Nonprofit Accounting Basics

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Financial Management: Introduction

Whether your organization is large or small, effective financial management is an ongoing process featuring a cycle of good management habits. Sound procedures and internal controls help ensure accurate accounting and high-quality reporting. Evaluation of the information in the reports then facilitates good management decisions and informs both near- and long-term planning. Regular evaluation of the process leads to consistent improvement in financial management.

Internal Controls for Small Organizations

Proper internal controls are essential for all organizations. An important part of ensuring internal controls work effectively is to make sure everyone - including the board, executive director, treasurer, administrator, and other responsible parties - understands their roles and responsibilities when it comes to managing the organization's finances. This includes approving cash receipt and disbursement processes, overseeing expenses, utilizing a budget, and making sure funds are never missing or mismanaged.

Getting Financial Reporting Right: A Guide for Federal Award Recipients

Originally Posted: June 6, 2023

Submitting reports on time and accurately is crucial for federal award recipients to maintain a good relationship with the awarding agency and secure ongoing funding.

Nonprofits Can Better Manage Overhead Expenses

Originally Posted: May 23, 2023

Managing a nonprofit organization’s overhead (management and general) expenses is just as important as managing program and fundraising expenses. Most nonprofits would not dispute this statement.

Capital Investments

An organization’s capital budget is different from a capital campaign budget, which is usually for bricks-and-mortar or other finite project(s). Annual capital budgets accompany annual operating budgets and include non-operating cash requirements for items such as equipment, improvements, and other financial goals such as building operating reserves and other special purpose funds. 

Cash Flow-Internal Reporting

After allocating each line item across the organization’s mission and support activities, each line item should also be spread across the months of the fiscal year. To be truly useful, this should not be just a universal “divide by 12” exercise, especially for revenue line items. 

Infrastructure, Core Functions, and Full Costs-Internal Reporting

Personnel costs are often the largest portion of the budget for most small and midsize nonprofits. Folks who work for small and midsize nonprofit organizations generally are intensely devoted to mission accomplishment, sometimes working longer hours at lower pay than their for-profit counterparts. They deserve good tools and ongoing professional development opportunities and skills training. Budgeting to provide equitable pay and benefits for staffers is also a way to keep those well-trained folks with you.

Cash Flow

After allocating each line item across the organization’s mission and support activities, each line item should also be spread across the months of the fiscal year. To be truly useful, this should not be just a universal “divide by 12” exercise, especially for revenue line items.

Activity-based Budgeting-An Internal Organization Approach

Once the mix of programs has been confirmed during the preparation phase of budgeting, activity-based budgeting is a way to show how the organization plans to allocate resources to the mission and support (functional) activities of the organization (programs, management, and fundraising).

Kristin Bakewell, CPA, CFE

Your Part-Time Controller

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