Accounting Functions for Non-Profit Organizations
Non-profit organizations are for the welfare of the people. People hardly do business out of non-profits, and there is never really a service and profit margin at play. If all that makes you think you will not have to deal with spreadsheets and general ledgers while running a non-profit, you are mistaken.
A proper accounting department is necessary for any organization, be it a non-profit or a for-profit one. Meanwhile, for most for-profit businesses, accounting functionalities may be similar. The non-profit is an entirely different ball game as it involves a lot of funds, grants, scholarships, procurement and distribution of funds, and the regular running of operations.
Here is a guide on how to set up accounting functions for non-profit organizations from scratch.
Accounting Solutions
There are tons of non-profit organizations. You should select one that offers functionalities best suited for a non-profit organization. Some of the best software for non-profits include QuickBooks and Money Minder. If you need clarification on accounting software, use detailed Excel spreadsheets suited for non-profits (templates are readily available online). Alternatively, to save yourself from all the hassle, you could outsource the bookkeeping task to a company specializing in non-profit bookkeeping. Whatever you choose, ensure that you can record all donations and disbursements and keep track of payroll, petty cash, and administrative expenses.
Facilitate Fund Accounting
Since non-profits usually deal with many incoming donations and grants, scholarships, and funds, it is best to have an accounting solution to facilitate fund accounting. Since the disbursement of money for specific causes must comply with government laws and regulations, it is best to keep pools of cash dedicated for varying purposes in different bank accounts to better account for taxation and disbursement.
Separate Accounts
It is the golden rule of accounting. Be it a business or a non-profit organization, never mingle your bank account with your business or non-profit one. Keep a single account for all the incoming donations and disburse donations for various causes to different secondary accounts from this one. Second accounts help keep the cash flow managed and make tracking contributions dedicated to a particular cause quickly.
Effective Reconciliation
With multiple accounts and thousands of incoming donations and disbursements, it is essential to have a system that allows you to reconcile all your banking statements. Reconcile the bank statements and ensure the money matches all the incoming donations and disbursements combined. You can do this by comparing all your transactions in the bank statement with your accounting books. If your operations also include purchasing goods, you should use purchase orders to track all your purchases appropriately. Pro tip: Reconcile your books regularly out of practice instead of leaving them for the last minute.
Recording In-Kind Donations
Small non-profits ignore this, but it is imperative and mandatory as per the law. In-kind donations are services attributed to the organizations by independent individuals. Take the case of a therapist who offers 8 hours of voluntary sessions for an organization for orphaned children. If the therapist usually charges $100/hour, the in-kind donation will be recorded as $3,200/month and disbursed on the books as the therapist’s fee. This in-kind donation is per the IRS laws, but both parties can mutually agree upon anything below $5,000.
Budgeting
Like any regular organization, budgeting is crucial to a non-profit. Create a budget that outlines the sources of income for the fiscal year. Lay down the projects underway and specify the budget for each project. Add operational expenses, such as payroll, coordination, utilities, administrative costs, etc., to the budget. While doing all of this, make sure you use conservative figures to alter the budget later if ever needed.
Conclusion
In conclusion, setting up practical accounting functions for a non-profit organization is essential to ensure transparency, compliance with regulations, and responsible financial management. Despite the generous nature of non-profits, the intricate handling of funds, grants, scholarships, and day-to-day operations requires a solid accounting system. Choosing suitable software or outsourcing to specialized bookkeeping services, adopting fund accounting practices, and maintaining separation between personal and organizational bank accounts are critical steps.
Implementing these tips provides a solid foundation for sound financial practices in a non-profit, aligning with the organization’s commitment to making a positive impact while ensuring fiscal responsibility and accountability.
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