Why does an industry whose organizations operate on often tight budgets seem to have the most complex accounting and reporting requirements? It really seems unfair. I’ve worked with many nonprofits of different sizes, many of which simply don’t have the extra funds to throw at an accounting department, and because of this, having a good, clean, easy to understand set of books can be a continuous struggle.
One reason for this struggle is the need to see information pivoted in many different ways; grant activity reports, cash basis budget reports, accrual based audited financials, cash flow projections, donor restricted net asset reporting, and so on.
So how can a budget sensitive nonprofit keep their accounting costs down while still being able to get the reporting they need? Consider the following tips.
1. Don’t overthink your accounting software.
Just because nonprofit accounting is complex doesn’t mean your accounting system has to be. There is a lot of software, a lot of it very good, that specializes in nonprofit accounting. The problem is that a lot of the systems are not user friendly, take additional training, and don’t integrate with other third-party applications that might make running your organization more efficient. All of these factors have real and hidden costs. Choosing a cost effective, less specialized accounting software such as QuickBooks is a perfectly good option that integrates well with other desirable low-cost specialized nonprofit software, like donor platforms. A bonus is that QuickBooks is very common and it is easy to find cost effective training or bookkeepers with QuickBooks experience.
2. Don’t put too much burden on your chart of accounts
When you have a lot of different programs, grants, and restrictions to track, it is tempting to just keep adding accounts to your chart of accounts. Resist this temptation! This rarely makes accounting easier and often leads to errors and just more confusion. Keep your chart of accounts simple, and use subledgers or ‘horizontal’ accounting structures such as classes in QuickBooks to let your chart of accounts work smarter and not harder.
3. Leave the accrual accounting for the auditors
This doesn’t mean that you shouldn’t understand accrual-based accounting or not attempt to make year-end entries to make your audit go more smoothly, but cash basis accounting is efficient and perfectly viable to use over the course of the year. Don’t unnecessarily complicate things by trying to achieve GAAP based monthly financial closings if it isn’t required. Another plus is that cash basis bookkeeping usually aligns with a nonprofit organization’s cash-basis budget.
4. Know how to read your financial statements
As an executive director, you don’t have to be the accounting expert of your organization, but knowing how to read your financial statements goes a long way to identifying accounting errors and keeping things on track. Having an executive director that is engaged with the financial statements provides valuable oversight and support for a lean nonprofit accounting team.
Contact Marshall Jones in Atlanta GA, for Your Non-Profit Accounting Needs
Ultimately, overcoming the accounting hurdles for your nonprofit can be difficult, and if these tips aren’t enough to get you on track, know that Marshall Jones is always here to help.