“Best practices” may be an overused phrase these days, but your nonprofit must have precise, timely accounting procedures in place.
For-profit businesses have a simple overall mission: to provide quality products and services to customers that will meet their needs (and to make a profit doing so).
As a nonprofit organization, you’re charged with something a little different: being a good steward of the money that people have given to you, expecting nothing in return but the knowledge that they’re contributing to a worthy cause.
The accounting process for each is similar. You still have to send invoices and pay bills, create reports and monitor your cash flow. But there are differences, and it’s critical that you adhere to the procedures required of you. Here are some guidelines for accomplishing that.
Hire accounting expertise. There should be someone on staff (or a fully-engaged accounting contractor) who understands Generally Accepted Accounting Principles (GAAP) for nonprofits.
Create an annual operating budget. Because you rely on donations, grants, etc., you probably know about funds that have been committed and money that may come in when you sit down to build your budget, but just as with for-profit businesses, many things will change throughout the year. Still, you need to project as concretely as is possible.
Use accounting tools designed for nonprofits. Small business accounting software can be especially beneficial when you hit a cash flow crunch, which is often a problem for nonprofits. Intuit, for example, sells a version of QuickBooks Premier that was built to meet the specialized needs of nonprofit organizations. Among its industry-specific features are features that help you:
- Run donor contribution summary reports
- Build donation statements at the end of the year, and
- Create Form 990.
Have solid internal controls in place. This is critical for any nonprofit organization. Internal controls consist of the many safeguards that need to be put into place to ensure accountability to donors, government agencies, etc. Such safety measures include proper handling of funds; timely, accurate reporting; and periodic audits.
Adhere to the IRS’ requirements for annual reporting and filing. The IRS has very strict guidelines for the tax filings required to maintain an exempt status. For example, you must file a Form 990. But you must know which version is appropriate for your organization. This is generally based on the total of your annual gross receipts and/or total assets, but as is often the case with IRS regulations, there are exceptions.
Whether you are just starting a nonprofit organization or have run one for years, it’s critical that you work with your CPA firm to ensure that you remain compliant. If your returns are filed late, you’ll be subject to penalties. And if you fail to file for three consecutive years, you’ll lose your federal tax-exempt status.
Obviously, nonprofits are governed by very concrete rules where finances are concerned. Make sure that your organization is allowed to continue its important work.