A One Hour Nonprofit Bookkeeping System?

“We’d like to have our accounting take an hour a week instead of 10 hours.”

Amy, the executive director of a five-year-old human services organization, poured out her frustration. “Our volunteer accountant says she is willing to put in about an hour a week, but if it’s going to be 10 hours she is leaving.”

In addition to the problem of taking too much time, Amy also told us that they are way behind on bookkeeping and scrambling to complete their Form 990 for the prior year.

Sound familiar?

What are the keys to drastically reducing bookkeeping workload while at the same time keeping up with monthly transaction entry and producing useful accounting reports? We have a few suggestions.

Step 1 – Start with a clean balance sheet.

See our New Year’s post from a year ago, A Fresh Start for Your Nonprofit Accounting? for a list of procedures by account to maintain your balance sheet, along with the backup support needed for each account.

Step 2 – Identify major programs.

This is not always as easy as you might think. Programs change and evolve over time. Take stock of your organization’s current activities. Consider which activities comprise major program service areas. These are the programs you need to be tracking in your accounting system.  See our blog post Major Programs.

Step 3 – Understand functional expense reporting.

Nonprofit organizations must report expenses by three main areas:

  1. Programs
  2. Management & general
  3. Fundraising

Functional expense reporting is a major underlying framework for nonprofit accounting. If you understand the basics of functional expenses, then you will be able to apply this knowledge to your organization’s bookkeeping system. As a result you will be far better prepared for Form 990 reporting and for an audit.

See our posts on nonprofit overhead for explanations of each of the functional expense categories.

Step 4 – Design the profit and loss report.

The profit & loss report needs to provide useful information for Form 990, audited financial statements and management purposes.

The design of the profit & loss report (and the balance sheet) is a direct result of the design of the chart of accounts. See our posts The Art of Creating a Nonprofit Chart of Accounts – Part 1 of 2 and The Art of Creating a Nonprofit Chart of Accounts – Part 2 of 2.

Step 5 – Plan how you will account for major programs and support services.

This step puts together steps 2, 3, and 4. Refer again to our blog post Major Programs.

Step 6 – Make a plan for monthly bookkeeping.

Bookkeeping software, even extremely well-designed bookkeeping software, does not run itself. Who will enter transactions each month? Who will review the resulting financial statements to ensure they are correct?

Look for opportunities to streamline data entry through use of technology. See our post Read This Before You Buy QuickBooks (Or Any Other Accounting Software).

Training for those charged with maintaining the books and documentation, including checklists, help tremendously. Speaking of documentation…

Step 7 – Document your bookkeeping system.

Documentation of bookkeeping procedures helps to ensure consistency. Also if your bookkeeper leaves, it’s easier for a new person to pick up.

A Bookkeeping System in a Bag

We offer a bookkeeping system designed for nonprofit organizations called QuickBooks® to Go!  This system can work with QuickBooks Online or QuickBooks Desktop. It will take some customization for your organization and can continue to be customized as your organization grows. It comes with documentation which can also be edited and added to depending on your organization’s needs. The earlier you are in your organization’s existence, the easier it will be to implement QuickBooks® to Go!

The interesting thing is that creating an accounting system to reduce the hours it takes for bookkeeping each month will also result in better reports. Your reports will be more readable because they will be better designed. And they will be more accurate because transactions will be recorded properly.

What a relief to have bookkeeping under control. Now you can get back to work on your mission!

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