Strategic decision-making

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

What are the qualifications for nonprofit treasurer duties?

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

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

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

Nonprofit Treasurer Duties: A Recap

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

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

Support for your nonprofit treasurer duties

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

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Nonprofit Budgeting Best Practices

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Nonprofit budgeting best practices are often the difference between success and failure for the organization.

Budgeting is a crucial element of understanding the financial health of your organization. Budgeting for nonprofits is very different from for profits, and a well-developed budgeting process can provide meaningful insight into the strength of your organization and your progress toward your mission. It also allows for better communication and transparency with employees who are striving for the same goals.

While nonprofit budgeting can seem daunting and complex, it doesn’t have to be. We’ve outlined some nonprofit budgeting best practices to enhance your budgeting skills and help you strategically and effectively plan your programming and reach your goals. 

Nonprofit Budgeting Best Practices

Understand the purpose 

Understanding the purpose of your organization and, by extension, your budget is the most important thing you can do when creating your annual budget. What is your mission and what goals and programs are going to help you get there?

As nonprofits must specifically account for the use of every dollar, keeping your purpose as your north star will help you tremendously when creating your budget. From there you can further determine how the budget will be used, who needs to be included, and how you can utilize the budget to make strategic decisions moving forward. Knowing the answers to these questions will help you focus and create an effective budget. 

Start early and plan often

Planning is key. It takes time to get a budget right. Starting your budgeting process early will save a lot of headaches. By thinking about your budget early on, you can identify key people in your organization to provide information regarding the data, activities, income and expenses necessary to create a nonprofit operating budget.

Put calendar invites in place to begin discussions, ensuring that when the time comes to compile the budget and present to the Board, proper thought and care has been put into the assumptions used. 

Involve the right people

Another benefit to planning early is that you have time to make sure the right people are properly included. In addition to the Board and leadership, it’s important to include other key employees in the process. These are usually the ones who have their hands on the pulse of the organization. They operate in the day to day and are able to provide insight into how specific programs and initiatives are going. 

By being transparent and including key employees in the process, you can identify areas of improvement and pain points, creating a more effective budget. This also provides opportunity to discuss with the Board strategic opportunities, making the most use of all the time you’ve spent creating your budget. 

Evaluate historical information 

If you’ve been operating for a while, then you should already have a great start in creating your nonprofit’s budget. Using historical information is the best starting point to begin your budgeting process. Take the information from prior year actuals and expand upon it, using the takeaways gathered from key employees. By combining historical data with real time assumptions you are in a great place to pull together a first draft of your budget. 

If you’re starting from scratch, check out our Beginner’s Guide to Nonprofit Budgeting.

Make note of your assumptions

Using historical information is a great place to start, but it’s important to keep track of what assumptions you are using to calculate the actual number you are presenting. Tracking these assumptions makes it easier to identify what happened when actual numbers don’t match your estimates. Understanding these assumptions makes budget analysis and strategic decision-making much easier.

Track, analyze and adjust regularly

Once you’ve created a budget, it’s important that you don’t just sit on it until next year. Take the time to track your budget to actuals and analyze the variances monthly. Looking at your assumptions can be helpful in explaining any discrepancies, as you now have more information regarding how the year is progressing. Variances should be expected. It’s wise to adjust your budget based on actuals and create an updated projection for the remainder of the year. Budgets are only as good as the information available and, as the year goes on, you gain more insight into operations.

Be realistic 

While the last few years have seen huge upticks in donor giving, it’s still important to remain realistic. With over 1.5 million nonprofits in the US alone, there’s still steep competition. Understanding your organization’s place in the current environment, knowing your donor profile, and setting realistic goals, both financially and programmatically, puts you on more solid ground, ensuring that your organization can continue doing good now and in the future. 

These nonprofit budgeting best practices are high level and we know there’s a lot that goes into nonprofit budgeting. If you’re looking for help in creating an efficient and effective budget, The Charity CFO has resources and professionals to support you, so you can focus on your mission. 

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Nonprofit Tax Filing: 7 Steps to Peace of Mind

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Financial Statements Nonprofit: What You Really Need

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Understanding the Job of a Nonprofit Operations Manager

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There are more than 1.54 million nonprofits globally. To ensure that a nonprofit runs efficiently, several people work behind the scenes to make things much easier, and one of those people is the operations manager.

The operations manager might be the secret weapon of the most successful nonprofits we know. By taking charge of getting things done, an operations manager helps executive directors focus their energy on the strategic big-picture that will move their mission forward.

If you’re looking to enter the world of nonprofit organizations with a background in operations management, you might be wondering how your skills can help you. Or, if you’re a nonprofit founder or an executive director, you might be wondering how an operations manager can help make your organization ruthlessly efficient and highly effective.

Read on now to find out what the job description of a nonprofit operations manager might look like.

What does an operations manager do?

A nonprofit operations manager, or director of operations for a nonprofit, is responsible for the day-to-day operations of the organization. 

They oversee the administrative staff and make sure that the office runs smoothly. They also develop and implement operational procedures and systems and manage budgets and financial reports. In short, they ensure that the nonprofit runs like a well-oiled machine!

Now, if that sounds like they do a bit of everything, it’s because that’s true!

An operations manager, by definition, is a manager. They don’t necessarily need to be an expert at any one thing. Still, they need to be able to be proficient enough at many things to manage a highly productive team to get results for their organization.

Here’s how Krysta Grangeno described her day-to-day tasks in operations for a nonprofit organization:

Who reports to the operations manager?
And who do they report to?

It depends on the organization, but generally, any department is responsible for the day-to-day operations of the entity. That may include

  • Finance Department
  • Fundraising Department
  • Program directors
  • Human Resources
  • Information Technology
  • And more!

You can see that, depending on the size and structure of your organization, the ops manager will have to oversee a large number of departments.

In turn, your operations manager will either report to the Director of Operations, the Chief Operating Officer (COO), or directly to the CEO or Executive Director. They may also have some direct interaction with the Board of Directors, although the board isn’t technically their supervisor.

operations-manager-nonprofit-roles

What are the job responsibilities of a nonprofit operations manager?

As mentioned above, their primary role is to supervise and organize the efforts of the departments under their responsibility. Here’s a breakdown of what duties a nonprofit operations manager will be expected to handle:

Ensure the Office Runs Smoothly

The administrative staff is responsible for keeping the office organized and running smoothly on a day-to-day basis. The operations manager will make sure that they have everything they need to do their job effectively and that they are meeting all deadlines.

An operations manager must be exceptionally well organized, as they’ll be responsible for creating systems and processes that ensure every department is meeting its expectations. Often, they’ll also need to be aware of all legal or reporting requirements that the organization may have in executing their programs.

nonprofit-operations-manager-budgeting

Implement Budgets and Oversee Financial Strategy

The operations manager will be responsible for spearheading the budgeting process for the organization and ensuring that the accounting department delivers timely and accurate financial statements for the board of directors or other stakeholders. You’ll also need to be intimately familiar with these statements as well and review them proactively to identify potential issues before they become problems.

As the operations manager, part of your role is to ensure that the financial department runs effectively. This includes ensuring that checks and balances are in place and that employees in the financial department are adequately trained to do their jobs.

The operations manager must also be acutely in-tune with the organization’s budget. Because their role is so wide-reaching, they need to be aware of how shortfalls in one area (like fundraising) may impact the ability to execute in others (like executing programs or meeting payroll).

That doesn’t mean that the operations manager needs to be an accountant. Generally, they’ll oversee the accounting team or work as a liaison with an outsourced accounting firm. But ultimately, they are responsible for ensuring that the accounting work is done correctly and on time.

Supervise Human Resources 

Ideally, the operations manager’s role in human resources is limited to supervision, but that’s not always the case. In some smaller nonprofits, HR may get put completely onto the ops manager’s plate, but we’d recommend against it.

Human resources is a specialized field that requires experience and specific knowledge. You need to comply with employment law, collect the correct information, withhold taxes appropriately, and onboard and train new employees.

A knowledgeable HR professional should establish the policies and procedures for the human resources department, but many nonprofits can’t afford a full-time HR coordinator. That’s why many nonprofits choose to outsource their HR to external firms as well.

Even if you’re working with an external firm, the operations manager will probably need to be involved in many day-to-day items related to HR—like searching for employees to hire, interviewing, training, counseling, and terminating employees.

nonprofit-operations-manager-technology

Manage Technology Integration 

Technology is a massive part of the work that nonprofits do. Almost every person in your organization depends on technology. And the networks and systems that keep those people aligned take organization, security, and maintenance.

Depending on your mission, you may even be dealing with highly sensitive personal information that you have a legal responsibility to protect, even in digital form. As the operations manager, you’ve got to make sure the appropriate technology systems and controls are implemented throughout the business.

Not utilizing the proper systems could mean the loss of crucial data needed in the future. Or it could mean a crumbling IT infrastructure that can’t support the business model being implemented.

Nonprofits often don’t need, or can’t afford, an internal IT department. And relying on someone’s husband or nephew to fix problems isn’t an acceptable solution. Instead, many organizations outsource their IT department to a service provider. In this case, it’s the operations manager’s job to liaison with the IT provider to ensure the office gets the support it requires.

Ensure Compliance and Organization

Records need to be kept in order within any business. There are several reasons for this, but compliance is an important one for many nonprofits.

Your organization needs to comply with accounting regulations, legal restrictions, employment rules, and other industry-specific regulations. And the operations manager is ultimately responsible for ensuring that the company is prepared to prove its compliance when audited.

Not only does record organization help when something needs to be located, but it also speeds up business efficiency. Instead of wasting time hunting for something, it will be easy to access the record database. All you’ve got to do is type in some information and locate the data needed.

How to evaluate performance and further development

Whether you’re building the leadership team to include an operations roles, or you’re currently in an operational leadership role — it’s important to regularly evaluate performance as well as work on developing to further improve your work.

If you’re evaluating your ideal candidate, after they’ve been in the position for a certain period (a year, for example), it’s important to compare their achievements to the job description. For self-evaluations, read resources (like this one) to find usable knowledge to help improve your performance. 

Key areas to concentrate your efforts include:

  • Purposeful communication: In operations, too much communication is nearly as problematic as not enough. What you say, how you say it, must be as useful as possible. That’s where developing purposeful communication tactics come in handy.
  • Organizational processes: As someone who ensures compliance and handles intricate areas of a nonprofit, the ability to develop processes takes precedence over nearly every other aspect of your role.
  • Continuing certifications: There are a number of nonprofit certificate programs available for leadership teams. Those instructing the programs often have robust experience in the sector. Taking these programs helps you find the additional knowledge to improve your performance.

A Note on Outsourcing Professional Services:

We’ve mentioned outsourcing a few times here, related explicitly to bookkeeping/accounting, human resources, and information technology. That’s because this is an emerging trend we see gaining steam in the industry.

Traditionally, many nonprofits had a scrappy, do-it-all mentality when it came to these areas. So, an operations manager or financial director frequently ended up having responsibility for everything— from making bank deposits and firing employees to troubleshooting network issues.

But this approach causes more problems than it solves. Having trained professionals handling complex tasks that are outside their area of expertise is hugely inefficient. And it’s just asking for mistakes.

Yet most organizations can’t afford a full-time accountant, HR coordinator, and IT professional. And that’s where the operations manager comes in.

When organizations outsource these 3 functions and have the operations manager work directly with each team, they can get the full professional support of each team without paying a full-time salary. Often, these teams are more talented and efficient than an internal team member would be.

We believe this is the operational business model of the future for successful mid-sized nonprofits in the $1M to $15M/year range. If you’d like to talk to us about outsourcing your bookkeeping and accounting to The Charity CFO, send us a message to set up a free consultation.

What Qualities Make a Good Operations Manager?

Let’s turn to Krysta again, to offer a first-hand perspective on what skills an operations manager needs:

What A Nonprofit Operations Manager Does: A Recap

A nonprofit operations manager has many responsibilities, but their primary role is to coordinate all the various departments to ensure that business runs smoothly.

The operations manager will oversee the finance department, human resources, information technology, programs, fundraising, and more. And they must grasp how each department impacts the other to ensure that the entire organization runs harmoniously.

By doing their job well and assuming responsibility, they free up each department to focus on what they do best, rather than overlapping tasks or getting tied up in work that’s unrelated to their department. They also help free up the directors to focus on strategy rather than the day-to-day minutiae of each department.

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6 Nonprofit Bookkeeping Tips to Save You Time & Money

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If you manage a nonprofit, you know very well that every day there are a million and one things to be done. And, of those a million and one things, bookkeeping is not at the top of your favorite things to do list. 

Good bookkeeping requires extreme accuracy and attention to detail. But it’s often seen as “busywork,” it rarely makes the priority list, and under-staffed nonprofit teams often fall behind. But you need accurate and timely bookkeeping to get the financial reports you need to run your programs, report to your grantmakers, and keep your operation on track.

But nonprofit bookkeeping doesn’t have to be so stressful.

Here are our six biggest nonprofit bookkeeping tips to help keep your organization’s books up-to-date without late-night sessions or stressful weekends at the office. 

Top Nonprofit Bookkeeping Tips

1. Use A Simple Accounting Software 

What’s our #1 nonprofit bookkeeping tip? If you are still using Excel spreadsheets or handwritten ledgers to track your finances, you need to stop asap. Outdated manual systems consume more of your time and make it easier for things to go missing. 

Instead, use simple accounting software like Quickbooks Online. 

Perfect for most small to mid-sized nonprofits, Quickbooks is easy to use, moves quickly from cash to accrual accounting, and almost every CPA or accountant is familiar with it. We specifically like to recommend Quickbooks Online, rather than nonprofit-specific software, for most small to mid-size nonprofits.

Quickbooks integrates with dozens of other financial software so you can automate many things (hello, easy payroll, and effortless expense reporting). And it’s accessible wherever and whenever you need it. 

Plus, if you fall behind on your bookkeeping for a month or two, you can quickly download bank and credit card transactions with just a click, saving you hours or days of manual input. 

If you’re scared about the learning curve, don’t be! If you taught yourself to do it by hand, learning how to use nonprofit accounting software will be a breeze. And tons of free tutorials and resources can help you quickly solve any problem.

“In fact, Quickbooks or the other software provider of your choosing should offer these types of trainings,” says Katie Gray, the Content Manager for the all-in-one nonprofit software provider Springly. “Product demos, help center articles, blog posts — all these resources teach you nonprofit accounting through the specific software you’re using.”

2. Scan Your Receipts and Invoices 

Gone are the days of manually recording every receipt and invoice. Instead, dozens of convenient apps are out there to help you scan and upload receipts and invoices without touching your keyboard.

In most cases, you don’t even need a scanner to do it. For example, smartphone apps like Neat allow you to scan receipts using their app and the camera on your phone. Plus, they’ll help you organize and store your documents securely, so you never have to worry about a lost receipt.

Some receipt scanning options, like Wave, will offer free plan options. But you may need to pay a little for more users or storage. Still, the few dollars a month you’ll spend on the service can save you hours of payroll costs–so it’s worth the investment!

And if you’re using Quickbooks Online, they offer their receipt-scanning app that helps make your bookkeeping tasks easier than ever.

3. Go Paperless 

You can do almost everything online today, and the more you do online, the better, as far as we’re concerned.

From online bank and credit card statements to digital invoices and receipts, it’s much harder to lose online documents than a piece of paper. Plus, it helps keep your offices clean and makes it easier to coordinate with outside contractors, like your accountant.

Opt for digital-only communication from your financial documents and invoices, where possible. Most businesses will offer you this option–even the IRS requires nonprofits to file their Form 990 online!

This is one bookkeeping tip that makes life feel less chaotic for everybody in your organization.

4. Use Plastic, not Paper

No, we’re not talking about shopping bags here.

It’s time to put the cash away and use your debit or credit cards instead. 

Banks and credit card companies give you detailed digital spending statements, which helps when there’s confusion about a transaction. Of course, you’ll still need to keep (and scan!) your receipts, but at least the cards leave a paper trail.

Cash can go missing, and receipts get lost. So cards give you a better way to track your expenses and have a proof for your auditors at year-end. 

An extra bonus to this nonprofit bookkeeping tip? Digital spending statements can automatically sync with software like Quickbooks to eliminate all manual transaction entries.

5. Keep A Simple Chart of Accounts 

Most small nonprofits don’t need a complex chart of accounts. Yes, you must track your revenue and expenses properly to comply with fund accounting and functional expense reporting requirements. But you don’t need to overcomplicate things just for the sake of it.

A simple, straightforward chart of accounts will keep your financial statements clean and easy to read, which your board of directors and donors will undoubtedly appreciate. 

If you’re looking for guidance, you can click here to download our free chart of accounts template. 

6. Hire a Payroll Service 

Payroll is one of the most challenging and time-consuming tasks a nonprofit accounting department must face, so it’s no surprise it appears in our nonprofit bookkeeping tips!

It may seem like a good idea to save money by handling payroll in-house but do so at your own risk.

Payroll requires complex calculations and particular tax and reporting requirements. As a result, it’s easy for anyone not experienced to get lost. And payroll-related mistakes could cost your organization money in back taxes and penalties without your awareness.

Remember, nonprofits do have to pay some taxes. Nonprofits do have to pay payroll taxes for their employees, as well as withhold taxes in accordance with the information they submit on their W-4. 

Our advice? Don’t try to figure this out on your own. Deal with a professional payroll service instead. This is their business, so they make it easy for you to pay your employees AND stay compliant with federal, state, and local tax laws.

Bonus Nonprofit Bookkeeping Tip: Outsource Your Bookkeeping & Accounting

If you’d rather not deal with bookkeeping and accounting, or if you’re having difficulty finding and keeping skilled financial professionals, why not outsource your bookkeeping to an expert?

Many nonprofits hold themselves back by trying to work with volunteers, family members, or interns or by relying on their board treasurer to figure out their finances.

But professional bookkeeping might be the best investment you can make. The Charity CFO helps hundreds of nonprofits automate and optimize their accounting systems to go paper-free and get accurate monthly financial reports, like clockwork. No amount of nonprofit bookkeeping tips can do that.

Our team of nonprofit accountants and former nonprofit CFOs can help you eliminate the chaos to see your financial picture clearly. And for less than hiring an in-house accountant or keeping an expensive CPA on retainer.

If you’re wondering if outsourcing your finances could help your organization, reach out to us today for a free consultation. We’ll let you know how we can help you execute your mission.

How Do Nonprofits Make Money?

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You need money to carry out your mission. But how do nonprofits make money anyway? We’ll walk you through 8 popular money-making strategies.

Read more

Understanding Unrelated Business Income in Nonprofits

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If you know only one thing about 501(c)(3) nonprofit organizations, you probably know that they don’t pay federal taxes on their income.

But what if I told you that’s not always true?

It’s true that due to their uniquely valuable societal contributions, such as charitable actions or educational priorities, nonprofits receive tax exemption for income from activities substantially related to their primary purpose.

However, as detailed in Publication 598 of the Internal Revenue Service, income not directly related to their declared charitable purpose is subject to federal taxation. This is called the unrelated business income tax, or UBIT.

So how do you know if your nonprofit organization has taxable unrelated business income?

We’ll review the core principles of unrelated business income tax (UBIT) rules below, along with examples of income subject to taxation, to help you understand what it is and whether or not it applies to your organization.

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What is Unrelated Business Income Tax (UBIT)?

Both federal tax exemption and the eligibility to receive tax-deductible contributions help your nonprofit achieve its charitable goals. But while these benefits have a positive impact on society, they can pose a temptation for some organizations looking to take financial advantage for personal gain.

As a result, Congress implemented the UBIT in 1950 to eliminate the unfair advantage tax exemption gave to nonprofits competing against for-profit entities in the same sector. The tax limits the advantage of nonprofits to their specified charitable purpose and prevents them from exploiting their benefits in the commercial sector.

For example, the UBIT prevents an entity such as a church from using its exempt status to open a store purely for profit with no charitable purpose. This is true even if the church uses those funds to fund programs in the community.

It is not, however, prohibited for your exempt organization to earn unrelated business income. If you receive gross income from an unrelated business reaching $1,000 or more, you simply need to complete and submit IRS Form 990-T and pay the required taxes.

If your organization expects it will need to pay $500 or more in tax for the year, then you must pay a quarterly estimated tax. The Form 990-W helps determine the required amount of estimated tax to pay.

Form 990-T and Form 990-W are in addition to your organization’s annual information return (Form 990, Form 990-EZ, or Form 990-PF).

IRS UBIT Requirements

UBIT rules apply to most organizations that gain tax exemption from section 501(a) of the Internal Revenue Code (IRC). The three main criteria for your tax-exempt entity’s activity to be considered an unrelated business are as follows:

  1. Your activity is a trade or business that produces income via the selling of goods or services. Even if these activities occur under a greater umbrella of the organization’s tax-exempt purposes, they maintain their identity as unrelated trades or businesses as long as they generate gross incomes from distributing or producing goods or services.
  2. The activity is regularly carried on, meaning that the organization pursues them with frequency and continuity, similarly to the manner in which non-exempt organizations pursue comparable commercial activities.
  3. The activity is not substantially related to furthering the organization’s exempt, charitable purpose.

Special Cases & Exceptions

Most tax-exempt organizations must follow the UBIT requirements, including those in social welfare, advocacy, trade, veteran groups, labor organizations, and employee benefits.

However, some special cases fall under modifications, exclusions, or exceptions to unrelated business income, such as:

✔️ Volunteer labor
✔️ Convenience of members
✔️ Sale of donated merchandise or in-kind gifts
✔️ Corporations organized under Acts of Congress and are instrumentalities of the United States
✔️ Some charitable trusts not subject to private foundation taxes
✔️ Dividends
✔️ Interest
✔️ Certain investment income
✔️ Royalties
✔️ Certain rental income
✔️ Certain research activity income
✔️ Gains or losses from property disposition
✔️ Certain bingo games

It can get a bit complicated, but the Form 990-T Instructions give you more specifics on what constitutes an exception and what does not.

What Is Considered Excessive Unrelated Business Income?

Although nonprofits can earn profits from unrelated business activities, these profits can only make up a certain percentage of the nonprofit’s overall income.

This limit is not clearly defined, however. Instead, it is up to the IRS to determine if your percentage of total income coming from UBI is too high. In cases where the IRS is evaluating unrelated business income to determine adequacy, it considers various factors specific to the situation at hand.

Examples of Taxable and Non-Taxable Business Income

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Example 1: Selling food and beverages

Related business income: If an organization sells food and beverages to its members, it would be considered part of the entity’s regular operations to further its purpose. The money earned goes towards paying back the expenses used to obtain the food for its members to work on their mission.

Unrelated business income: If the same organization sells food to non-members regularly to make additional profits without working towards its non-exempt purpose, then the income is unrelated and taxable.

ubit_parking

Example 2: Charging for parking

Related business income: If an organization has a parking lot and it charges members to use during working hours, then this income is not taxable. The money earned goes toward paying the lot lease and provides a service to members who use their parked time for furthering the purpose of the organization.

Unrelated business income: However, if the entity decides to take advantage of its non-working hours by regularly opening the lot to non-members to turn a profit, then this income is subject to the UBIT. The money is no longer from and for members and is not necessary for furthering the organization’s purpose.

ubit_church_arcade

Example 3: Providing pay-for-entry entertainment

Related business income: Consider an organization such as a church that charges admission for a small fair or arcade in which themed games and activities educate the children of members on the church’s views and purpose. This activity specific to members and to the purpose of the church would not fall under UBIT rules.

Unrelated business income: If the same church ran a general arcade next door open to the public and with no educational aspect, then the resulting income would be subject to the UBIT.

Other forms of income which would be susceptible to the UBIT include proceeds from the liquidation of assets, the sale of resources found on the property of the exempt entity, income from paid advertising in the organization’s newsletter or publications, or the sale of unrelated merchandise to the public.

Each of these examples and those described above involve various factors that, if changed, could change the exempt status of the activity in question.

Not Sure If Your Nonprofit Income Is Taxable Or Not?

You should always consult your legal counsel or a qualified accounting professional before making decisions that could cost you a lot of money down the road.

But as a nonprofit, sometimes it’s not easy to find someone to answer your questions. We frequently hear stories of CPAs that don’t return their nonprofit clients’ phone calls or emails. Often, nonprofits get stuffed at the bottom of the pile.

If you’re tired of being the last priority of the financial professionals in your life, consider outsourcing your bookkeeping and accounting to The Charity CFO. We’ll modernize and optimize your accounting system to get you audit-ready financial reports every month.

And our team of former nonprofit CFOs and auditors are available to answer all your most challenging questions about tax liabilities, transparency, compliance, budgeting, and more.

Reach out to us today to see if outsourcing your bookkeeping and accounting can save you time, money, and stress.

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