As a nonprofit leader, you’re passionate about your mission. But to truly make an impact, you need to master the financial skills that will keep your organization thriving. At The Charity CFO, we’ve seen firsthand how understanding these key areas can transform your nonprofit’s financial health. Let’s dive into the essential skills you need to secure your organization’s future.
In this blog, we’re diving into a subject near and dear to our hearts at The Charity CFO – sustainability.
If you prefer, video, check out this presentation right here:
What do we mean by that?
At its core, a nonprofit exists for a mission. You want to serve others, bringing good into the world and meeting specific needs.
But if your nonprofit is not sustainable, whether by struggling financially or burning out your team – the mission will not reach its full potential.
In this blog, we’re breaking down some of the points made in the recent webinar with our CEO Tosha Anderson, and Instrumentl.
What we’ll explore in this blog are three important takeaways:
Key Takeaways
Financial Red Flags: Nonprofits should be vigilant about red flags such as insufficient unrestricted funding and low cash reserves.
Importance of Cash Flow: Understanding cash flow is crucial for maintaining operational stability and planning for future growth.
Strategic Planning for Expansion: Nonprofits must carefully assess their financial health before pursuing programmatic expansion to avoid creating unsustainable funding gaps.
Recognizing Financial Red Flags
Are you keeping a close eye on your nonprofit’s financial vitals? You should be. Two critical red flags to watch for are:
Insufficient unrestricted funding: Aim for over 50% of your funding to be unrestricted. This gives you the flexibility to allocate resources where they’re needed most.
Low cash reserves: If you have less than 30 days of cash on hand, you’re living on the edge. Strive for at least 90 days of reserves to buffer against unexpected challenges.
By staying vigilant about these indicators, you can address potential issues before they become crises.
Mastering Cash Flow Management
Your cash flow is the lifeblood of your organization. While budgets and financial statements are important, cash flow should be your primary metric for evaluating financial health. Here’s what you need to do:
Calculate your daily cash needs by dividing your annual budgeted expenses by 365.
Monitor your cash flow closely to anticipate challenges and make informed decisions.
Recognize the seasonal nature of your cash flow, especially if you rely on events or campaigns.
Understanding these patterns will help you plan effectively and avoid cash shortages during lean periods.
Planning Strategically for Growth
When exciting funding opportunities arise, it’s tempting to jump in headfirst. But before you commit to expansion, ask yourself:
Do we have sufficient cash reserves and operational capacity?
Can we maintain at least 25% in operating reserves and 90 days of cash on hand?
Taking a measured approach to growth will help you avoid overextending your organization. Develop multi-year financial plans that outline your projections for growth and resource allocation. This strategic approach will ensure your expansion is sustainable in the long run.
If finance isn’t your background, don’t worry. Start by focusing on a few key performance indicators (KPIs) that matter most to your organization. Whether it’s cash on hand or program performance, understanding these metrics will give you a clearer picture of your financial health without overwhelming you.
Analyze the factors that influence these KPIs and how they relate to your mission. For instance, if a successful fundraising event boosts your cash flow, identify what made it successful so you can replicate that success in the future.
Your Path to Financial Success
By mastering these skills – recognizing red flags, managing cash flow, planning strategically, and building your financial confidence – you’re setting your nonprofit up for long-term success. At The Charity CFO, we’re committed to helping you navigate these financial waters with confidence.
Remember, financial management doesn’t have to be daunting. By breaking it down into manageable components and focusing on what matters most to your organization, you can make data-driven decisions that align with your mission and drive your impact.
Ready to take your nonprofit’s financial management to the next level? Let’s work together to ensure your organization’s financial future is as bright as its mission.
Get in touch with us here and we’ll chart a parth to long term sustainability for your organization.
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Keeping your taxes in order is vital for any nonprofit. Unfortunately, it can get complicated and confusing when it comes to employees, especially if you’re hiring both traditional staff and regular contractors or freelancers.
The W-9 is among the most crucial forms to help keep everything straight, but many don’t know much about it or when it’s used.
Let’s take a closer look at the document and why it’s so important for nonprofits.
What is a W-9 Form?
A W-9 form (officially titled “Request for Taxpayer Identification Number and Certification”) is a simple, standardized federal form that allows employers to collect the necessary tax and personal information from those who work for them.
The titular Taxpayer Identification Number is the most critical element of the form. In most cases, this will be an employee’s social security number, but it can also be a business’s EIN or less common identifiers like Individual Taxpayer Identification Number (ITIN) and Preparer Taxpayer Identification Number (PTIN).
The payee also certifies that they’re not subject to any backup withholding, which would typically only be the case if they failed to provide information to previous employers or were caught underreporting income by the IRS.
In addition, the W-9 requires details like the type of entity (individual, C corporation, S corporation, etc.) and an official address.
Why is the W-9 Form Important for Nonprofits?
Anyone who’s helped lead a nonprofit knows that keeping the organization’s tax-exempt status is the most critical factor to its survival. A crucial part of that is abiding by tax reporting and compliance requirements. This includes filing the appropriate tax forms with the feds, which, for contractors or freelancers, would be a 1099-NEC or 1099-MISC.
The W-9 is designed to collect the information necessary to fulfill these requirements. Aside from legal requirements, diligently collecting W-9 information from contractors or vendors shows a commitment to transparency and fully documenting its work. Insisting on complete W-9s can also help avoid doing business with potentially unsavory partners who may not want to complete one for various reasons.
No matter which reason applies most to your organization, they all show why getting this form completed should be a priority when working with contractors, freelancers, and vendors.
When Would a Nonprofit Need a W-9 Form?
There are three primary situations where an organization should typically get a W-9 completed by outside parties.
The first, as we’ve mentioned, involves paying independent contractors and consultants. While 1099s must be issued to any person or business that receives more than $600 from your organization during the year, it’s good practice to require completed W-9s from every payee to avoid the need to track down the information later.
In addition, W-9s are required for any vendors or companies that are engaged for outside services. On the flip side, your organization may occasionally need to fill out a W-9 itself. This generally happens if you’re contracted out by another organization to do some sort of limited work on their behalf. Large donors or grant givers may also request your organization fill out a W-9 to confirm relevant tax details.
Tips for Completing the W-9 Form
Tax forms can always feel a bit intimidating, but the W-9 is quite simple to fill out.
First, identify who’s requesting the form and ensure it’s necessary.
Then, collect your own information, like your organization’s TIN/EIN and official business name. Before you start, double-check to make sure you have the correct and most up-to-date version of the W-9 as well.
Then, simply provide the information where indicated, including any exemptions if they’re applicable.
Finally, complete the form by signing and dating it before returning it to the individual or organization requesting it. As with all pertinent tax records, you should keep a record and copy for yourself as well, just in case.
Reach Out to The Charity CFO for Help with the W-9
The W-9 is one of the most crucial tax forms to understand, whether your organization is soliciting them from freelancers and contractors or filling them out itself. But it’s relatively simple once you’ve looked over the particulars.
While it might just seem like extra paperwork, it ensures all parties have the tax information they need to meet their reporting requirements.
Still, amid all the other tasks and requirements of running a nonprofit, it’s easy to allow things like prompt W-9 collecting, completing, and processing to fall through the cracks or end up delayed by everyday issues. That’s where The Charity CFO comes in. Our experienced team can help you stay diligent about your tax reporting and filing requirements, from W-9s to the many other tax forms and deadlines that always seem to be looming.
Contact us today to learn more about how we can help your nonprofit and get started.
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In many ways, new nonprofits can figure things out as they go, learning from their mistakes and making adjustments.
However, that’s not the case with an organization’s accounting systems. It’s vital to get these right from the beginning or risk serious consequences in the future. Unfortunately, there are plenty of ways for relatively inexperienced leaders to make small but critical errors.
Let’s take a closer look at nonprofit accounting systems, the most frequent mistakes, and how to avoid trouble down the road.
Understanding the Role of Accounting Setup for a Nonprofit Organization
Accounting systems are a vital part of every business or organization, from the largest for-profit corporations to the smallest local charities. At their core, they’re simply a way of keeping track of an organization’s financial standing, including:
Income
Expenses
Assets
Liabilities
Typical income includes donations, grants, interest income from endowments, ticket sales to charity events, and any other source of positive funds into your coffers.
Expenses range from program-related spending aimed at accomplishing the organization’s goals and mission to fundraising expenses (which support income-generating activities) to everyday administrative costs for rent, salaries, office supplies, and other requirements for keeping the nonprofit running.
Well-functioning accounting systems can have a massive impact on how an organization runs outside of conventional financial ways, as well. In the best situations, they provide not only accurate data but timely data, helping make better decisions and solve small problems before they become large ones.
Systems also allow improved forecasting and future planning, as well as making compliance and tax considerations far more straightforward. They’re an underrated pillar of financial stability, which is why it’s so crucial to get them set up correctly.
Common Mistakes in Accounting Setup for Nonprofits
While every nonprofit is different, many organizations tend to make the same kinds of errors when it comes to their accounting systems. Some of the most common and most significant include:
Lack of proper training and expertise
It’s not uncommon for folks in the nonprofit world to lack the financial background and experience necessary to set up their books properly. Those responsible for creating accounting systems might not be aware of industry best practices or make small but significant mistakes that can go unnoticed for months or years.
Poor choice of accounting software
Nonprofit accounting and financial management aren’t the same as for-profit, and the software you use should reflect this.
Luckily, numerous top choices are geared toward charities and nonprofits, like QuickBooks for Nonprofits, ACCOUNTS from Software4Nonprofits, and Financial Edge by Blackbaud.
Inadequate data entry and record-keeping
Old-school accounting systems that rely on manual data entry can introduce many different problems into accounting systems. Human error can lead to some data never making it into the system, while others could be entered incorrectly in ways that are difficult to notice.
Successful organizations design their accounting systems to limit the potential for mistakes and help quickly fix them when they happen.
Ignoring compliance and regulatory requirements
It’s always worth remembering that nonprofit accounting is about more than just internal operations. Nonprofits must meet specific rules and regulations to satisfy federal and state tax authorities and others.
Accounting systems sometimes fail to account for these requirements, leading to extra work or possible penalties.
Long-Term Consequences of Nonprofit Accounting Setup Errors
Improperly setting up accounting systems can lead to major problems that often don’t show up until long after the errors are made.
The most direct of these are financial inaccuracies and misreporting, which can create a host of related problems. At the most serious level, these can lead to legal or compliance issues that may result in tax penalties or even the loss of nonprofit status.
Internally, nonprofit accounting system errors can also create inefficiencies in how the organization is run, wasting precious resources and missing other valuable opportunities. Meanwhile, if word gets out about financial issues or misreporting, it can seriously harm the organization’s reputation and damage trust with donors large and small.
Even organizations that correct their errors before severe consequences present themselves will have to waste valuable time and effort on something that could have been avoided by following best practices from the start.
Preventing and Mitigating Nonprofit Accounting System Setup Errors
Whether you’re a new nonprofit or have been operating for years, it’s important to be proactive about accounting system setup errors. Don’t wait for a problem to show up and end up dealing with it urgently – take the time to work with professionals now to set up your accounting systems properly or check out your current systems for any remaining mistakes.
The Charity CFO can help with skilled and experienced financial professionals who comprehensively understand the needs and unique requirements of nonprofit accounting. Reach out to us today to learn more and get started.
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Running a successful nonprofit requires many diverse skill sets, from experts in your particular field to fundraising and event pros. Unfortunately, one area where many otherwise thriving nonprofits lack experience is financial and money issues. This critical knowledge is a must-have for both long-term growth and short-term stability, but it can be challenging to attract suitable help. That’s where advisory finance committees come in.
This unique partnership helps nonprofits get the help they need while offering an opportunity for experienced finance-minded people to give back to causes they care about. Let’s take a closer look at how it all works.
Why Financially-Minded People Matter
Financial literacy isn’t something that can be gained overnight. It often takes a lifetime of study, observation, and experience to develop an intuition about the best ways to run organizations like nonprofits. This isn’t always a priority for dedicated nonprofit professionals, who may spend more of their time focusing on the issue or cause their group is involved with, as well as programming, donor relations, and event planning decisions.
However, financially-minded folks are crucial for a variety of reasons. They can provide guidance on:
All are necessary for keeping the lights on and charting the organization’s path ahead.
Building an Advisory Finance Committee
Rather than hiring an extensive finance department, many nonprofits can instead create an advisory finance committee.
This generally consists of a group of financially experienced individuals who are interested in helping out the nonprofit and advancing its goals. Members volunteer a few hours a month to provide their services and attend meetings to make recommendations and guide policy.
Like any committee, getting a diverse mix of backgrounds and experience is vital to ensure all perspectives are considered. It’s also crucial to ensure members are available as needed and committed to the role over the long term.
Steps to Establish an Advisory Financial Committee
Putting together your advisory finance committee is a straightforward process but also one that should be undertaken carefully. Here are the steps you need to know.
Identifying Potential Members
In some cases, larger nonprofits may have people with the experience necessary within their base of donors and supporters. Making a list of these folks and reaching out to them can fill most spots on many advisory committees.
Newer organizations or those needing specific skills can also reach out directly to professionals who are known to share the nonprofit’s values and goals.
Articulating the Committee’s Purpose
While some new and potential members may be familiar with advisory finance committees, others may not. Take the time to educate them on the committee’s role and responsibilities.
This is also an excellent opportunity to explain how the panel contributes to the organization’s overall mission, showing how and why their work is so valuable.
Structuring Committee Meetings
Everyone’s time is valuable, especially when they’re volunteering to help your organization. It’s critical to establish a regular meeting schedule (typically monthly, quarterly, or semi-annually) and format for the convenience of both committee members and nonprofit employees who wish to collaborate with them.
Each meeting should have an agenda that addresses the relevant financial issues, challenges, and opportunities that need to be discussed.
Ensuring Effective Collaboration
Advisory finance committees work best when they’re as collaborative as possible. Leaders should work to foster open communication between members and the board, especially when it comes to strategic planning and problem-solving. This can naturally improve over time as both sides get to know one another.
Empowering the Advisory Financial Committee
So how can nonprofits make the most of their advisory finance committees? Here are the keys to helping them help you.
Providing Access to Information
For the best results, provide committee members full access to all relevant financial data and reports. This offers critical insight into the organization’s financial landscape.
Without seeing the whole picture, their advice may be wrong or incomplete.
Encouraging Thought Leadership
You’ve selected these members for their experience and guidance – now, make sure they use it!
Invite committee members to engage with issues in their wheelhouse, giving special care to diverse perspectives and expertise.
Recognizing and Acknowledging Contributions
Make sure your committee members know just how much you appreciate their time and expertise.
By making them feel valued, you’ll encourage them to continue their service and keep working with as much dedication as on their first day.
Showcasing the Impact
It’s worth the time to highlight the impact of their dedication and achievements, as well as their overall influence on your organization’s financial health. Share success stories and make sure they celebrate financial milestones alongside the board and full-time staff.
Incorporate a Financial Advisory Committee into Your Nonprofit
While the mission of any nonprofit is critical, keeping the lights on and the doors open is equally vital. That’s why it’s so important to establish and properly use an advisory finance committee. These crucial groups can help nonprofits get the big, often complicated financial decisions right to enable them to do the work they care about.
If you’re searching for higher-level financial support, reach out to The Charity CFO today to learn how we can help.
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Nonprofit communications can be complicated, and sometimes awkward.
It’s an avoidable fact of charity life that organizations are often in need of money – and donors are the primary source. But while it’s relatively easy to raise funds in dire situations or emergencies, getting donors to invest can be trickier when your charity seems financially stable.
The secret comes down to how well nonprofit leaders understand what donors are thinking and feeling and how charities communicate with them. Let’s take a closer look at the best ways to navigate this common but tricky situation.
The Donor Perception Challenge
All too often, donors (even large and involved ones) have relatively little idea about how a nonprofit’s operations and finances truly work. While some organizations have significant endowments and reserves, many are operating without much sustained and reliable revenue.
Under these circumstances, it can be difficult to make large investments in growth or plan for the future.
Furthermore, when donors believe things are fine and money is abundant, it can result in lower giving. This can lead to further cuts, lower programming impact, and a downward spiral that’s hard to exit.
Fortunately, this can all be avoided by being straightforward and transparent with those responsible for keeping the lights on with their donations.
The key to stable operations for any organization is an operating reserve. Think about an operating reserve as a sort of savings account and safety net for the nonprofit. It’s a general fund with no specific uses or restrictions, available to cover unexpected expenses of all types.
This could include everything from a dip in donations caused by a recession to a surprise major expense like equipment upgrades or even unexpected opportunities to expand programming.
The exact amount of reserves will vary from organization to organization, but most try to sock away three to six months’ worth of expenses, which gives ample time to right the ship if donations start falling.
It might appear to be a lot of money just sitting around unused, but these reserves can sometimes be the difference between the survival or failure of a nonprofit or charity.
Spend Down Policy: A Deeper Dive
As critical as creating reserves is clearly defining the circumstances that will lead a nonprofit to use them. With a clear policy on when it can be spent down, there’s no need for the sometimes extended, emotional debates that can result from dipping into reserve funds.
With a transparent spend-down policy, mission-driven organizations can quickly take action to cover financial shortfalls, allowing them to continue their work without the disruptions that funding slowdowns can cause.
Each charity will need to determine its own circumstances, but all should seek to balance immediate impact with long-term sustainability.
Nonprofit Communications Strategies for Navigating Donor Conversations
So what’s the best way to approach this with donors on a practical level? Remember these key principles to make donor discussions simple and low-stress.
Open and Honest Nonprofit Communications
While it can feel strange to reveal your organization’s financial details to outsiders, it’s imperative that donors have a complete and detailed picture of the nonprofit’s economic realities. That way, they can understand the budget and give the appropriate amount to keep things running successfully.
At the same time, paint a picture of the organization’s financial goals and needs in the future.
Educating Donors
It’s also vital to educate donors and other sources of financial support about the reason behind the large sums of money sitting in operating reserves. Break down the organization’s policy for building and maintaining reserves, as well as the rationale behind how and when leaders will use them. With these concepts in mind, it’s a lot easier to see the true financial picture for a nonprofit.
Demonstrating Impact
One of the best ways to grow donors’ confidence in you and ensure reliable future funding is to make them understand everything they’re getting for their money.
Showcase the organization’s ongoing programs and initiatives, taking particular care to highlight the success stories. Then, connect the dots and show how continued support is vital to keep making a difference.
Crafting a Compelling Fundraising Message
Fundraising doesn’t just happen on its own; organizations must carefully craft a compelling message and strategy to show donors why they’re the best recipient of scarce donation dollars.
Ensure the message is tailored to address donor concerns while also emphasizing the organization’s commitment to managing its finances responsibly.
Consider how any fundraising message is aligned with the organization’s mission and values.
Create engaging content that educates donors, which can be distributed using both traditional outreach and digital platforms, like social media.
These can encourage an open, direct dialogue between the organization and its supporters.
Don’t Stop Requesting Money
Reaching out to donors for money can feel awkward, but it’s the most crucial part of delivering on a nonprofit’s mission. Still, it’s critical to do it in the right way so all sides can feel great about where the funds are going. Focus on:
Transparency
Education
Open communication
This is especially true when it comes to operating reserves and how and when they’re spent down.
Reach out to The Charity CFO today for help navigating these complex issues and putting together your Operating Reserve Policy and Spend Down Policy.
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When hiring your first employee at a growing nonprofit, it is crucial to understand the essential steps to hiring. Ultimately it involves finding the right individual to propel the organization forward while navigating the complexities of the hiring process. It can be overwhelming. In this article, we will explore the questions you should carefully consider during this hiring process
First Things First: Do You Need to Hire?
Hiring is a significant decision that requires thoughtful consideration and financial preparation. Before hiring a new employee for your organization, it’s crucial to ensure it’s the right move. Evaluate your organization’s growth and workload demands, then pinpoint areas where you need additional support. Understand your budget and resources to ensure you can sustain the new hire long-term. Consult with your accountant to determine if it’s the right time financially and to understand the potential impacts on your financial stability.
Definition: What Will the Role and Responsibilities Be?
Before beginning the hiring process, it’s crucial to define the role and responsibilities of the new employee. This involves crafting a comprehensive job description outlining tasks, duties, and expectations. Be sure to note the qualifications, skills, technical expertise, and experience needed to excel in the role, as well as the values and attributes that align with your organization’s culture, goals, and mission. By establishing a well-defined position and identifying the necessary qualifications and cultural fit, you’ll be better equipped to attract and hire the ideal candidate.
Establish your Nonprofit Hiring Process
Streamline the journey to finding the right employee and increase the likelihood of a successful recruitment outcome by outlining and establishing a transparent hiring process. Start by defining the key steps and setting clear timelines: What needs to be done, and when? Establish milestones for tasks such as creating the job description, advertising the position, conducting interviews, and making a final decision.
Additionally, determine how you will attract potential candidates. Consider utilizing job boards, social media platforms, and your organization’s website to reach a broader audience. A well-defined plan and timeline will keep the process on track and prevent unnecessary delays.
5 Tangible Steps to Hiring your first Nonprofit Employee
Create a Well-Written Job Posting
Create a compelling and accurate job posting that conveys the nonprofit’s mission, vision, and values to attract candidates passionate about the cause. Highlight the qualifications, responsibilities, and benefits of the role to draw in individuals who align with the organization’s objectives and possess the required skills. A well-crafted job posting that communicates the nonprofit’s purpose and provides a comprehensive overview of the position will attract top talent and lead to a successful and purpose-driven hiring process.
Selecting and Interviewing Candidates
The next step in the hiring process is reviewing resumes and applications to shortlist candidates. Once narrowed down, conduct initial interviews to assess skills, experience, and values alignment with the organization. Further, evaluate shortlisted candidates through in-person or virtual interviews. Before making a final decision, conduct background checks, call references, and ensure compliance with all legal requirements.
Manage Financial Operations
Before hiring your first employee, it’s crucial to ensure you have the proper accounting setup for payroll compliance. Determine the appropriate payment method, whether it’s a salary or hourly wages, and set up a reliable payroll system to process payments accurately and on time. Familiarize yourself with tax regulations and obligations related to employee payroll, ensuring you correctly withhold and remit taxes. Implement a reporting system to keep track of payroll expenses, deductions, and filings, as well as to maintain transparency and compliance with regulatory authorities.
Making an Offer and Onboarding
Now it’s time to make an offer. Present a comprehensive compensation package that includes salary, benefits, and any other relevant perks to showcase your commitment to the candidate’s well-being and career growth within the organization. Upon acceptance, make a formal written offer detailing all terms and conditions.
Following the candidate’s acceptance, ensure a smooth transition by going through an onboarding process that acclimates the new hire to the organization’s culture, policies, and responsibilities, setting them up for a successful and fulfilling journey with your nonprofit. Provide the new hire with all the necessary information to get started while also collecting the required details from them to ensure a smooth and seamless integration into the organization.
Provide Continuous Support
To ensure the success and growth of new hires, providing continuous support is paramount. Offer them access to resources and training that empower them to excel in their roles and contribute meaningfully to the nonprofit’s mission. Additionally, schedule regular check-ins to address concerns, offer guidance, and foster a sense of belonging within the organization, ultimately helping them become valued and engaged team members.
Is Your Nonprofit Ready to Hire?
If your nonprofit needs an extra hand and has the resources and means, it’s probably time to hire your first employee. As the organization expands its impact and operations, bringing in the right team member can significantly contribute to its success and mission fulfillment. We realize this can be scary and exciting all at once, and we’re here to help. Contact us to get started with our experienced financial professionals.
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To outsiders, it’s often assumed that all any nonprofit status is basically the same. But those starting and operating these critical organizations know there’s much more to the various nonprofit statuses, with varying rules and qualifications for each.
So what do you need to know about the differences between nonprofit statuses? Let’s take a closer look.
What Does it Mean to Have a Nonprofit Status?
Two things typically distinguish nonprofits from other organizations.
Their goal
Unlike typical businesses, nonprofits aren’t set up to bring in profits for owners and investors. Instead, they’re designed to help people, advocate for an issue or goal, or conduct other activities to benefit members or other groups. While they bring in money via fundraising and other sources, that money is reinvested directly back into the organization to support its mission. This charitable goal is what leads to the other distinguishing factor.
Their tax status
Qualified nonprofits typically receive significant tax benefits or breaks federally, and are often exempt from or have limited state taxes as well. In return, nonprofits need to abide by sometimes strict rules regarding financial transparency, governance, and other regulatory issues.
What’s the Difference Between 501(c)(3) vs 501(c)(4) and other statuses?
While they may work similarly in a variety of ways, there are vital differences between statuses.
The organization’s purpose can dictate which status is applicable (as can other eligibility issues).
Certain activities can only be legally conducted by nonprofits of a certain status.
There are critical differences in tax benefits, which are key to how an organization operates.
What’s the Difference Between an NPO and an NFPO?
In general usage, NPO (short for nonprofit organization) and NFPO (not-for-profit organization) are often used interchangeably. However, they do have a vital technical difference that can determine which category your organization falls under.
NPOs are more strictly required to operate in the public interest, like charity work or furthering a cause or issue. There’s no such restriction for NFPOs, which can also include:
Sports or social clubs
Professional organizations
Homeowners associations
Etc.
However, NFPOs must still reinvest any surplus to take advantage of tax and other benefits.
Common Nonprofit Statuses
With all this in mind, new and future nonprofit leaders may wonder which status fits their organization. Here’s what you need to know.
501(c)(3) – Charitable Organizations
501(c)(3) organizations are the most common charitable group. They’re focused on “public good” activities, like:
Educational
Scientific
Religious
Sports
Public safety
Etc.
Federal tax law gives these groups an advantage by making donations to them tax-deductible, allowing donors to reduce their tax liability while helping these nonprofits stay afloat. However, this strictly prohibits them from taking political stands or engaging in politics.
501(c)(4) – Social Welfare Organizations
As their name suggests, 501(c)(4) groups work to improve social and living conditions for people. This can cover a wide range of activities, from:
Helping less fortunate community members
Hosting educational courses
Helping mediate area disputes
Fighting neighborhood deterioration
They can also advocate for public policies and laws that benefit the people they serve, as long as this isn’t their primary or sole activity. As a result, donations to 501(c)(4)s aren’t tax deductible for donors.
501(c)(5) – Labor and Agricultural Organizations
501(c)(5)s are formed to advocate for better conditions for workers, as well as improve agricultural products and help promote associated industries. This category includes labor unions and groups that advocate for farmers, livestock and dairy producers, and others.
These groups naturally have a significant interest in public policy related to their industries, so they’re allowed by law to advocate for policies and get involved in political issues. However, once again, this can’t be their primary mission, and donations are not tax-deductible.
501(c)(6) – Business Leagues and Trade Associations
501(c)(6) organizations sit at a unique crossroads of the for-profit and nonprofit worlds. They consist of:
Business groups
Chambers of commerce
Boards of trade
Real estate groups
Etc.
While these organizations don’t work for profit themselves, they advocate for better business conditions and policies for specific industries, types of companies, or geographic areas.
They have even fewer restrictions than other nonprofits when it comes to political activity and advocacy in their area of business, but it still can’t be their primary purpose. Naturally, 501(c)(6) donations are not tax-deductible.
501(c)(7) – Social and Recreational Clubs
The final category of nonprofits, as far as the feds are concerned, are 501(c)(7) groups, which cover social and recreational clubs. These groups collect funds from members via fees and other methods and operate strictly for fun and social purposes, with no significant external activities. Some examples include:
Country clubs
Yacht clubs
Swim clubs
Fraternal organizations
Amateur sports leagues
Their tax-free treatment hinges on not receiving any significant income from non-members or outside business. Typically, these groups engage in little, if any, political activity but still aren’t tax-deductible due to their lack of public benefits.
Seek Professional Guidance When Selecting Nonprofit Statuses
Selecting the proper choice among the many nonprofit statuses is a critical first step to getting any organization off on the right foot. Making the wrong move here can lead to significant tax troubles down the road.
Fortunately, The Charity CFO can offer a helping hand on the financial decision-making side of things. Our skilled financial professionals will help you assess your situation, plot your future financial plans, and make a choice that will form a solid foundation for years of nonprofit work to come.
Setting nonprofit goals is critical to growing in a manageable way that supports your mission and employees.
And one of the most vital steps toward reaching those goals is setting up the proper system to track key aspects of your progress. Let’s take a closer look at everything you need to know to define and track your nonprofit goals.
Categories of Nonprofit Goals
Nonprofit goals can be split into three broad categories:
Programmatic
Financial
Operational
Programmatic goals are ones that deal with your organization’s services, whether it’s sheltering animals, providing food for the homeless, raising environmental awareness, or any other services contributing to the greater good.
Operational goals cover internal issues like staffing, efficiency, improved management, and other factors that contribute to keeping your organization running.
While programmatic goals may be the most alluring, your attention should also be on the other categories, which are vital for keeping your nonprofit moving forward.
Setting Mission-Focused Nonprofit Goals
No matter the category, your nonprofit goals should always tie back into your organization’s mission and vision. Pausing and allowing leaders and stakeholders to frequently re-assess the goals is key to keeping them on track. Clarity and focus at this stage can provide major benefits down the line.
For the best results, nonprofit goals should align with the “SMART” goal-setting strategy.
Specific
Measurable
Achievable
Relevant
Time-bound.
Specific and measurable goals make tracking more straightforward, while the reasoning behind relevant and achievable goals should be obvious. Finally, adding a time element creates urgency, accountability, and motivation.
Tracking Nonprofit Goals
Have you ever heard the saying, “If you can measure something, you can manage it”?
Well, this definitely applies to nonprofit goals.
Without setting up a robust, reliable, and accurate tracking system or method, it’s impossible to know whether you’re making progress or if your plans need to be adjusted. However, when you appropriately track your goals, you can see the impact of different techniques or decisions, as well as enjoy the satisfaction of seeing tangible progress toward improvements.
The most common way to track your goals is to decide on key performance indicators, often referred to as KPIs. KPIs are the measurable factors that represent progress toward your goals.
For example, a nonprofit with a financial goal of increasing fundraising by 10% this year can set KPIs like the number of fundraising events, amount of calls or letters to donors, the number of new recurring donors each month, or even the total of the revenue brought in to date.
It’s important to note that your KPIs will vary by the nature of your goals and organization. Still, the most essential factor is that they are a direct representation of your organization’s idea of success.
Strategies for Tracking Progress Toward Nonprofit Goals
As you begin defining and tracking your organization’s goals, take the opportunity to implement practices that will make the process easier in the future.
Leverage Your Team
As a nonprofit team member, you understand the crucial role each person plays in growing your mission. So when it comes to tracking progress toward your goals, team member involvement is critical. Check in with them regularly to ensure they understand:
How the goals apply to the mission
What their role is in achieving the goal
How they should be measuring progress
Stakeholders, from the board and donors to employees, can help prioritize goals and allow leaders to zero in on the ones that are most critical to success moving forward.
Use Technology
Technology is another key element in tracking progress toward nonprofit goals. You can use accounting software, fundraising tools, CRM’s, and other services to collect and analyze data. With this data, you can make more informed decisions for your organization.
Be Flexible
Things change and it’s okay if your goals need to change as well. If you notice you’re continuously off-track with your goals, identify the areas you are falling short and make adjustments.
Remember not to see these changes as a failure but as a step toward pushing your organization where you hope it can be.
Reach Your Nonprofit Goals
Without clear, achievable goals, it’s easy to see how an organization can drift away from its core mission and values.
Fortunately, with the right resources, it’s simple to:
Set goals
Develop a plan to reach them
Monitor your progress along the way
However, it can be tough to find time for this kind of long-term planning in the busy world of a nonprofit, especially new or growing organizations.
That’s why The Charity CFO team is here. Our experienced and highly skilled accountants can help you set meaningful, but achievable nonprofit goals to get your organization tracking your way to success.
Contact us today to learn more about the financial services we offer nonprofit organizations!
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Whether you’re a new organization or an established one working to get its finances under better control, there are few more important things to get right than your nonprofit operating budget.
It serves as the backbone of your nonprofit’s spending, fundraising, and much more. But if you need some help putting one together, you’re not alone.
Read on as we break down the process step-by-step and answer some critical questions many nonprofit leaders often have.
Understanding the Basics of a Nonprofit Operating Budget
All operating budgets can be broadly split into two categories – revenue and expenses.
For nonprofits, revenue comes from:
Fundraising
Grants
Membership fees
Investment income
Any other activity that brings money into the organization
Expenses are more varied but cover your charity’s basic work to carry out its mission (program expenses) and costs associated with fundraising, as well as administrative expenses for salaries, rent, utilities, and similar bills.
Nonprofit operating budgets differ from regular for-profit business budgets in key ways.
For one, they’re designed to reinvest any extra money back into the organization rather than take it out as income for business owners.
Additionally, for-profit budgets often have expenses closely linked to revenue, like the cost of goods sold or employee wages. That’s not the case for most nonprofits, which have separate arms for raising money and carrying out their missions.
Gathering Essential Information
Before you can figure out where your nonprofit is going, it’s vital to figure out what happened in the past. Take time to collect financial data from previous years as best as possible. Identify and log sources of revenue and common or recurring expenses.
This can provide a baseline for future budgeting, allowing you to tweak as needed for your goals rather than starting from scratch. Simply collecting this crucial data can go a surprisingly long way toward identifying and solving organizational problems.
Creating Revenue Projections
Now, take some time to consider where your revenue is headed in the quarters or years ahead. Step back and assess your fundraising strategies and how potential changes could affect your expected contributions. Consider the impact of any grants or sponsorships, including both new ones you may win and current ones that may shrink or dry up.
This is also where you should estimate any earned income or program fees if they apply to your situation. Think broadly about other revenue streams as well.
Is your organization receiving investment income?
Does it own property that could be rented or sold?
While you should consider everything, be as realistic as you can in setting revenue projections. While it might be less than ideal to underspend when your organization has the capacity to spend more, it’s far worse to overestimate fundraising or grants and end up scrambling to cover costs.
Determining and Allocating Expenses
The next step to creating your nonprofit operating budget is to figure out where the money you’ve raised will be spent. As mentioned above, expenses will primarily fall into one of three categories:
Program expenses
Fundraising expenses
Administrative expenses
While program expenses are the core of your organization’s mission, fundraising and administrative costs also need to be properly accounted for to keep the lights on. Therefore, it can be helpful to establish these first and figure out what’s left.
Be sure to consider whether your costs are fixed, like rent (staying the same no matter how you operate), or variable, like salaries and expenses for fundraising events (growing or shrinking as your operations do.)
This is also a crucial step of the process because you’ll be setting your nonprofit’s priorities and goals by determining which get funded and which don’t.
Factoring in Contingencies and Reserves
Anyone who’s run a nonprofit or any other organization knows the one thing you can expect is unexpected expenses. That’s why it’s vital to set aside part of your budget for these contingencies and reserves.
Work to identify potential risks to your operations and create basic contingency plans that can make dealing with problems more straightforward when they occur. Your organization should also determine its policy on reserves, including the ideal long-term level as well as how much and when to contribute or draw them down.
Reviewing and Adjusting the Nonprofit Operating Budget
Congratulations – you now have the basics of your nonprofit operating budget! But the work isn’t over.
Regular budget reviews on a quarterly or yearly basis are essential to see if you’re hitting your expected benchmarks in both revenue and expenses.
Looking over your budget with new hard data will allow you to make any tweaks as necessary and head off serious potential problems.
Seeking Professional Assistance for Your Nonprofit Operating Budget
With these easy steps, you’re well on your way to creating a workable, up-to-date budget to help your organization thrive.
By simply gathering your data, making revenue and expense projections, and regularly reviewing and updating your budget, you’ve conquered a key part of the business of running a nonprofit.
But if you need a hand or are looking for some expert advice, The Charity CFO is here to help. Contact us today to learn more about how we can help your organization unlock its full potential by getting its budget on track.
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Managing payroll for nonprofit organizations comes with unique requirements and considerations. Ensuring that your nonprofit payroll services are up to the task of withholding payroll taxes, complying with grant regulations, and ensuring compliance and transparency can be a huge lift.
Finding the right person or organization to handle the monumental task of payroll services will enable you to rest easy knowing that this task is in good hands and that your employees and donors are confident and happy with the results.
In this article, we will explore the distinct payroll requirements for nonprofits. Understanding these nuances will help your organization effectively manage its payroll processes and avoid potential pitfalls.
Unique Payroll Requirements for Nonprofits
Withholding Payroll Taxes
While nonprofit organizations are generally exempt from federal income tax, they still have payroll tax obligations as it relates to their employees. Nonprofits must withhold and remit payroll taxes on behalf of their employees, including federal income tax, Social Security, and Medicare taxes in order to remain compliant with tax regulations.
Using Grants to Pay Employees
Organizations often rely on grant funding to support them in carrying out their mission. Sometimes portions of these grants are awarded specifically for personnel costs, or can be allocated to those if employees are directly working on the grant-related projects. In these scenarios, it is cruel to effectively track, document, and allocate timesheets and grant-funded payroll separately to ensure transparency, accuracy and responsible use of grant funds.
Reviewing Executive Salaries
Nonprofit organizations must carefully manage executive compensation to maintain public trust and meet the legal requirement of the IRS to pay executives a “reasonable” salary. Organizations should establish a formal process for reviewing and determining the executive salary based on industry benchmarks.
Minister Pay
In religious or faith-based organizations, paying ministers and clergy involves specific considerations as well. They may often be classified as self-employed for tax purposes. However, the organization may still be required to report compensation and file appropriate forms depending on circumstances.
Form 990
Filing your annual information return can be a huge undertaking and also requires the completion of important payroll details from throughout the year including payroll expenses, employee benefits and executive compensation. Accurate and thorough completion of Form 990 is crucial for nonprofits to maintain their tax-exempt status and showcase their commitment to transparency and accountability.
Common Mistakes and Problems
Processing Errors
Misclassifying Employees
Understanding employee classifications (as an ‘employee’ or ‘contactor’ and further either ‘exempt’ or ‘nonexempt’), at both the federal and state levels, can be a confusing issue that can have serious legal and financial implications. According to the council of nonprofits, misclassifying a worker can result in the nonprofit owing significant penalties, back taxes, and backpay.
Miscalculating Payroll
Mistakes in calculating payroll can result in underpayment or overpayment of employees, leading to dissatisfaction and potential legal issues. Implementing a reliable payroll software and ensuring your payroll service provider is an expert in nonprofit payroll can help to mitigate such errors and avoid costly mistakes.
Missing Payroll Deadlines
This can have significant consequences, such as delayed payments to employees or non-compliance with tax regulations. Nonprofits must adhere to strict timelines for processing, remitting and providing the necessary payroll documentation to employees.
Should my organization outsource payroll?
Outsourcing payroll can be an incredible relief to an organization as the burden of understanding all the nuances of this process is large. However, the additional layers of compliance, reporting, and allocations that nonprofits must adhere to makes the task even that much more complicated. When considering the prospect of outsourcing, ensure that you are working with a service that understands the intricacies of a nonprofit organization and will be on top of your compliance, reporting and payroll needs. Keep in mind what services you will need and what will be the most helpful support for your organization. Many services can complete a number of tasks including:
Recording employee timesheets
Performing payroll tax calculations on wages, vacation pay, termination pay, and banked time
Calculating organizational filings
Withholding employee deductions and making remittances to the government
Processing direct deposits of checks
Submitting employee tax forms
Preparing payroll journal entries
Overall, be aware that payroll management for nonprofit organizations requires careful attention to detail and thorough understanding of the specific requirements applicable to the sector. Charity CFO has experts that can help navigate the intricacies of nonprofit payroll and ensure that your organization is properly withholding payroll taxes, effectively utilizing grants for employee compensation, conducting comprehensive reviews of executive salaries, adhering to regulations concerning minister pay, and accurately completing your Form 990.
This process helps ensure compliance, maintain transparency and demonstrate responsible stewardship of resources. By implementing best practices and seeking professional guidance when needed, non-profit organizations can streamline their payroll processes and focus on advancing their missions while remaining compliant with relevant legislative and regulatory obligations.
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Cash management for a nonprofit organization is possibly the most important consideration for success.
In a previous article, we discussed the benefits, risks, and compliance requirements of outsourcing bookkeeping for nonprofit organizations. In this article, we will build upon that knowledge and delve more specifically into the topic of cash management. Cash management is essential for maintaining financial stability, complying with regulations, and ensuring effective decision-making.
What is cash management?
When hearing the term “cash management,” many people will jump straight to the Statement of Cash Flows as the primary source of understanding. However, when speaking about cash management there is much more to the story. Cash management, at its core, refers to the process of effectively and efficiently handling and controlling the cash resources of your nonprofit organization. It involves monitoring, tracking and optimizing the inflow and outflow of cash to ensure that the organization maintains adequate liquidity and can meet its financial obligations. Cash management for a nonprofit organization encompasses various activities and strategies to manage cash flow.
Importance of tracking cash flow
Tracking the flow of cash in and out of a nonprofit organization is vital for its success and sustainability. Not only does it fulfill compliance requirements, but it also plays a crucial role in achieving the organization’s mission. By monitoring cash flow, nonprofits gain visibility into their financial health and can make informed decisions about resource allocation, budgeting, and planning. Moreover, tracking cash flow enables organizations to identify potential financial challenges in advance and take proactive steps to mitigate them. It also helps build and maintain cash reserves, which provide the necessary financial cushion to continue operations during lean periods or unforeseen circumstances.
Cash management strategies
Cash flow monitoring: monitoring cash inflows and outflows on a regular basis. This involves tracking revenue from various sources (donations, grants, program fees, investment income etc.) and expenses from various sources (salaries, rent, utilities, program costs, etc.). This supports informed decisions about spending, budgeting, and resource allocation.
Budgeting and forecasting: outlining projected income and expenses for a specific period, typically annually. Developing accurate financial forecasts can help nonprofit organizations anticipate cash flow fluctuations and plan accordingly, thus avoiding cash shortages, managing their financial commitments and allocating resources effectively.
Cash reserves: maintaining an appropriate level of cash reserves to serve as a financial buffer. Cash reserves can provide stability and flexibility during periods of uncertainty or unexpected expenses. Organizations should establish reserve policies that determine the target amount of cash to be held based on their own individual needs, operating expenses, and compliance requirements.
Cash flow optimization: strategies to optimize cash flow for an organization’s specific needs and ensuring efficient cash management. Optimizing cash flow may include negotiating payment terms with vendors, implementing efficient invoicing and collection processes, and exploring cash flow enhancement techniques such as short-term investments or revenue diversification.
Risk Management: assessing and mitigating financial risks associated with cash flow, such as liquidity, current and interest rate risks, Nonprofit organizations should have risk management strategies in place to address potential disruptions.
Overall, effective cash management strategies are essential to nonprofits to maintain financial stability, meet their financial obligations and support their mission. When strategically implemented as a part of an organization’s financial strategy and other fundamental financial requirements, cash management helps to support a holistic picture of the health and prosperity of an organization and their future abilities to maintain their mission.
Supporting fundamental financial processes
By monitoring and maintaining your cash flow, you can set your organization up for easier and smoother financial reporting processes. Understanding your cash position and consistent monitoring and tracking can help with
Accurate Recording of Financial Transactions
Preparation of Financial Statements
Resource Allocations
Budgeting and Forecasting
Financial Analysis and Decision-Making
Effectively managing your cash flow, compliance, regulations, and reporting requirements can be overwhelming, especially without a team specializing in each of these areas. Having a second set of eyes on financials is a prudent practice for nonprofit organizations. It involves engaging an external expert, such as a professional bookkeeper or accountant, to review and analyze financial records.
This serves as a form of independent validation, ensuring accuracy, transparency, and adherence to best practices. A second set of eyes can identify potential errors, inconsistencies, or irregularities that might have been overlooked internally. It adds an additional layer of accountability, reduces the risk of fraud, and enhances the overall integrity of financial reporting.
Overall, tracking cash flow, understanding an organization’s current financial position and accurate bookkeeping and reporting are essential for financial stability, compliance, and effective decision-making.
By diligently tracking cash flow, nonprofits can ensure financial health, maintain cash reserves, and weather unforeseen challenges. Adhering to bookkeeping fundamentals and preparing accurate financial statements demonstrates transparency and facilitates sound financial management.
Additionally, the inclusion of a second set of eyes provides an extra layer of scrutiny, improving accuracy, accountability, and the overall integrity of financial records. By embracing these practices, nonprofit organizations can enhance their financial management processes and support their mission with confidence.
Prioritize cash management for a nonprofit organization
The Charity CFO is a finance and accounting firm specializing in serving nonprofit organizations. If you need help simplifying and organizing your cash management, we’d love to help. Click here to set up a free consultation and see if we can help your nonprofit.
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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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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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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 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.
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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Does your organization pay close attention to your nonprofit statement of cash flows?
When you think of financial statements, the balance sheet or income statement typically come to mind. While these are important components of a nonprofit’s success, the statement of cash flows is critical to understanding the timing and sources of cash moving in and out of your organization.
What is the nonprofit statement of cash flows?
Simply stated, the cash flow statement summarizes an organization’s cash management. It measures cash inflows and cash outflows, and it helps with determining a company’s financial health and making sure there is enough cash available to pay off expenses.
Cash flows are sorted into the below categories:
Operating activities
Investing activities
Financing activities
Operating activities include anything that occurs during the normal course of business. These could include paying employee salaries and receiving donations or grants.
Investing activities include buying or selling long-term assets, such as purchasing new equipment or selling property.
Financing activities concern how your nonprofit is funded. Loans would fall under this category.
How to prepare the nonprofit statement of cash flows
Here are the main steps in preparing the statement of cash flows:
Begin with net income or net loss
Additions to cash
Subtractions from cash
Calculate cash flows from investing activities
Calculate cash flows from financing activities
Ending balance
Let’s dive in to see how this works.
Begin with net income or net loss
The first section of the statement of cash flows consists of operating activities. To prepare this section, you need to start with net income or net loss, which comes from your income statement (statement of activities). Next, you make adjustments to this number to undo accruals. Typically, nonprofits use accrual accounting, which recognizes revenue when it is earned instead of when the cash is received, and vice versa for expenses. While this method is very helpful to understanding some aspects of your organization’s financial position, it is not relevant to the statement of cash flows.
With the cash flow statement, you are not looking at when revenue was earned. You are looking at when the cash is coming in and coming out of the organization. The next 2 steps help with adjusting net income back into the cash basis.
Additions to cash
Next, you add back the values of the following:
Depreciation expense
Loss on the sale of an asset
Decreases in current assets
Increases in current liabilities
This may seem confusing at first, but the reason these values are added back to net income is because cash did not actually leave your nonprofit with the changes in these accounts. Remember that the income statement is calculated with the accrual method in mind, and the cash flow statement only looks at cash inflows and outflows. Let’s explain how this works.
Depreciation is when the cost of a physical asset is allocated over the course of its useful life. It recognizes how the value of the asset, such as a company car, decreases over time. Since depreciation expense is not an actual cash outflow, it needs to be added back to net income.
If your nonprofit sells an asset at a price that is lower than the asset’s book value, there was a loss on the sale of the asset. For instance, if you sold a lawn mower for $75 and its value was $100, there was a loss of $25, which is listed on the income statement. However, this is not a cash outflow, so the value of the loss will be added back to net income.
A decrease in a current asset, such as accounts receivable, means that customers paid their bills to you, and you have earned cash. Simply stated, a decrease in accounts receivable means there was an increase in cash, so you add this value back in.
Lastly, increases in current liabilities are added to cash. If there was an increase in accounts payable, there is more cash that your organization owes, but the cash has not yet left. Since this is not a cash outflow, this value is added back in.
Subtractions from cash
By now, you understand the logic behind the additions and subtractions from net income. When we subtract values from net income, it is the opposite of what we added in.
You will subtract:
Gain on the sale of an asset
Increase in current assets
Decrease in current liabilities
This is because these changes do not represent cash inflows.
Calculate cash flows from investing activities
The investing activities and financing activities sections of the statement of cash flows are a lot easier to prepare than the operating activities section. You simply add or subtract cash inflows and outflows that result from these activities. For example, purchasing new equipment is a cash outflow, while selling property is a cash inflow.
Calculate cash flows from financing activities
Next, the cash flows for financing activities are calculated. Add or subtract cash inflows and outflows from these activities. For instance, receipt of cash from a loan would be added, while loan repayment would be subtracted.
Ending balance
The final step is to add together the total cash flows from operating activities, investing activities, and financing activities. The ending balance shows you the change in net cash for the period.
Interpreting the nonprofit statement of cash flows
Now that you understand all that goes into the nonprofit statement of cash flows, it’s time to explore how to use it! The nonprofit statement of cash flows is crucial to understanding your organization’s financial health and decision-making. Typically, you will want to have a positive cash flow because this means your organization has enough cash to both fund its operations and pay off short-term debts. However, negative cash flow may not be a bad thing if your organization spent cash to make major investments for the future.
Cash flow can be tricky for nonprofits because of the timing of donations. Nonprofit Quarterly discusses how cash inflow can be heavily concentrated during certain times of the year, such as during an annual fundraiser. Because of this, it can be difficult to manage cash over a period of time. Thankfully, using the nonprofit statement of cash flows can help you with sound decision-making.
Need help with the statement of cash flows?
The Charity CFO can help you with preparing and understanding monthly financial reports, including the statement of cash flows. Trusted by over 150 nonprofits and with a 99.5% client retention rate, we can be your go-to experts for outsourced accounting services and financial guidance.
Most people dread filing taxes. The piles of paperwork, long hours, and complicated tax codes can be truly overwhelming. Nonprofit leaders have an especially hard time understanding, preparing and filing their returns. They’re ever busy trying to make a positive difference in their communities, which is why tax filing often comes as an afterthought.
You see, a 501 nonprofit corporation is recognized as tax-exempt by the IRS but this doesn’t mean they are exempt from filing taxes. Most still need to file a tax return to maintain their nonprofit status and keep their organization tax compliant.
Fortunately, filing taxes for a nonprofit doesn’t need to be stressful. By following these 7 steps to nonprofit tax filing, you can sail through the process and get your taxes done quickly and easily.
Start With the Fundamentals of Nonprofit Tax Filing
Non-profit organizations operate in many areas of society, including education, healthcare, sports, and social services. While dozens of nonprofit exempt statuses exist, they generally fall under 5 types of nonprofits, including;
Religious and church
Charitable
Private foundations
Political organizations
Miscellaneous nonprofits such as charitable risk pools, Federal Credit Unions, hospital service organizations, and retirement funds
These nonprofit categories fall under the following tax-exempt status:
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.
Each has its own set of tax laws, regulations, and forms to fill out. As you prepare to file taxes, make sure your organization falls into the correct classification.
But why is this really important?
To ensure that you don’t lose your tax-exempt status, which allows your organization to have an exemption from paying taxes.
To avoid late filing penalties that can quickly add up depending on the amount the organization has received during the calendar year.
To stay compliant with various state and federal regulations.
To maintain good governance practices and requirements
To make sure that your organization complies with the taxman, you should file IRS Form 990 by May 15 each year. This form allows the IRS and the general public to track a nonprofit’s finances, management practices, and governance structure.
The type of Form 990 to be filed depends on the gross receipts of the organization within that filing year. These forms include:
Form 990 or 990-EZ: Filed by large organizations with gross receipts of more than $50,000
Form 990-N (e-Postcard): Filed by small organizations with gross receipts of $50,000 or less
990-PF: Filed by private foundations
Take a Year-Round approach
Many nonprofits make the mistake of waiting till the last minute to prepare and file their taxes. Unfortunately, if you wait until the last minute you are more likely to make mistakes, overlook important information, and experience unnecessary stress and anxiety.
Instead, develop a year-round strategy for filing taxes that keeps your organization on track throughout the entire tax filing process. This includes:
Tracking all income and expenses
Making sure your accounting matches your bank statements
Keeping up with deadlines
Reviewing your past tax returns to identify any mistakes
Staying up-to-date on the latest changes in tax regulations
Preparing an accurate budget and financial statements
Tracking expenses
Tracking expenses help nonprofits to maximize their resources and solve more challenges for the communities they serve. Careful tracking also makes tax filing easier by allowing organizations to quickly find the information they need when filling out their forms.
Invest in the correct processes, policies, and technologies to ensure all expenses are tracked and recorded accurately, including:
Reconciling all bank account and credit card statements
Ensuring that receipts are collected for all expenses
Run policy checks on specific project expenses
Categorizing each expense correctly
Tracking Revenue
Another measure to avoid stressful filing is by keeping up with the organization’s revenue streams. NPOs should track all donations, grants, and investments made to their organization to make sure they are properly accounted for.
Nonprofits should also keep records of when these donations are made and what type of payment was accepted (cash, check, or credit card). This will help when preparing the tax returns, as well as ensure that donations are properly recognized and acknowledged.
You’ll also need to understand how and when to recognize different revenue streams. Proper revenue recognition is a core accounting principle that ensures proper financial reporting, ensuring that you remain compliant and maintain donor confidence.
Monthly Financial Reporting
Maintaining accurate and timely financial reporting is one of the most effective ways to keep your organization in compliance and ready for tax filing.
Monthly financial statements can have a clear view of your financials and stay on top of your organization’s future expenses. This complete visibility of financial information at all times is necessary to maintain a strong cash inflow and help make informed economic decisions.
According to GAPP, some of the most recommended financial reports that you should generate monthly include:
Statement of activities
Statement of cash flows
Statements of financial position
Statement of functional expenses
Donor reports
Marketing reports
Pay Quarterly Estimates
Most nonprofits do not have to pay federal or state income taxes, but they may still have to pay quarterly estimates if they engage in activities that generate unrelated business income.
According to the IRS, a nonprofit organization must pay quarterly estimated tax on unrelated business income if it expects its annual tax to be more than $500. This Unrelated Business Income Tax, or “UBIT”, is calculated on the organization’s net income from unrelated activities and is due each quarter.
Use Form 990W to determine your estimated tax payments. It’s important to ensure that your organization is paying the correct amount of taxes each quarter. Failing to pay estimated taxes on time can result in huge interest and penalties that could jeopardize your nonprofit’s financial health.
Work with a Trusted Expert for Peace of Mind
Filing taxes for a nonprofit organization can be challenging, time-consuming, and worst of all, stressful. You don’t want to make any mistakes that could trigger an audit or even the loss of your 501(c)(3) status.
That’s why it’s important to work with an experienced tax professional who understands the specific needs of nonprofit organizations. A trusted expert can help guide you through the filing process and make sure all of your documents are accurate and complete.
At TheCharityCFO, we have experienced professionals that help nonprofits just like yours stay on top of their taxes and meet filing deadlines. Our team can provide comprehensive tax and financial guidance to help your organization remain in compliance with all state and federal regulations.
Contact us today to learn more about our services and how we can help you achieve peace of mind with your nonprofit’s tax filing.
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Accounting standards for nonprofits are probably not the first thing you think about, but are crucial for your organization to succeed.
Nonprofit organizations distinguish themselves from for-profit entities through their purpose and mission. Their mission is usually anchored on a cause or social purpose, not on the generation of profits.
Because of their unique structure and operational model, nonprofits must comply with various accounting standards that are, in many ways, different from for-profit organizations.
In the United States, these Generally Accepted Accounting Principles (or GAAP) are set by the Financial Accounting Standards Board (FASB). NPOs must adhere to these accounting policies to remain compliant with the law and maintain their tax-exempt status.
The consequences of not adhering to accounting standards can be severe, leading to:
Inaccurate financial reporting
Hefty fines and penalties
Reputation damage
Loss of confidence from donors and stakeholders
Funds being frozen or withheld
Highest risk of failure and even closure
IRS audits
And in some cases, the revocation of the organization’s tax-exempt status
Here’s what you need to do to remain compliant:
Understand the Basics of Nonprofit Accounting
Nonprofit accounting is a unique process of planning, recording, and reporting the financial activities of a nonprofit organization. The goal is to create an accurate and comprehensive record of all transactions that can be used for both internal and external reporting, including audits and tax returns.
In the FASB 117, the IRS establishes the core accounting standards for nonprofits, which include:
Unrestricted, temporarily restricted, and permanently restricted funds
Ideally, these standards should help your nonprofit maintain transparency and accountability with donors, grant funders, and the public. They also help the nonprofit to allocate their resources properly, keep them organized and only spend on expenses that are essential to the organization’s mission.
This is fundamentally different from for-profit accounting, which is geared towards generating profits and returns for its owners (stockholders). Another difference is in fund accounting. Whereby nonprofits must track their funds separately according to unrestricted, temporarily restricted, and permanently restricted categories.
Section 501 (c)(3) organizations must also adhere to specific tax-filing requirements that are uniquely different from for-profit entities, as outlined in the Internal Revenue Code.
Some of these include:
File Form 1023 with the IRS to apply for recognition of the organization’s 501 (c)(3) tax-exempt status after incorporation by the state
File form 990 (990-N for nonprofits with less than $50,000 in annual revenue and form 990-EZ for those with between $50,000 and $200,000) that discloses your revenue, expenses, and changes to net assets
Pay federal tax Unrelated Business Taxable Income (UBTI) that’s more than $1,000
Identify Relevant Accounting Standards
The truth is, you can’t truly comply with accounting standards without first identifying which ones are applicable to your organization.
First, nonprofits must follow GAAP, the Generally Accepted Accounting Principles. GAAP’s main objective is to ensure that all financial information is reported accurately, consistently, and transparently. This includes financial statements such as:
Income statements
Balance sheets
Statements of cash flows
Statements of functional expenses.
In addition to GAAP, nonprofits must also comply with FASB 117, the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 117 (FASB 117). FASB aims to develop and issue accounting standards through an inclusive and transparent process intended to promote useful information and decision-making by the NPO board, donors, grant funders, and other stakeholders.
There are ongoing efforts to establish International Financial Reporting Standards (IFRS) for nonprofits, which, if successful, could result in greater consistency and comparability of financial information across countries.
The Chartered Institute of Public Finance and Accountancy (CIPFA), together with Humentum, are working to develop these standards under a project titled “International Financial Reporting for Nonprofit Organizations (IFR4NPO)” and has already released an Exposure Draft to establish a framework for their use.
Implement Internal Controls
To ensure compliance with accounting standards, you must have proper internal controls in place. Internal controls are a set of written policies, processes, procedures, and systems of authorization, reconciliation, documentation, security, and separation of duties.
These financial practices:
Promote accountability
Ensure the integrity of financial and accounting information
Help improve operational efficiency by improving the accuracy and timeliness of financial reporting.
Help protect against fraud, embezzlement, and mismanagement of assets and resources.
Internal controls also provide reasonable assurance that things won’t go sideways and mitigates human error or malicious activities. For example, having one person responsible for recording expenditures and another approving the payments ensures that someone continually monitors all financial transactions.
Other common nonprofit internal controls include:
Establishing financial policies and procedures
Implementing an audit process
Creating a risk assessment process
Setting up a system for tracking expenses.
Generating and storing critical supporting documentation
Segregation of duties (SOD)
Access rights and roles to critical financial applications
Multilevel review of financial statements and other reports
Monthly bank and credit card reconciliations
Periodic review of vendors receiving fees/checks from the nonprofit
Background checks for employees and board members
Monitor Compliance
Compliance monitoring is a continuous process of tracking and evaluating data to ensure that your nonprofit complies with accounting standards. This can be achieved by:
Keeping up with new regulatory developments
Regularly reviewing financial statements
Conducting internal audits
Setting up a process for monitoring compliance
Evaluating the effectiveness of internal controls, financial policies, and procedures
Regularly assessing risks and making necessary changes to mitigate them.
Creating procedures for taking corrective action when necessary.
Depending on the organization’s size, you can have a single person (such as a CFO) or an audit committee to monitor compliance.
Work with Compliance Experts
Complying with accounting standards is critical to ensure your nonprofit’s credibility, sustainability, and stability. But this can be hard, especially if you don’t have requisite accounting experience.
To ensure that your organization is properly complying with accounting standards, it’s important to work with experienced compliance experts, such as The Charity CFO.
Our experts give you an independent, third eye visibility, and objective review of your financial practices to ensure you remain compliant. Our qualified compliance experts can advise you on best practices and provide support to ensure your nonprofit organization follows industry-specific accounting.
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Many nonprofit organizations tend to let their financial management slip on the backburner as they get busy fulfilling their mission. Sure, your mission should be a priority, but managing finances can’t be neglected either.
Maintaining healthy financial management is critical for the organization’s sustainability, stability, and flexibility, now and in the future. Without a good grasp of your finances, your nonprofit risks:
Exposure to fraud
Collaboration issues
Misuse of funds and poor investments
Poor financial reporting
Destruction of physical assets
Tax issues and non-compliance with regulatory requirements
So, how can you guarantee that your organization is not exposed to any of these risks? Well, the answer lies in understanding and implementing these 7 essentials of nonprofit financial management.
1. Policies for Good Financial Management
Your nonprofit needs to have clearly defined policies and procedures to ensure everyone is on the same page. These rules or principles should reflect your organization’s values and culture. They should clarify the roles, authority, and responsibilities for essential financial management activities and decisions.
Consistent policies will ensure:
Clear assignment of authority
Better information dissemination
Accountability for everyone involved
Unbiased decision-making
Streamlined administrative and operational procedures
Improved transparency for stakeholders
Timely reporting
Viability of various projects
When creating these policies, make sure they’re regularly reviewed and updated to keep up with changing circumstances, technological advances, and regulations.
Here are some policies that your nonprofit should implement to maintain proper financial management practices:
Gift acceptance policy
A written gift acceptance policy will guide you on the type of gifts you can accept. The point of creating a nonprofit acceptance policy is to:
Offer guidelines to staff and board
Educate the staff and board on critical issues triggered by certain gifts
Help manage donors’ expectations respectfully.
Maintain discipline in gift acceptance and administration
Avoid unnecessary risk, expense, and liability
Comply with IRS regulations
Asset management policies
Your organization has physical assets, including cash, investments, and other tangible property. You must have a policy that outlines who is responsible for the management of these assets.
Conflict of interest policy
You must strike a balance between the organization’s interests and those of its staff, board, volunteers, donors, and supporters. A conflict of interest policy can help you avoid any misunderstandings or disputes by laying down rules and guidelines for self-dealing, nepotism, kickbacks, bribery, and other related activities.
Nonprofit fiscal policy
These policies outline all internal controls necessary for the management of financial resources. They provide a framework for the oversight and governance of financial operations and activities. When creating your fiscal policy, ensure that it complies with the Generally Accepted Accounting Principles (GAAP).
2. A Nonprofit Budget
A nonprofit budget is a planning document that helps predict expenses, allocate resources, and monitor ongoing operations throughout the year. It documents goals, priorities, and expectations for the financial year and serves as a reference guide to evaluate performance.
A well-formulated budget should focus on the goals and objectives of your organization. It should make a strong statement about your organization’s intentions and aspirations. This will help you make informed decisions and achieve your desired outcome.
This financial planning tool will:
Help you focus on short and long-term strategic goals
Keep your donors informed
Make board members accountable
Act as your roadmap throughout the year
Increase transparency in your financial dealings
Allow you to make more informed decisions
Your nonprofit budget should include the following parts:
Estimated Revenue: Revenue sources include member dues and fees, events, merchandise, donations, grants, sponsorships, corporate giving, crowdfunding, fundraising, program income, loans, and program-related investments.
Expenses: Typical expenses include salaries & benefits, insurance, consultant fees, office fees, travel, professional development, utilities, marketing and advertising, program expenses, and fundraising expenses.
3. Nonprofit Financial Management Statements and Reports
Financial statements are a set of reports that summarize the financial position and activity of a nonprofit. These include:
Statement of financial position
Statement of activities
Statement of functional expenses
Statement of cash flow
Statement of financial position (Nonprofit balance sheet)
A statement of financial position provides a snapshot of the financial health of your nonprofit. It measures the nonprofit’s assets, liabilities, and net assets at a particular point in time.
This tool provides several insights:
The overall financial situation of your organization
The level and composition of assets
Your organization’s ability to pay its debts
Sources of your organization’s income and expenses
Your capacity to launch new initiatives and programs
Any potential risks related to financial stability
Changes in the financial position of the nonprofit over time
Statement of activities (Income statement)
This statement provides a birds-eye view of your organization’s financial activities. It tracks the flow of money coming in and out of your organization during a particular reporting period. It also reflects the changes in your organization’s net assets resulting from income and expenses during that period.
It is split into 3 sections:
Revenue
Expenses
Net assets (difference between revenue and expenses)
SOA helps to:
Identify programs that need tweaking if they’re not working optimally
Ease the tax reporting
Bring GAAP compliance
Create transparency and accountability required by the board and IRS
Distribute funds appropriately between departments, initiatives, and programs
Gauge the effectiveness of fundraising efforts
Statement of functional expenses (SOFE)
This statement shows how much money is being spent on each function or program within the organization. Your donors, funders, and the IRS are particularly interested in this statement as it provides insight into how funds are being spent.
SOFE helps answer questions related to:
How much money are you spending on fundraising efforts?
What percentage of your budget is going towards administration costs?
How effective are your programs at achieving intended outcomes?
Are funds being allocated appropriately and efficiently?
Is there a need to invest more in particular projects or initiatives?
Cash flow statement (CFS)
This is a document that outlines all of your organization’s cash inflows and outflows over a period of time. It reports the total amount of cash available to your organization at the end of the reporting period.
4.Annual Report and Form 990
While you can simply use form 990 as your annual report, creating a more comprehensive annual report that includes financial information as well as programmatic and other activities is highly recommended. It helps to:
Market your mission
Tell your organization’s story
Highlight the impact on your community
Thank your donors
Appreciate volunteers
Summarize last year’s initiatives
Drum up support for upcoming programs and initiatives
The annual report should include the following:
Executive summary
Financial statements
Program reports
Donors and sponsors list
Management and board report
Photos and messages from beneficiaries
Links to your social media channels
5.Proper Organizational Structure
It is important to have a robust organizational structure and policies in place to ensure your nonprofit runs efficiently. These include:
Policies for financial management, human resources, and privacy
Roles and responsibilities of board members and staff
Processes for approving new programs, initiatives, and expenses
Risk management strategies
6.Financial Responsibility
As a nonprofit leader, you have the responsibility to ensure that your organization’s assets are appropriately managed and used for their intended purpose.
This involves ensuring compliance with all accounting, reporting, and disclosure requirements. It also involves staying up to date on the latest auditing standards, tax regulations, and IRS filing requirements.
This can be achieved by conducting periodic internal audits, appointing a CFO or finance officer to oversee the financial health of your organization, and adhering to GAAP best practices in nonprofit accounting.
7.Interdependence
Financial management is an organization-wide effort. It is not just about the money–it’s about strategy, governance, and leadership. Keeping everything connected should be at the heart of your approach to financial management. Communicate regularly with key stakeholders to ensure that everyone is on the same page.
Always Be Report-Ready With Accounting Solutions Built for Nonprofits
Accounting for nonprofits does not have to put an excessive strain on your resources. You can access high-end accounting solutions specifically built for nonprofits to help you streamline your financial management processes. This can help save time, money, and resources in the long run and ensure accuracy and transparency.
At TheCharityCFO, we provide bookkeeping services, budgetary reconciliation, real-time tracking of your financial health, and specialized data analytics to help you make informed decisions. Our expert team of CFOs can provide guidance on best practices and help you stay compliant with IRS regulations.
As a nonprofit leader, your financial stewardship is important to remain compliant with the IRS. One way to ensure you remain within the confines of your tax-exempt status is to file and share a number of financial statements.
You have a primary responsibility to your donors, grantmakers, and other stakeholders to find ways to share these statements while still following the highest accounting standards.
Not only that, these statements need to be sound and easy to understand so as to provide a window into the financial health of your nonprofit.
This helps build trust and transparency-the two single most important assets for your organization.
But what are the financial statements?
Financial statements are a set of reports that demonstrate how your nonprofit is doing financially. They include:
Statement of financial position
Statement of activities
Statement of functional expenses
Statement of cash flow.
Interestingly, these statements mirror for-profit financial statements but offer different insights specific to the roles and responsibilities of a nonprofit.
Let’s discuss them in detail so you can know what you need to do to stay compliant and accountable.
Statement of Financial Position
A statement of financial position is a balance sheet for nonprofits, except that the net assets section takes the place of the equity section in a for-profit organization. It gives you a birds-eye view of what your organization owns (assets), its debt and liabilities, and its overall worth (net assets).
Knowing how to record these entries will help you create a sound and well-organized report that gives a true picture of your organization’s financial health, current cash flow, and stability.
1.Assets
This is anything that belongs to the nonprofit, including property, cash, equipment, investments, receivables, prepaid expenses, and pledged donations.
Assets can be broken down as follows:
Current assets (Investments, pledged donations, bank balances, etc.)
Fixed assets (Land, vehicles, fixtures, large equipment, etc.)
Non-current assets (Trademarks, patents, endowments, long term investments, etc.)
2.Liabilities
This includes anything that is owed or due to others.
They are categorized as either:
Current liabilities (payable within a year, such as short-term loans, lines of credit, outstanding bills, accrued expenses, and payroll tax liabilities)
Non-current liabilities (long-term liabilities, such as long-term loans and mortgages)
3.Net assets
Ideally, this is the true value of your organization. It’s everything belonging to you after deducting all liabilities.
For clarity:
Total Assets- Total Liabilities = Net assets
Let’s assume:
Money raised= $10,000 in a given month
Property = $350,000
Accounts = $100,000
Liabilities=$20,000
What’s the net asset?
Net assets = ($350,000+$100,000 + $10,000 – $20,000) = $440,000
This means that your nonprofit has $440,000 that can be deployed to further its goal and mission.
Your nonprofit’s statement of financial position provides several insights:
The overall financial health of your organization
Your organization’s liquidity to take on additional risks, such as expansion and hiring staff
Your ability to pay back existing debts
Your capacity to launch new programs and initiatives
The statement of financial position also helps your stakeholders understand how your organization is funded, how it uses its resources, and what its future financial position may look like.
Statement of Activities
A statement of activities is similar to a for-profit income statement and is used to show the revenue and expenses between two different reporting periods. It shows how you’ve spent your donations and what you’ve achieved with the available resources.
It provides accountability and transparency to your board and donors. This financial report contains three segments:
1.Revenue
How much money did you bring in? What were the earned revenue, donations, grants, government funding, and money received through fundraisings and special events?
GAAP requires that you separate revenue as either:
Restricted: This includes all donations that the donor has given directions on how and when you can spend the funds.
Unrestricted revenue: these are funds that you are free to use for any mission-oriented purposes, including paying salaries and expenses.
2.Expenses
These are all liabilities necessary to achieve your goals and mission. Proper accounting practices dictate that you split your expenses as either administrative/operation, program-based, or fundraising.
To achieve your mission, it is important that you keep your administrative expenses as low as possible and only increase the cap as you grow and expand.
3.Change in net assets
This gives a snapshot of how much money you’ve made between the reporting periods. Did you make more than you gave out? This is your bottom line and acts as a buffer during a slow fundraising quarter. It is calculated by subtracting your expenses from the net revenue.
You should monitor the change in net assets constantly to identify trends and changes in revenue and expenses. This will help you recalibrate your approach to cover any deficits and find solutions to fix the shortfalls.
Why is a statement of activities important?
It helps you comply with GAAP standards and IRS regulations
It helps you maintain the transparency and accountability required by the board donors and the taxman
Helps you identify the need to tweak an ongoing program or project that’s not running optimally
Help financial leaders show where funding is going and determine the long-term viability of various programs.
Helps you make informed decisions on the organization’s critical areas, such as whether to cut expenses, secure additional funding or provide membership discounts
Makes it easy to file Form 990 by providing well-organized financial records
Statement of Functional Expenses (SOFE)
A statement of functional expenses is a financial report used to show how expenses are incurred in your organization’s functional areas. It is also described as a matrix as it shows expenses across the three functional areas of your nonprofit – management and administration, fundraising, and programs.
Your donors, board members, and stakeholders want to be sure that their money is being spent wisely in achieving your organization’s mission.
This ancillary report provides a breakdown of how much money is spent in each area and makes sure that the funds are used only where necessary.
The SOFE helps you answer questions like:
Are we spending more than we allocated for fundraising?
Are our programs running at optimal cost?
Is there room to cut administrative and operational expenses without compromising our mission?
Is there a need to invest more in programs or fundraising?
Cash Flow Statement
The Cash Flow Statement (CFS) keeps track of and records cash inflows and outflows in a given period. It reports the change in an organization’s cash and cash equivalents during an accounting period.
A CFS report has three sections:
Cash flows from operating activities: Shows change in cash other than those reported in the financing and investing sections.
Cash flow from investing activities: Shows amounts spent and received from long-term assets such as vehicles and equipment.
Cash flow from financing activities: This section shows amounts received from borrowing and repayments.
Work with Financial Statements Nonprofit Expert
As a nonprofit leader, making sense of all these financial reports can be difficult, especially if you don’t have a rich background in finance. Working with an experienced and qualified partner can provide credibility to your financial statements, deliver consistent reporting practices over time, and protect your 501(c)(3) or 501(c)(4) tax-exempt status.
At The Charity CFO, we help you understand the ups and downs of your organization’s financials, help you stay on top of IRS regulations, and provide detailed financial statements that can be filed and shared with confidence.
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A nonprofit organizational chart is essential for the company’s success and growth. The internal structure or hierarchy of the organization must be organized and efficient to ensure that there are adequate resources and personnel in place to achieve its goals and mission.
A nonprofit organization chart, also known as an org chart or organogram chart, is a useful tool that is used to create a graphical representation of the structure of the organization and its various departments. It provides an effective way to organize, plan, and manage resources within the nonprofit structure.
Org charts are also used as a management tool to improve team performance, streamline processes, and reduce friction between departments. This can help with internal communication, problem-solving, conflict resolution, and growth acceleration.
With its organization-wide uses and benefits, it only makes sense to have a well-thought-out organogram for your nonprofit organization. So, what do you need to know and consider when setting up a nonprofit organizational chart?
Let’s find out.
What are Nonprofit Organizational Charts?
An organizational chart is a diagram that displays the internal structure of a nonprofit organization. It shows the relationships between different levels and positions in the nonprofit organization. These diagrams can include information about job titles, responsibilities, job roles, reporting relationships, and communication channels between different departments or divisions
Organizational charts can be used to illustrate various touchpoints in your nonprofit organization’s structure. They are usually used to make a statement, through design, on the organization’s culture, beliefs, values, and philosophies.
A well-designed org chart acts as a lifeline for new employees, helping them understand where they fit into the overall structure during onboarding. They can help to create a shared understanding of roles and responsibilities among teams, which in turn improves communication and collaboration between departments.
Organizational charts are also useful tools when it comes to developing strategies, setting goals, establishing policies, and making decisions. Every stakeholder should understand the structure of the organization and the goals it seeks to achieve. You don’t want any team member just skating by.
Why do you need an organizational chart?
An up-to-date org chart serves several important functions for your nonprofit:
Helps the entire organization understand the chain of command
Helps potential donors, grantors and volunteers understand who is steering the ship
Helps new hires to know their colleagues and managers
Provides an overview of how tasks and projects are distributed throughout the organization
Ensures that each department understands its mission, roles, and responsibilities, hence strengthening and optimizing collaboration
Helps the management or HR to anticipate skill and talent gaps, leadership needs, training needs, and future staffing needs
Helps increase organization-wide productivity and performance
Org charts give an eagle-eye view of the whole organization and juxtapose functions against each other, giving the management a clear picture of the expenses, overhead costs, and other operational issues.
We recommend building your nonprofit org chart based on functional areas such as administration, operations, programs, strategy, governance, fundraising, and development. Then further subdivide within each area, depending on the purpose and goals of your nonprofit. This will create a structure for your nonprofit that is flexible and allows for changes to be made as, and when needed.
Types of Organizational Charts
Most people are only aware of the classic hierarchical box-style org chart that shows a clear chain of command, with each position directly reporting to the one above it. But there are actually several different types of organizational charts. Depending on your nonprofit’s location, structure, and needs, you can choose among the following types:
The top-down chart
This is perhaps the easiest to understand, as it follows a traditional business model with an executive team at the top and all other positions directly reporting to them.
Flat chart
This chart structure has fewer layers and a limited hierarchy. It’s useful for small organizations that need to be agile and make decisions quickly. The day-to-day decision-making is made by individual staff members running their own functions and reporting to the board of directors. This type of organizational chart can be useful in terms of accountability, cost savings, and internal communication.
Functional org chart
A functional chart shows the relationship between the departments and their managers and organizes them according to their duties and responsibilities. It starts with the management, followed by department/team leaders, followed by other staff members.
Cross-functional org chart
If you have small teams spread through various departments, you can use a cross-functional org chart. This structure focuses on how various roles and tasks are related, instead of showing who reports to whom. It’s useful for collaborative projects, as it makes it easier to understand how teams are organized and who is responsible for what.
The matrix chart
The matrix organizational structure is a cross-functional structure that allows you to create two or more reporting relationships for each employee. The matrix chart is created by linking the different departments of your organization on a chart. It’s often used when an organization has multiple products, services, or projects that need to be managed. By linking these departments on a chart, you can easily see how each department interacts with the others. This helps to create an efficient and effective workflow for your nonprofit organization.
How to Set Up Your Nonprofit Organizational Chart
Once you’ve chosen the type of organizational chart that best suits your nonprofit, it’s time to set it up.
1.Understand your structure
The first step is to gain a clear understanding of how your nonprofit operates and the roles and responsibilities of each team. This will help you create an organizational chart that reflects your current structure and makes it easier to identify areas for improvement.
Here are several things you’ll need:
A comprehensive list of the executive, employees, and volunteers
Recent pictures of each individual
A detailed rundown of the roles and responsibilities of each position
A solid understanding of the organizational structure and chain of command
2.Design the chart
Use tools such as Photoshop, Indesign, Canva, Airtable, or Microsoft Office to idealize and create your chart. Or you could use an online template from websites like Lucidchart, Creately, or Gliffy to drag and drop elements and create a professional org chart.
3.Add employees and volunteers
Once you’ve created the chart, it’s time to add all your employees, volunteers, and executive members. Include their name, position, department, and recent pictures to make the chart more engaging and easier to read. Some must-have roles to include are CEO, board of directors, executive team members, departmental heads such as Chief Finance Officer (CFO), and administrative staff.
After you’ve added all the members, double-check to make sure that everyone is in the right place and their roles are accurately represented.
4.Make it visible and accessible
Once the organizational chart is complete, make sure to display it in the work area or the lobby of your organization. This will help everyone quickly grasp the structure, roles, and responsibilities of each department, and who reports to whom. It’s also a great way to introduce new members and volunteers to the organizational structure.
Need a CFO for Your Organization?
Organizational charts are an essential tool for nonprofits. They can help create a clear understanding of the roles and responsibilities within an organization, and give stakeholders a better idea of how decisions are made.
Obviously, most nonprofits will have the executive team all set up and forget or struggle to fill important positions such as the program officer, director of events and projects, grant writer, and chief financial officer (CFO). This complicates the organization chart and makes it harder to visualize the chain of command.
Finding a qualified and experienced CFO can be particularly difficult, expensive and out of reach for small nonprofits with limited resources. Fortunately, there are organizations such as The Charity CFO which specializes in providing industry-leading accounting and bookkeeping solutions, specifically for nonprofits.
If you’re looking for a CFO to help manage financial operations and fill the vital role of Chief Financial Officer on your org chart, we are the perfect choice for your organization.
We provide a comprehensive, affordable, and audit-ready financial management system to nonprofit organizations just like yours. Our team consists of experienced CFOs, CPAs, bookkeepers, and financial advisors who understand the complexities of running a nonprofit— so you won’t need to hire a full-time CFO for your organization. Contact us today to learn how our services can help you achieve your financial goal and deliver impactful results.
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Without a clear understanding of income and expenses — it’s impossible to deliver on your organization’s mission, vision, and goals effectively.
That’s why it’s important to start thinking about your budget for 2023 now. By taking the time to assess your current financial situation and map out your anticipated income and expenses for the year ahead, you can make sure that your nonprofit is on track to meet its goals.
Budgeting should go beyond simply tracking money in and money out.
A well-crafted budget can be a powerful tool for decision-making, helping you to prioritize spending in line with your strategic goals. It can also be a valuable communication tool, providing clarity for staff, volunteers, and donors about where their money is going and how it’s making an impact.
A nonprofit budget helps your organization:
Stay fiscally healthy
Allocate resources
Set spending priorities
However, if you’re not careful, it’s only a document.
Only through regularly reviewing and updating a budget does it accurately reflect your nonprofit’s current financial situation. Using the budget, not only creating it, gives you a clear roadmap to follow and ensures your organization stays within the precincts of its tax-exempt status.
Intro to Budgets for Nonprofits
Budgets differ greatly between nonprofits and for-profits. The biggest distinction is that nonprofits don’t exist to make a profit; they exist to further their missions. Therefore, their budgeting process must be geared towards achieving mission-related goals, rather than maximizing financial gain.
A nonprofit budget is typically a planning document that shows how the organization plans to raise and allocate its money to support its programs and operations. The budget will include both income and expenses and will be based on the organization’s strategic plan.
The budgeting process should involve all members of the organization, from the Board of Directors and committees, to the staff and volunteers. Everyone should have a clear understanding of the organization’s financial situation and be able to provide input on where money should be spent.
The budget should be reviewed and updated regularly, at least on an annual basis. As your organization’s financial situation changes, so too should your budget.
There are two main types of nonprofit budgets: static and dynamic.
A static budget is a detailed plan that uses predicted amounts for a given period. It does not change regardless of deviations in revenue and expenses and is typically used for short-term planning. A static budget is ideal for small nonprofits with simple financial structures.
A dynamic budget is more flexible and can be adjusted to reflect changes in income and expenses. It allows nonprofits to respond quickly to fluctuations in their funding and better manage their resources. A dynamic budget is a good choice for larger nonprofits with more complex financial structures.
There is no rule that a budget must be one type or the other; it can be a mix of both. The important thing is to use the type of budget that makes the most sense for your organization and its specific needs.
During your budgeting process, you should constantly monitor your situation and make adjustments as needed. The goal is to have a budget that is realistic and achievable so that you can stay on track and deliver on your mission.
7 Steps to Your Budget
1. Determine a timeline
We are approaching the end of the year, so you may want to start thinking about your budget for 2023 now. By taking the time to assess your current financial situation and map out your goals, you can ensure that your budget is well-crafted and accurate. Allow time for review and discussion, set a target date for board approval, and ensure that everyone understands the budget and their role in it.
2. Clarify context and articulate goals
Assess the current alignment of organizational values, reflect on successes and failures, identify opportunities and challenges, and set goals for the upcoming budget year. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Input from various stakeholders will be critical at this stage. The budget should reflect the collective vision of the organization, and everyone should have a chance to provide input.
3. Decide on the budget structure
What is the primary purpose of your budget? Is it a monitoring tool, a funder compliance roadmap, or a blueprint for change? Your answer will determine the structure of your budget. A results-based budget, for example, focuses on outcomes rather than inputs and is often used to demonstrate impact to funders.
On the other hand, an activity/program-based budget is more commonly used to track expenses and income related to specific programs. Other budget structures you can adopt include time-based, source-based, impact-based, and cash-flow budgets.
4. Develop a draft income budget
This is where the rubber meets the road. Once you have decided on the structure of your budget, you can begin to fill in the details. Begin with a list of all income, including both one-time and recurring items. Project income for the upcoming year based on past performance, current trends, and any known changes. If your organization is expecting any grant funding, make sure to include the conditions of the grant in your budget.
5. Create a draft expense budget
Articulate the direct and indirect costs associated with each goal. Indirect costs, also known as overhead costs, are those that cannot be assigned to a specific program or activity. They include items such as rent, utilities, and administrative salaries and should be allocated in a fair and reasonable manner. Once all expenses have been accounted for, compare your total income to your total expenses to ensure that you are not overspending.
6. Review and revise the budget
Discuss potential risk areas, including any potential changes in funding, unanticipated expenses, or unrealistic income projections. Make any necessary changes to the budget and get feedback from key stakeholders. Create a consolidated budget spreadsheet that addresses values, goals, and named priorities. Revise the budget to make sure that it is achievable and realistic.
7. Finalize the budget
Present the budget to the board for approval, get sign-off from the executive director, and distribute the budget to staff. Make sure that everyone understands the budget and their role in achieving the organization’s goals.
Ensure that all decision-making processes and rolling forecasts are documented for easier monitoring. Ensure that you review and update the budget regularly to account for any changes in funding, new programs, or unanticipated expenses.
Specialized Nonprofit Budgeting Help
Budgeting for a nonprofit organization can seem daunting, but it doesn’t have to be. The most important aspect is to identify all possible sources of income and expenses. Once you have a clear understanding of the organization’s finances, you can begin to develop a budget that meets the needs of the organization.
Having a well-thought-out strategic forecast and budget can help your nonprofit gain better visibility with donors and funders, manage expenses more effectively, and make sound financial decisions. These are all important factors in ensuring the long-term sustainability of your organization.
But with all the moving parts of a nonprofit organization, it can be difficult to know where to start. That’s where we come in. Our team at The Charity CFO has extensive experience in nonprofit budgeting and can help you develop a budget that meets the specific needs of your organization. Having worked with over 150 nonprofits, we understand the challenges you face and can offer tailored solutions to help you overcome them.
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What should you look for when evaluating nonprofit accounting services?
Nonprofit organizations exist to further a mission or goal. These entities rely on donations, grants, membership fees, and program revenue to stay operational.
Whether you are an educational, charitable, religious, sports, or other public-benefit organization, you need to have a good handle on your finances in order to make the most impact.
The truth is, many nonprofits tend to fumble when it comes to their books.
Yes, they might have a board member or volunteer who takes care of the finances, but they often lack specific expertise in nonprofit accounting. As a result, the organization might not adhere to Generally Accepted Accounting Principles (GAAP), which can trip them up come tax time or during an audit.
Governance issues, tight regulations, and high public accountability standards mean strong accounting practices are more important than ever. Sound financial management helps avoid jeopardizing tax-exempt status and the success of your operation.
Benefits of Nonprofit Accounting Services
Nonprofits need to focus on generating enough funds to keep themselves going while adhering to principles of accountability and transparency. This can be a difficult balancing act, which is why working with an experienced nonprofit accounting service is essential.
Here are some of the key benefits that your organization can enjoy by outsourcing its accounting needs:
1. Saves time and money
A good accounting solution will automate a lot of the manual tasks (i.e. data entry, invoicing, and report generation). This frees up your time so for focus on more important tasks, such as fundraising and program delivery.
Saving time often saves money, too. For instance, saving on costs associated with hiring and training in-house accounting staff. Outsourcing financial record-keeping also improves efficiency, eliminates unnecessary expenses, and minimizes grave accounting mistakes.
2. Improves compliance
As a 501(c)(3) organization, you are subject to a number of rules and regulations. When you juggle multiple priorities, it’s easy to overlook some of these accounting and tax requirements.
The right accounting partner ensures your organization’s books are in order — and that you adhere to all the relevant laws and regulations. This mitigates penalties, late filings, audits, and fraud (all too common in the nonprofit sector).
3. Boosts donor confidence
Donors want to know that their money is being put to good use and that the nonprofit organization they’re supporting is being managed responsibly. When you have a clear financial picture, it builds donor confidence and trust in your organization.
4. Generates accurate financial reports
Most nonprofits lack accounting and bookkeeping systems that can generate results and insights that can help them make sound decisions. Nonprofit accounting services give you the tools and knowledge you need via accurate reporting.
A solid picture of finances helps with strategic planning, identifying new fundraising opportunities, and evaluating program effectiveness.
Nonprofit Accounting Services: More than a Bookkeeper
Because of how they receive funding and the type of work they do, nonprofits have more unique accounting needs than a typical business. And while you might be able to find a bookkeeper who is familiar with the basics of nonprofit accounting, it’s important to partner with an organization that specializes in providing services to nonprofits.
They will be familiar with the unique rules and regulations that apply to your organization and will be able to tailor their services to meet your specific needs. In addition, they can provide valuable insights and advice on how to improve your organization’s financial health and efficiency.
You see, while for-profit businesses focus on generating profits, nonprofits focus on the appropriate utilization and allocation of resources to further their mission. This requires deliberate financial planning, budgeting, and bookkeeping that may be impossible for someone without experience in the nonprofit sector to understand.
That’s why it’s essential to partner with an experienced nonprofit accounting solution that can provide you with the support, resources, and guidance you need to navigate the complex world of nonprofit accounting.
As your organization grows, your accounting needs will become more complex. A certified accountant with experience in nonprofits will help you:
Maintain a detailed GAAP-compliant chart of accounts
Establish accounting policies and procedures in line with best practices
Implement an internal control system to safeguard your assets
Design a system to track and report on programmatic expenses
Prepare for and manage an annual audit
Restructure your business model or operations
Predict future financial health based on current trends
Advise on your 501 c3, 990, state, and local filings
Considerations When Choosing Nonprofit Accounting Services
With so many options available, choosing the right nonprofit accounting solution can be daunting. But if you keep the following factors in mind, you’ll be well on your way to finding a partner that’s a perfect fit for your organization.
1. Experience working with nonprofits
Perhaps the most important factor to consider when choosing an accountant is experience. You want to partner with an organization that understands the challenges and opportunities specific to the nonprofit sector. They should deeply understand the laws and regulations that apply to your organization and be up-to-date on any changes that could impact your operations.
2. Offer a comprehensive suite of services
As your organization grows, your accounting needs will become more complex. You want to partner with an organization that can grow with you and offers a comprehensive suite of services to meet your evolving needs. Look for an accountant that offers bookkeeping, financial reporting, budgeting, strategic planning, and audits.
3. Utilize cutting-edge technology
Technology can be a powerful tool and a game-changer in the nonprofit sector. It can help you increase efficiency, improve transparency, and better manage your finances. Look for a nonprofit accounting provider that utilizes cutting-edge technology, such as cloud-based accounting software, to help you streamline your operations. They should be able to provide monthly or quarterly updates to your financial reports and offer real-time visibility into your organization’s finances.
4. Provide personalized service
Nonprofits are not one-size-fits-all. Your organization has unique needs and goals that should be reflected in your accounting solution. Look for a company that offers personalized service and can tailor its services to meet your specific needs. In addition, they should provide sector-specific insights and advice on how to improve your organization’s financial health.
5. Transparent and communicative nonprofit accounting services
Transparency and timely communication are critical in the nonprofit sector. Donors, members, and the general public expect nonprofits to operate with the highest level of integrity, which is why up-to-date communication cannot be understated. When choosing an accounting service, be sure to ask about their transparency policies. How often do they communicate with clients? What type of information do they share? Can they break down the numbers in an easily understandable way?
A reputable and trustworthy accounting service will have no problem being open and communicative with you. They should be able to deliver all requisite reports and documentation in a timely manner so you’re never left speechless in front of your finance committee.
6. Go beyond the numbers and offer strategic advice
IRS 501(c)(3) status allows nonprofits to make tax-exempt money from revenue-generating sources.
Examples include:
Providing services
Selling goods
Renting out assets
Or receiving interest and royalties
These “excess revenues,” or “net earnings,” further the organization’s mission, reinvesting back into the organization to fuel its growth (or held in reserve to cover unexpected expenses).
However, nonprofits are not allowed to distribute their earnings to private individuals. These funds must be carefully managed. This is where an experienced accounting service can really add value. They should be able to handle the day-to-day bookkeeping and financial reporting and offer strategic advice on how to best utilize these funds to further the organization’s mission.
Nonprofit Accounting Services for Your Cause
Running a successful nonprofit is hard, but keeping up with the financial side of things doesn’t have to be. With the right nonprofit accounting service in your corner, you can focus on what matters most – furthering your mission and making a positive impact in your community.
At The Charity CFO, we believe that your finances should never limit your true value and impact. That’s why we offer a comprehensive suite of accounting, bookkeeping, and financial consulting services to help you achieve your goals. We understand your unique challenges and can tailor our services to meet your specific needs.
If you’re ready to take your nonprofit to the next level, we’re here to help. Contact us today to schedule a free consultation and start getting accurate accounting, audit-ready financial reports, and the strategic advice you need to succeed.
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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.
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.
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.
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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