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
- Identifying proper nonprofit cash handling procedures
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.
- 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.