A Guide to the Essentials of Nonprofit Bookkeeping
Nonprofit bookkeeping is all about tracking the funds that are received and used by a nonprofit organization, including donations, grant money, and other contributions, as well as program expenses.
Everything is done with a mission focus — and dealing with the financial health of an organization is no exception.
Here is your guide to the essentials of nonprofit bookkeeping.
Set Your Budget
Setting your budget is very important. If you want to reach the goals you have created, you need to properly allocate your resources. By creating a budget, you get a visual of the money you currently have as well as how much is allotted for each of your expenses.
Primarily based on historical data, this budget can help you plan for the future as it usually predicts expenses and income goals throughout the year. Understand that the first year or two may be rough since there is not much data to plan from. But the more you do this, the easier and more on-point your budgeting will become.
The Importance of Diversifying Revenue Sources
Nonprofit organizations rely on funds from outside sources in the various forms of contributions to keep their doors open. While some sources may be more giving than others, it is important to not allow your organization to focus solely on one or two major donors.
Diversify your revenue streams so that should something go awry, your organization won’t find itself in a catastrophic situation.
Consider this something to keep in mind (and put into practice) as you are focusing on your finances.
Create a Compensation Setting Policy
Many nonprofits have a combination of employees and volunteers. Creating a clear distinction between the two is very important. Who is to get compensated for their work? And which positions are volunteer only?
These need to be clearly stated. And, what’s more, this policy should contain comparable data that reflects how compensation for each employee position is determined.
Keep a Log of Every Transaction In and Out
One of the most basic steps of nonprofit bookkeeping is keeping track of everything that comes in and everything that goes out. This may be the donations received during your most recent fundraiser, payroll for your employees, the cost of office supplies, and all other transactions that pass through your account.
In order to know exactly where your financials stand, you will need to have an accurate accounting for everything. So, keep your receipts and be diligent when it comes to handling your funds. Having a designated individual handle your books is always a great idea — especially when it comes to avoiding any confusion or overlaps.
There is a lot involved in setting up a non-profit. But getting your financials set and in an organized system early on can make it easier for you going forward. Do not overlook this essential step in nonprofit bookkeeping.
Finding a Non-Profit Bookkeeper
While reading through the basics and essentials of nonprofit bookkeeping can help you gain some perspective on what needs to be done, the best step to take is to hire a nonprofit bookkeeper. After all, the financials of your organization are best placed in the hands of a professional.
A non-profit bookkeeper is someone who has a great amount of experience working within the nonprofit sector and a strong familiarity with the bookkeeping process. Rather than turning this duty over to an employee of your company, you can find someone who has the right skills, experience, and tools to get the job done right. This person will:
- Have an understanding of how to fully utilize the best software for organizing and storing your financial data.
- Know and adhere to both state and federal rules and regulations. This will ensure you are maintaining compliance and not landing yourself in hot water.
- Possess extensive experience in handling nonprofit bookkeeping needs. Hiring a large accounting firm isn’t necessary, but rather a smaller company that knows the ins and outs of this industry and its accounting best practices.
Non-profit bookkeeping requires a certain set of knowledge in order to increase the efficacy of the organization. Find someone to help you make it happen.
Mighty Nonprofits provides high-quality, customized bookkeeping services to small and medium-sized nonprofits, including budgeting, planning, consulting, and more.
