“Nonprofits touch each of our lives every day. Educating youth, caring for veterans, healing the sick, supporting our elders, elevating the arts, protecting natural resources, and much more: nonprofits are making a difference all around us” --National Council of Nonprofits
The non profit accounting industry—the one made of organizations that work for a cause, a community, a principle, and an idea, and not to increase value for shareholders—makes us better as a society. Yet non-profits face as many or more challenges to stay afloat as any other organization.
For starters, they need income to fund their activities. There are several ways to raise funds and all of them—for one reason or another—require transparency, good cost and income tracking, and powerful reporting tools.
Most common sources of income for the non-profit industry
- Gifts and donations
This is probably the most difficult way to obtain a source of income but the one that gives the organization the most freedom in how to use the funds. The more gifts and donations the organization receives, the higher its relevance in the community. If the organization is tax exempt, the donor can take a tax deduction. This, of course, implies that the organization’s finances need to be highly transparent in case of an IRS audit. This type of fundraising is very time-and-cost-consuming. To avoid losing money, organizations need to carefully track costs, set a cost/income ratio range and ensure the ratio is kept within limits.
Grants are tax-free money that doesn’t have to be repaid. These funds are usually given by the government, or by charitable trusts and foundations who typically expect to see project progress reports and details on how money is being used. The funding entities usually require any unspent money be returned to them.
Another source of taxable income is where the non-profit obtains money by selling goods or services. This is a very common way of earning money in this industry because it gives the organization freedom to spend as they deem appropriate. Due to tax regulations, non-profits usually separate the trading activity into a subsidiary.
Financial management for non-profits
In addition to the income and cost tracking required for all types of income, it’s important to highlight that one of the most important duties of non-profit organizations is to ensure that the assets “are used in accordance with donors’ intent, and in support of the charitable mission.”
To satisfy donors and to comply with its fiduciary duty, the board of directors of any non-profit organization requires impeccable bookkeeping, high visibility over the financials, and the ability to obtain reports and metrics for each source of income. Transparency is key to preserving public trust and keeping the funds coming.
Improved fund visibility with Sage Intacct Dimensions
To improve visibility over the financials, Sage Intacct accounting software has embedded Dimensions, a feature that allows you to “tag” transactions and operational data. Reports and dashboards can then be designed to aggregate or filter amounts by any of the pre-defined dimensions. The need for transparency is satisfied as is the ability to create reports on the fly for all types of donor and fundraising activity.
Out-of-the-box Sage Intacct provides eight standard dimensions. But, if the standard dimensions don’t meet your needs, you can either rename them or add custom tags—one per fund or source of income.
Whenever there is a need to track income or costs and report by a new type of fundraising activity, the only thing that needs to be done is add a new dimension to the system. And, when a new fundraising event is launched, it’s as simple as adding an entry to the corresponding dimension without touching the chart of accounts.
For improved financial transparency and efficiency of your non-profit, partner with RKL. They provide specialized expertise for non-profits so you can concentrate on what matters: improving the world one project and one community at a time.