Nonprofit Information for Effective Accounting

One very important and often overlooked piece of nonprofit information is the organization’s accounting solution. As a result, not-for-profits mark accounting issues as low priority. They instead “focus on what we actually got into business to do”. Though understandable, this is simply backwards thinking. A thoughtful and robust approach to accounting is an important component to any healthy nonprofit.

Know Your Resources and Write Them Down

Not-for-profits and for-profit organizations operate differently. Consequently, these organizations also face different accounting problems. For instance, understanding how to report value added by volunteers can be tricky. Although you don’t report this resource directly, you may describe it in Form 990. It’s nuanced processes like this can trip up even the most diligent of organizations. 

In addition to volunteer tracking, staying on top of donor activity is also a unique to not-for-profits. By the Generally Accepted Accounting Principles, it’s important to record pledges when given rather than when cash is received.

Don’t Go Alone!

One of the most common and avoidable mistakes new nonprofits make is poor accounting delegation. It is incredibly tempting to push your organization’s accounting responsibilities off to a volunteer. 

Do NOT fall into this trap! 

Financial decision makers tend to overestimate their volunteer’s untrained accounting abilities. More importantly, they underestimate the value of a trained accountant.

Not-for-profits without professional accounting run some serious risks. These risks could include budget mismanagement, fraudulent bookkeeping, and failing to keep up with the ever-changing nonprofit information required for good practice. More than those risks, going the volunteer route forfeits the consistency secured by a professional. That consistency will allow your organization to focus on what it does best when it comes time for an audit.

Play a Meaningful Role in the Accounting Process

Although professional accounting is a must, your role in accounting must not end with this outside hire. It is vital that you, your staff, and your board members understand more than the bottom-line of your financial statements. Whichever accounting solution you choose, they need to be able to effectively communicate to you what’s happening on your balance sheet and statement of cash flows. It’s here that you can transform insight into action.

Non Profit Information is Power & Numbers are Your Friend

More than internal decision-making, your accounting nonprofit information may be directed outwards as well. This information can play an important role in generating donor enthusiasm. An intimate understanding of your financial statements will allow you to show donors the relationship between funding and results.

Where to Go From Here

Given the importance of thoughtful accounting in a healthy nonprofit, now is a great time to evaluate the system you have in place. Find an accounting solution that can keep up with the changes of nonprofit accounting. More importantly, make sure your solution can communicate those changes and other nonprofit information to you. When well implemented, your accounting system can transform from a legal requirement to a vital tool for your nonprofit.

Share it! on Twitter on Facebook on Google+ on LinkedIn