Nonprofit accounting flips the public’s perception of the field of accounting on its head.
Unlike accounting at for-profit companies, where tasks are fairly routine and issues typically have precedent, nonprofit accounting varies greatly from year to year and even day to day. Much of this volatility can be traced back to sources of funding. Whereas accountants at for-profit companies can usually make relatively accurate predictions of future income based on past results, nonprofit accounting teams are somewhat limited given the unpredictable nature of fundraising.
Of course, uncertain income streams are only one challenge nonprofit accounting teams face on any given here. Here are a few nonprofit accounting challenges your team may face and some simple suggestions to help you overcome them.
1. Managing the Cash Flow in Nonprofit Accounting
As we said earlier, accounting isn’t all that difficult if you can easily anticipate how much revenue your organization will bring in each quarter. Hence the challenge of nonprofit accounting.
At most nonprofit organizations, a majority of fundraising occurs at specific times each year. For instance, your company might have a Christmas fundraising drive when most of your yearly revenue pours in. And even then, it’s nearly impossible to say for certain how much will be brought in each year.
You also have to consider the conditional nature of certain donations. Some donors may choose to dedicate their donation to specific causes or projects within the organization, such as endowing an executive position. This limits the amount your team can allocate toward the company’s day-to-day operations.
To start, your management team needs to closely monitor the amount of unrestricted funds flowing into the organization any given year. Any nonprofit can quickly find itself insolvent if a significant portion of its revenue comes with strings attached.
On a broader level, your accounting team should treat each month as its own activity period. This will help your team better plan for periods when the budget is tight. It will also help them get a better sense of when certain programs might need additional funding from the organization’s pool of unrestricted funds.
2. Lack of In the Moment Financial Visibility in Nonprofit Accounting
Given the seemingly endless number of responsibilities nonprofit accountants have on their plates, it can be difficult to keep up with even some of the most basic tasks. Simple tasks such as entering transactions into the accounting system can quickly fall by the wayside.
Security concerns only raise the barriers for nonprofit accounting teams. Many accounting software systems only grant a certain number of user licenses. As a result, only a small number of staff members can enter transaction information.
Over time, this delay in reporting leads to a lack of clarity about the organization’s current financial status. Without these insights, it’s unlikely managers will be able to pivot and capitalize on emerging business opportunities.
Investing in a cutting edge accounting software system can, however, help your company overcome many of these issues. Modern accounting systems can automate many of the entry processes staff members had to perform manually in the past. They also include enhanced security features that make it possible for firms to grant more software licenses to their staff.
When one considers the potential time saved as well as the strategic upsides of adopting a new accounting software system, its impact on an organization becomes increasingly clear.
3. Keeping Track of Government Grants
Government grants can be a God-send for a nonprofit organization. They can help keep your nonprofit moving even when fundraising figures aren’t as robust as you would hope.
But keeping track of incoming government funding from these grants can be a hassle. And then, once the grant has been deposited into your accounts, it can be even more difficult to make sure the funding is going toward its intended purpose.
Since the government often verifies the receipt and use of its grants by organizations, it’s incredibly important to have a systematized approach to tracking the grants you receive. Again, it’s not a matter of reinventing the wheel. Instead, your management team should focus on identifying accounting software vendors that have experience working with nonprofit organizations.
Accounting software systems built for nonprofit teams usually have features created for the expressed purpose of tracking government grants. Partnering with such a company will save your company time and money in the long run.
If identifying an accounting software partner for your nonprofit organization is one of your top priorities, we’re here to help. Timac Business Systems has helped a number of nonprofit organizations build an accounting software solution tailored to their specific needs.
Contact us today for a free visual demo of the Sage Intacct platform!