As a nonprofit, there are several accounting issues that you will come across, and they all can be very taxing. How do you avoid them? There are plenty of ways to go about this. First, let’s take a look at the most common issues and then will tackle the best way to avoid them. Take a look:
In a word, bookkeeping. That’s right. It’s a tough task, but someone has to do it. Things such as preparing invoices, paying invoices, and keeping track of donations among other things can be very daunting indeed. You will need to keep accurate and timely data in the event of an audit, among other things. Additionally, you will need to enter such things as receipts, payroll expenses, payroll deductions, and other items into the system in a timely manner. That is why the best way to approach this would be through having a repeatable process for all of the data that you regularly enter.
Keeping Accurate Financial Reports
The next thing you will have to do is keep accurate financial reports. At the minimum, this will consist of you doing at least five different activities: providing a statement of financial position, having an income statement detailing profits and losses, a statement of cash flows, a Budget to Actual, and the 990 IRS form. This is just the bare minimum. One rule of thumb is that the more complex your organization is, the more reports you will need to keep.
Don’t get me wrong. Grants are beautiful. However, the problem is that grants are an entirely different animal altogether. Normally, you cannot use grants to cover such things as general operating expenses. Moreover, it can be a tremendous headache accounting for grants. Thus, in a lot of cases, you should be considering hiring an experienced CFO to help you organize your grant record-keeping procedures.
Those without non-profit management experience are often surprised to learn that yes, non-profits do indeed pay payroll tax. Additionally, they will not only have to oversee employees but also independent contractors and volunteers. It’s not enough to just broadly manage the payroll either. You will often have to allocate the payroll based on just what TYPE of job that your employees are doing.
Filing Tax Returns.
Yep, you have to file tax returns as well. If you thought that you could avoid this simply because you were a non-profit, think again. The IRS has very stringent requirements on your non-profit filing a 990 tax return at least on an annual basis, and this is something that you simply cannot avoid. Additionally, you are in for a rude awakening if you do not file a tax return for three years running because the IRS doesn’t play games. They will proceed to revoke your tax-exempt status!
How Do You Avoid All of This?
Obviously, organization is the key here. However, it can be difficult if you are not an accounting expert. However, it is not impossible. First of all, there are plenty of fund accounting software programs on the market today such as Blackbaud that will assist you in keeping your non-profit fully within the law when it comes to accounting requirements.