Are You Following These Nonprofit Accounting Best Practices?

nonprofit-accountingAccounting for nonprofit organizations can be challenging, as nonprofit organizations (much like their business counterparts) are under increased scrutiny when it comes to financial reporting. As federal and private grant requirements become more stringent and donors demand full-disclosure of financial records, nonprofits are challenged with creating effective financial reports in addition to juggling the day-to-day tasks involved in running a nonprofit organization. Accounting software for nonprofit organizations, such as Abila MIP Fund Accounting, can help nonprofits meet reporting regulations and keep their donors (and grantors) happy.

Developing good financial practices is important to the longevity of your nonprofit organization. Without good financial practices, you risk losing your grants and mismanaging your funds. Accounting software for nonprofit organizations can help you develop good financial practices, as well as provide you with a clear view of your finances so you can make more effective decisions. Relying on nonprofit accounting software to meet growing government and donor requirements is smart; however, in order to develop effective accounting practices, you need to know how to use the software effectively. We’ve created a list of nonprofit accounting best practices to help you maintain compliance with federal and private grant regulations, as well as ensure the effectiveness of your financial management:

  1. Develop an annual operating budget.
    Developing an annual budget for your nonprofit organization should be your focus at year-end and the beginning of each year. Take the time to compare your expenses to your annual income (including grants, donations, etc.) and develop a plan that works for your organization. While you should include both guaranteed and yet-to-be-determined income, make sure that the Board and executives are aware that your budget includes projected income. Including your fundraising plans within the budget will also help your leaders understand your organization’s financial plans for the upcoming year.
  2. Make cash flow a priority
    Effective cash flow management needs to be a priority for your nonprofit. Accounting departments often lack the insight needed to create accurate cash flow projections, so involve your leadership in creating cash flow projections. It’s essential to anticipate cash flow issues and form a plan of action to solve any potential cash flow problems. Keep in mind that timing problems can often be prevented by properly managing the timing of payments and receipts, improving internal accounting systems, and arranging for a line of credit.Many nonprofit accounting reports track spending trends from the past so organizations can easily review and analyze their financial habits. Run these reports on a regular basis so you can determine how your organization’s cash flows and address issues where it does not.
  3. Don’t avoid “restricted” grants just because they are complicated.
    A grant is a grant, and your nonprofit organization should not pass up on valuable opportunities for funding. While restricted grants certainly require more reporting than regular grants, they can be beneficial if you know how to handle them. Consider what the grant is restricted to and determine if it fits with your organization’s mission. If the grant funds an essential program, accepting the grant would be in your best interest. If, however, the grant distracts you from your organization’s mission, you’re better off passing it up and looking for alternative funding.

Focusing your efforts on improving your nonprofit accounting processes is worth the time and effort. If your organization is still using general accounting software for your nonprofit accounting, it may be time to move to an accounting solution designed specifically for nonprofit organizations. Give us a call today to learn how specialized nonprofit accounting software can help you improve your accounting and create the reports you need to comply with nonprofit reporting requirements.

Stay tuned to our blog for more nonprofit accounting best practices.