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Five common bookkeeping blunders not-for-profits can easily avoid
NFP bookkeeping demands a variety of financial obligations. Small mistakes can lead to inaccurate financial statements, potential loss of funding or complications that can be expensive to resolve.
At Unity Accounting, we know you’re passionate about your NFP and must focus on building awareness. We specialise in NFP bookkeeping and user-friendly accounting solutions, so you can remain focused on the big picture. We can help you avoid NFP bookkeeping blunders and build foundations for the long term.
Here are the top five common NFP bookkeeping blunders to avoid.
1. Poor record keeping
Unlike private enterprise, NFP bookkeeping is slightly more complex. For a private enterprise, profit usually only comes from the sale of a product or service. As an NFP, you receive funding from different sources and this can create complicated record keeping.
Details of these different funding sources must be accurate for NFP financial statements. Examples of funding classifications include donations from individuals, revenue from sales of products, government grants, sponsorship from organisations, bequests, ticket sales, auctions or other activities from fund-raising events or campaigns.
Not-for-profit bookkeeping must also record funding that you earmark for a specific area or use within your NFP. For example, a donation may specify a certain hospital ward, rather than the hospital in general. You must note the direction of these funds in your NFP’s bookkeeping.
In addition, you must record non-monetary donations, like hours worked by volunteers or products/services donated in-kind. NFP bookkeeping is not just money in and money out; you must keep accurate records for all these nuances.
2. Lack of accounting procedures
How do you choose suppliers? Can anyone just dip into the petty cash? How many people can approve wages and expenses? Without accounting procedures in place, it may be difficult to answer these questions. NFP bookkeeping requires complete transparency to build trust in stakeholders. To create instant credibility, an NFP needs to formalise accounting procedures.
Accounting procedures detail how your NFP receives, records and receipts funding and how you agree, approve and process expenditure. There will be guidelines on how you pay bills, how and when you pay staff, and how to choose suppliers.
Accounting procedures standardise how an NFP manages money. Once documented, the key to success is to ensure people follow them every single time! This means investing the time to train staff, volunteers and other stakeholders. Remember, Unity Accounting can help with training.
3. Big ideas without a budget
An NFP bookkeeping blunder that can easily snowball out of control is when plans begin for a fund-raising event. The team is passionate about the cause, creative and big ideas are flowing freely, everyone is motivated to work hard, but wait, what’s the budget?
Begin with a budget. The success of any fundraising event is based on funding results. But if funds raised just cover the expenses, the event is a waste of time. With a budget, organisers are in control of how much money they spend vs. how much money they raise.
A budget creates a reference point for the NFP bookkeeping. Post event, organisers can reflect and analyse what activities raised the most funding, what elements were unsuccessful and plans for the next event become easier.
Budgeting provides instant transparency for the NFP and, no doubt, further credibility with stakeholders. Whether the budget is for an event or campaign or new endeavour, the best tip for NFP bookkeeping is to include every item in the budget. For example, if a venue only charges a portion of the room hire costs, include the in-kind amount in the budget as well as the monetary value. This way there is total transparency.
The total costs should include actual costs and donations in-kind. You can then assess this against the total funds raised. There is cost-effective accounting software that can help you do this. Ask the Unity Accounting team where to start.
4. Inadequate financial statements
For an NFP, financial statements need to provide transparent and accurate information for multiple stakeholders. Funding from government grants, sponsorship agreements and regular donations are largely based on financial statements. The consequence of inadequate financial statements can be critical to the ongoing survival of an NFP.
The key to detailed and accurate financial statements is good governance.
It starts with precise NFP bookkeeping. This includes meticulous data entry, regular reconciliation of expenditure and clear accounting procedures. Avoiding small NFP bookkeeping blunders will result in accurate financial statements, and this can raise large funds to support your cause.
5. No financial expertise
If you are not an accountant, NFP bookkeeping can be all consuming. To comprehend and implement the rules and regulations for an NFP takes time and energy, so seek out financial experts who have done this all before.
It’s completely logical to engage a financial expert who can set up your NFP bookkeeping with simple accounting procedures and user-friendly software that automates all the reporting. Find a financial expert, early. Someone who understands your cause, has worked with NFPs before and is willing to implement and teach you how to use an accounting system. It will avoid bookkeeping blunders from the beginning.
With our robust not-for-profit accounting solutions, Unity Accounting can support your organisation by establishing an integrated accounting system with software that categorises funding sources, delivers real time reports and supports paperless audits.
Contact us to discuss how we can help you take your NPF to the next level.
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