12 Ways Accounting Can Make You an Awesome Nonprofit Manager
Let’s be right up front — accounting is probably not at the top of your list of fun things to do. Or things you really want to work on today. But you are starting to realize that accounting related problems are getting in your way and holding you back from reaching important goals — like working on your organization’s mission.
What if you had this whole accounting thing under control? How can accounting help you spend more time working on what really matters and less time putting out fires and feeling frustrated? Here is a list for starters.
1. You can pay people for services.
For many nonprofits, payments to employees and non-employees for services make up 80% or more of total expenses. If you can get an efficient process in place to pay people for their services and account for all the related expenses, you have solved a huge part of your accounting problem. Your people will be happy because they get paid correctly and on time, the IRS will be happy because they get their money, payroll tax returns and 1099-MISC forms, and you will be happy because you won’t have to take so much precious time out of every day to deal with getting people paid.
2. You can manage purchases.
Credit cards, debit cards, PayPal, physical checks, electronic funds transfer, reimbursements for out-of-pocket expenses – there are myriad ways your organization can pay for purchases. How do you manage them all? How do you make sure expenses are appropriate? Your accounting system can greatly simplify how you pay for and manage purchases while at the same time reduce the risk of fraud and errors.
3. You can easily run reports on how you spend restricted grants.
Or you can spend the weekend piecing together a report in Excel. Your choice.
4. You can see where your money is coming from.
You can see how much money is coming from various sources such as foundation grants, corporate donations and individual gifts. You can track program service income if you charge fees for services. How much are you giving away in the form of scholarships and discounts? As another example, you can see how much you net after expenses on a fundraiser.
5. You can track donations and payments and provide receipts.
You can enter donations into your accounting system and produce receipts at the same time. You can also provide receipts for services provided and keep track of credit toward future services. You can produce statements that show the transaction history for a particular donor or client. At any time you can see who gave you money, when they gave it and for what purpose.
6. You can invoice people who owe money or who have pledged to make future gifts.
You can track money owed to the organization for services and produce invoices you can send to clients or customers. You can also track pledges receivable, which are promises by donors to give money in the future. You can send reminders to your donors to make good on their pledges.
7. You can see how much you are spending on programs.
As a manager, you need to know how much money you are spending on programs vs. support services (fundraising, management and general). This means you need to be able to track the purpose as well as the nature of expenses. For example postage could be used to mail solicitations to donors (a fundraising purpose) or it could be used to send information to students enrolled in your classes (a program purpose). Donors want accountability for how you spend their money on programs that make a difference in people’s lives.
8. You can pull information needed for Form 990 and your audit.
Both Form 990 and an audit also require a breakdown of expenses by programs vs. support services. They also require a balance sheet report and a profit & loss report, along with many detail reports that support and explain the amounts on these reports. By the way, these reports are also indispensable for good management.
9. You can create a budget and use it as a management tool.
A budget helps you map out how you will achieve your organization’s goals. To create a budget, you must have a good understanding of where your funding will come from and how you will spend money to achieve your goals. Once you have a budget, you can compare actual income and expenses against what you budgeted to manage your progress. For example, if expense for a certain category is higher than budgeted, you can investigate to find out the reason.
10. You can see trends in income and expenses.
If you want to know where you are going, it pays to understand where you’ve been. A good accounting system can give you reports on trends in income and expenses so you can better plan the way forward. You can prepare projected financial statements to show what would happen if, for example, you achieve certain fund raising goals.
11. You can answer board members’ questions.
You can run highly summarized reports that show a “30,000 foot view” of the organization’s activities. You can also run reports that drill down to the details. You can access information to create a financial dashboard for board meetings. With good accounting reports, you will always be on top of what’s happening with your organization’s finances.
12. You can manage cash flow.
Having income isn’t the same as having cash. And incurring expenses isn’t the same as spending cash. Some transactions affect cash but are neither income nor expenses. A basic understanding of accounting concepts (which we provide) combined with good accounting reports will enable you to manage cash flow.
13. BONUS – You can sleep at night.
Accounting is foundational to the success of your nonprofit and to making you an awesome nonprofit manager. A great accounting system is achievable, even if you are not an “accounting person” and even if you have a small or startup nonprofit organization.
“OK so where do I start?”
We hoped you would ask. We recommend you start by reading our next post, “Read This Before You Buy QuickBooks (Or Any Other Accounting Software).”