Bookkeeping Practices
Keep a careful watch over your books. You want accurate data regarding your income and expenses as they relate to each activity or event you run. This will help you when it's time to file taxes or you need to show financial information to an auditor, a government agency, or a foundation from which you are seeking a grant.
It is imperative that someone in your organization has basic bookkeeping and financial management skills. If not, you may need to hire someone to handle your accounting. Board members and directors need to address this key aspect of an organization. In small groups, one person may find himself wearing many hats, including those of the bookkeeper and accountant. Cash management and bookkeeping need to be done carefully and with utmost integrity.
If you are in a management position for a nonprofit organization or are running a fundraiser, you should have a basic understanding of how to read financial statements and your organization's books to better comprehend the financial status of the organization. Brush up on basic accounting skills.
Whether you or someone you trust is handling the bookkeeping activities, it is crucial to record all financial transactions in a clear manner. The work needs to be easy to decipher in case there is cause to review your books. Remember, each organization will have its own policies and guidelines for handling financial transactions. Once such a working system is established, it should be carefully maintained.
It is common for nonprofit organizations to authorize two or three people to sign checks. In some cases, two signatures may be required for every transaction. Some organizations, however, may feel this is unnecessary because it may be difficult to get the check signed by two people when it needs to be mailed out quickly. Whatever system you use, be consistent and only give signing privileges to a limited number of responsible people.
Because members of the organization do not see each other regularly, checks are often presigned to be used when necessary. This practice should be avoided whenever possible. It can lead to serious problems if the checkbook falls into the wrong hands.
Your Accounting System
When handling the accounting for your organization, you can use either a cash-based system or an accrual-based system. The cash-based system is similar to the manner in which you maintain your checkbook, except you'll be using a ledger and posting cash receipts into the cash receipts journal and cash disbursements into the cash disbursements journal. The system, which is more common in smaller to mid-sized organizations, is based on cash transactions.
An accrual basis is one where entries are posted when money is earned and owed. This is usually more common in larger organizations. Utilize this system when filling out financial statements where you need to list what income is due you and what expenses are owed. Larger organizations that handle more money can afford to have more money owed, while a small organization will need to have its money readily available at all times.
Methods of Tracking Funds
Depending on the size of your organization or fundraising effort and the computer comfort level of your treasurer, you can work in anything from a basic ledger to an advanced accounting software program. Many people have used a simple Excel program to create spreadsheets and QuickBooks or Peachtree software to handle the accounting for a small nonprofit group. Both QuickBooks and Peachtree also offer online programs whose features include grant and donor tracking, as well as the ability to run reports for board members.
Nonprofit organizations must report account activity for program transactions that relate specifically to services provided. They also need to report supporting transactions, which are more general transactions that are common to all ongoing programs and activities, such as administrative costs.
An audit can provide you with a financial overview. It is generally done by an experienced professional accountant and provides an all-inclusive report of the financial procedures and activities of your organization. An audit will provide you with a document detailing the manner in which your organization is handling its finances. Some nonprofits are required by their own boards to have audits done periodically. In fact, it is a good idea to track state laws to ensure that they do not require audits, as some experts believe this is trend that will gain traction in local legislatures. Even if you are not required to have an audit completed, it is a good idea to conduct one because the document can prove beneficial when you are seeking grants, sponsorship, and corporate funding. The only drawback is that an audit can be costly. Smaller organizations generally cannot afford to have one done until they have built up significant funding and can justify the need for an audit.
Cash Flow
Often, your cash flow will depend on seasonal activities, including your fundraising campaigns. Membership drives or renewals may provide income at certain times of the year, and your special fundraising events will help you maintain a positive cash flow. You will need to plan in advance to have sufficient cash on hand during the rest of the year to cover operating expenses.
Plan accordingly when buying equipment for your office or beginning a public relations campaign. However, situations — or even emergencies — may arise where you will need to spend some of your funds. For example, one group dedicated to preserving the ecology of a particular region suddenly found it needed to help when an oil spill threatened to destroy a nearby lake.
Make sure your organization has procedures dictating how and when to use emergency funds. This may include a vote of the board or other means of determining the use of such funds. The policies should be spelled out in advance so you can act quickly when necessary.
Many organizations set aside a portion of their funding for such emergency use. The larger the organization, the more it can put into this special pool of funds. In any case, keep money in reserve and have cash available at all times.
