Nonprofit accounting is a challenge for a number of professionals in the nonprofit sector. After all, the majority of people working for nonprofit organizations didn’t start doing so because they love math and tracking finances. Board members in particular started working on a volunteer basis for your organization because they believe in your mission and have a passion for your cause.
Regardless, accounting is a key aspect of nonprofit management. This means the people who are working so hard to manage your organization will benefit from a basic understanding of accounting concepts. They’ll need to understand the various aspects of finances in order to make financially sound decisions on behalf of your mission.
That’s why we compiled this guide, to help board members advance their understanding of nonprofit accounting at a capacity that’s most relevant to their positions.
When your board members are researching nonprofit accounting, you should make sure they understand the following concepts:
One of the annual responsibilities of your nonprofit board is the review and approval of your organization’s budget. Looking at abstract numbers without understanding how the finance team arrived there can make it difficult to completely comprehend your budget in order to approve of the final plans.
You might end up with a lot of questions from the board about why various projects aren’t affordable right now or why different financial decisions are made, ultimately creating frustration and potential disdain between entities at your organization.
That’s why it’s key for your organization’s board members to have a clear understanding of how the financial team arrives at the different numbers in your budget.
Jitasa’s nonprofit budgeting guide breaks down each element of this key document, explaining that all budgets include the following two components:
As your board members review your nonprofit’s budget, the last thing you want is for them to get frustrated or not understand the impact of their decision to approve or deny the allocations. Consider setting up a meeting between board members and your finance team so that they’re all on the same page about what’s included in the budget, how the numbers were calculated, and what the implications of changing any budget line item are.
Your board members should already be aware that your nonprofit doesn’t pay taxes. Registered 501(c)(3) organizations don’t have to pay the IRS anything. However, that doesn’t mean they’re completely off the hook for federal tax season.
A part of your board member nonprofit training programs should go over the annual responsibilities that nonprofits have to adhere to in order to remain compliant with federal and state financial regulations, even if they don’t pay taxes.
While all states have different regulations and requirements for nonprofits, the federal one that every organization should be aware of is the annual Form 990 filing.
Your nonprofit’s Form 990 is essentially the document that assures the IRS that you’re trustworthy, do admirable work in the community, and should continue not paying taxes to the federal government.
Be ready to answer any questions that your board members may have about these important forms, particularly these frequently asked questions pulled from this guide:
Nonprofits who don’t file their Form 990 on time will experience a financial penalty of $20 to $100 per day you don’t file. Plus, you run the risk of losing your organization’s tax exempt status and the loss of donor confidence. All of these can present a situation where it’s hard to recover.
The importance of ensuring on-time, accurate Form 990s is one reason your organization might consider hiring a nonprofit accountant to help file the key documentation. Since your board members will be the ones to approve this hiring, the more they know about the importance of tax season, the more likely they’ll take the situation seriously and understand the impact of having a professional on your team.
Your nonprofit’s board members are some of the most impactful fundraisers on your team. They’re knowledgeable about your programs and can determine the next steps necessary to take toward your mission. This understanding can guide their conversations with potential donors. Plus, their passion for your cause will shine through in these conversations, making them effective advocates for your cause.
Teaching your board members the tips and tricks to effective fundraising while encouraging them to also get involved with your organization’s various campaigns will help raise more for your mission. This directly helps with your accounting needs. The more funding you have, the less strict your budget will be, and the more you can accomplish with the funds you raise.
Encourage your fellow board members to learn more about the best tips and tricks to effective fundraising. You may ask for some training on behalf of the group or provide some guidance if you’re well acquainted with the subject. Some of these top fundraising tips include:
Ensure board members are well acquainted with the fundraising process. Teach board members more than simply how to ask for donations. Show them the part they can play in the entire fundraising process, such as each step explained in Soapbox Engage’s fundraising guide: creating goals, building fundraising toolkits, understanding the audience, reviewing strategy, hashing out campaign plans, and reviewing data. The part they play in asking for donations provides meaning to each step in this process.
Train board members to use any available fundraising tools. You have several tools you likely use for your fundraising process. Teach your board members how to leverage fundraising call scripts, online donation tools, and campaign trackers to offer the easiest donation method for supporters and to effectively communicate the progress of the campaign.
Craft a well-designed case for support that your board can leverage. Your case for support helps your team members raise funds by spelling out the who, what, when, where, and why of the fundraising campaign. It effectively explains the campaign, the impact that the community will see, and how supporters can get involved.
Without funds, there would be no need for accounting. And without effective fundraising, there would be no funds. Getting your greatest advocates (your board members) involved in the fundraising process will help maximize your ROI, helping you raise more and accomplish more as an organization.
The more your organization’s board members know about your accounting processes, the greater the impact they can have on your various financial decisions. Train your board members to understand the part they play. This will help ensure smooth communication between departments and a more comprehensive understanding of the part that money plays for your cause.
Author: Jon Osterburg
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not-for-profit organizations.