One of the most important aspects of running a non-profit is accounting. Without it, your organization can face financial problems down the line. So in this article, learn about the best accounting practices for non-profits.
Even if an organization does not run for profit, managing a non-profit or a charity involves a lot of financial matters. Almost everything from small fund-raising activities to major company donations involves money. And wherever there’s money, there is always accounting.
For a non-profit to achieve success with their finances, here are some of the best accounting practices that should help:
1. Hire a non-profit accountant
Just as there are accountants for doctors, there are also accountants who specialize in non-profit accounting. There is a clear difference between for-profit accounting and not-for-profit accounting, and this is that the latter handles funds to sustain the organization and achieve its goals instead of generating revenue, which is the main goal of for-profit accounting.
Because not-for-profit accounting is very different from other types of accounting, it’s best to hire an accountant that specializes in it. Moreover, when choosing a candidate, they should have the skills and experience to handle funds sustainably while upholding the vision and mission of the organization as well.
2. Prevent fraud
Preventing fraud and other unscrupulous activities is one of the main responsibilities of a non-profit organization for the sake of its beneficiaries, employees, and donors. To prevent fraud, an organization should have established policies and codes that aim to prevent fraudulent activities within the organization, such as auditing and internal controls.
3. Buy a non-profit accounting software
As stated above, not-for-profit accounting is very different from for-profit accounting. That said, there are many processes and problems that are unique to not-for-profit accounting, which is why an NPO will benefit from software that is specifically made for non-profit organizations.
4. Don’t over- or underestimate the operating budget
Operating expenses keep the lights on, the water running, the office clean, and the employees paid. Thus, it is crucial that a non-profit organization’s operating budget is not too small and not too big either. If your operating expenses are too big, this may put off the majority of your donors. However, if the operating budget is too small, your office won’t run as it should.
To ensure that your operating budget is just right, leave the job to your not-for-profit accountant. They should be able to come up with a realistic budget that is neither too low nor too high, which will help you keep the organization running and reach more donors in the future.
5. Review charity taxes
As long as an organization is recognized as a charity by the HM Revenue and Customs (HMRC) and uses income for charitable activities, the non-profit organization is exempt from paying income taxes. However, there are also instances when a non-profit organization needs to pay taxes, such as when they’ve used funds on non-charitable purposes or received funds that require them to pay tax (e.g. dividends from domestic companies received before April 6, 2016, property and land profits, and purchases). Aside from these, there are a lot more specifics when it comes to charities and taxes. It is an NPO’s responsibility to learn and comply with them.
Good accounting is essential for a non-profit organization’s success. By adhering to these accounting tips and other non-profit accounting strategies, an organization can keep operating for as long as possible and achieve more success with its mission.
