NonProfit organizations are under increased scrutiny where financial reporting is concerned. As government and donor requirements continue to become more and more stringent, nonprofits are challenged with creating effective financial reports for their donors and grantors in addition to juggling the everyday challenges involved with running a nonprofit organization. Accounting solutions, such as Quickbooks, Abila MIP Fund Accounting (formerly Sage MIP Fund Accounting), Blackbaud, Microsoft Dynamics, Peachtree or Intacct, can help nonprofits effectively manage their daily accounting tasks as well as meet donor demands. No matter which accounting solution you use to manage your accounting processes, accounting software can help you create effective financial reports to answer your donors’ most important questions.
Accounting software can help nonprofit organizations develop good financial practices for years to come, as well as provide them with a clear view into their financial records so they can make better decisions for the organization. Nonprofits rely on accounting software to meet growing government and donor requirements, but in order to create effective reports they need to know how to use the software effectively. We’ve created a list of financial management best practices to help your nonprofit maintain effective financial reports:
- Cash flow should be a priority.
Managing cash flow and contributing to cash flow projections needs to be a priority for nonprofit leaders. Accounting departments often lack the insight needed to create accurate cash flow projections, so nonprofit leadership needs to have a part in developing these projections. It’s important to anticipate cash flow issues and form a plan to solve any potential cash flow problems. Remember that timing problems can often be prevented by improving internal accounting systems, properly managing the timing of payments and receipts, and arranging for a line of credit.Many financial reports document spending trends from the past so nonprofits can easily review and analyze their financial habits. It’s important to run these reports regularly so you know how the organization’s cash flows and can address issues where it does not. - Create an annual operating budget.
Budgeting is an essential financial best practice for nonprofits and businesses alike. It’s important to compare your organization’s expenses to your annual income (this includes donations, grants, etc.). Your budget should include both guaranteed and as-yet-to-be-identified income; however, the Board and leaders need to be aware of the amount of unidentified income in the budget as well as the plan to raise funds during the year. - Don’t avoid “restricted” grants.
Restricted grants certainly require more reporting than regular grants and because of this, nonprofits often rule out these types of grants. Restricted grants, however, can be beneficial to nonprofits if you know how to handle them. Rather than looking at the restriction as a whole, you should consider what the grant is restricted to. If the grant is funding a program essential to your organization’s mission, accepting the grant would be in your best interest. If, however, the grant pulls you in a different direction than you’d like to go (or goes against your mission), you’re better off avoiding it. - Hire an accountant to handle your nonprofit’s finances.
Hiring an accountant is essential to your organization’s success. A professional accountant will not only ensure that your records are in order come tax season, but he or she can also help you manage your financial records in your accounting software and develop the reports you need to meet federal and donor requirements.
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If your nonprofit organization is in need of an accountant to help you better manage your finances and create more effective financial reports, give us a call today at (703) 834-0776.