You may not run your nonprofit like a business, but bookkeeping for nonprofits works very much like it. It involves the usual tasks that all businesses use to record, track, and analyze all transactions. The major difference in the two is the tax-exempt status of the nonprofit. However, nonprofits must still answer to the IRS, not to mention their donors. Below, we will show you some best practices on doing just that.
1. No Taxes = More Transparency
No one said a tax exemption would come without strings. One of the biggest is the need to remain financially transparent ALL THE TIME. For profit businesses do not have share their financial information with outsiders on a normal basis. Nonprofits do. For example, your financial records must reflect the commitment to your officially stated charitable purpose through the spending of your assets.
2. Budget Like a For Profit
It is essential that you budget your funds just like any for profit business would do. At least each month you should require monthly budget assessments and meetings to include a cost-benefit analysis presentation. Budget meetings should go over efficiency and include the below:
- Budget projections versus results review. Make adjustments if they don’t add up.
- Analyze each item to look for ways to cut costs. There are no sacred cows. If you have extra funds, plan for their best use.
- Review variable costs such as phone, power, internet, etc. Providers are always looking for new clients and are often willing to offer great introductory deals.
- Collaborate with other nonprofits in your area. You’d be surprised how much you can help each other rather than compete.
It is also important to have similar, more comprehensive meetings each quarter and each year.
3. Prepare and File Your Taxes
Your nonprofit is most likely 501(c)(3) tax exempt or has a similar status, which means you don’t pay federal taxes. This does not mean you don’t have to file them. IRS Form 990 – Return of Organization Exempt From Income Tax is usually the standard for nonprofits to file their taxes. The form requires you report a number of items including but not limited to:
- Information on mission and voting members.
- The total dollar amount of all contributions including grants, donations, and other income.
- Expenses paid to members, beneficiaries, etc.
- Total assets and liabilities.
- A checklist of required schedules.
- Schedule O – Supplemental Information to Form 990.
4. Bookkeeping Checks on All Incoming and Outgoing Funds
Nonprofits can be subject to any number of scams, schemes, and outright theft that a for profit is vulnerable to. Bookkeeping is an important part of catching these practices, if not outright preventing them. It is essential your nonprofit have a reliable third party who can review all of the above to ensure your assets are protected so you may continue to pursue your mission.
Houston Bookkeeping for Nonprofits
Please contact us if you are a nonprofit and in need of a bookkeeping professional to protect your assets.