Nonprofits

The Sierra Nevada Children's Museum, a popular family destination in Truckee, California, is poised for growth with a projected 80% increase in visitation over the next 20 years. To keep pace with this growth, the museum needs to boost fundraising to finance building a larger facility.  

Working with a complex chart of accounts and item list, combined with a slow, server-based software system, occupied much of Executive Director Carol Meagher's time. She wasn't able to fully focus on fundraising and community outreach — which were vital for the museum to keep pace with its projected increase in visitation.

To compound this problem, the museum's bookkeeper decided not to return from maternity leave, and a prospective replacement didn't pan out. In order to reach its potential for growth, the museum needed to establish a strong foundation in bookkeeping that included special events tracking, operational reporting, grants management, and preparing financials for the board.

Individuals and tax preparers need to be aware of a significant impact on charitable giving that likely will result from a provision in the Tax Cuts and Jobs Act (TCJA).

While the consequences of the law, passed in December 2017, might be unintended, they are no less real for taxpayers — especially for charities. Vikki Sprull, President and CEO of the philanthropic network Council on Foundations, projects the new law "will result in a decrease of $16–$24 billion in charitable giving every year."

Subtraction by Addition
The bad news for charities came about as a result of what was supposed to have been good news for taxpayers. Under TCJA, the standard deduction doubles to $12,000 for individuals and $24,000 for married couples.

To maintain good financial health, nonprofit organizations should adopt the same bookkeeping best practices as for-profit organizations.

Here are some simple bookkeeping tips to help keep your nonprofit on the plus side of the ledger.

Get with the (Software) Program
There's no shortage of bookkeeping software you can use at your nonprofit. However, you should also consider applications that will integrate with your accounting software to drive operational efficiencies through workflow automation. If you haven't already graduated from using basic accounting software, now is the time to do so.

Not all events that raise funds are fundraisers. If you operate a nonprofit, it's critical that you know the difference. Because holding an event that isn't properly identified and recorded appropriately in the general ledger could cause problems for you down the road.

Here are a few things you need to know.

Is the Event Tax-Deductible?
Nonprofits have lots of ways to raise money. Awards banquets, raffles, "fun runs" — there's no shortage of creative ideas.

Whether you call an event a "fundraiser" matters less than whether any of the amount guests pay to attend is tax-deductible. Organizations should always publish a full disclosure (on invitations, electronic media, etc.) of all information related to tax-deductibility. This is usually done through fine print with wording such as this: "Amounts over $xx are tax-deductible to the extent provided by law. (Organization name) is a 501(c)(3) nonprofit organization, federal tax ID number xx-xxxxxxx."

Meals on Wheels West (MOWW), a nonprofit based in Santa Monica, California, was looking for something more than data entry from its bookkeeping services provider. As a nonprofit, it needed someone who understood the nuances of bookkeeping for nonprofits, could implement systems to streamline the audit process, and prepare detailed financial information for their Board of directors.

MOWW delivers more than 80,000 healthy meals and services per year to the coastal communities near Los Angeles. Supporting Strategies | Los Angeles assigned their Nonprofit Practice Leader, with 30 years of nonprofit expertise, to evaluate MOWW’s needs.

Nonprofits pose a special challenge to providers of bookkeeping services. The financials are complex and multilayered — and they must be presented to a board of directors that often lacks financial expertise and experiences frequent turnover.

Because maintaining a variety of funding streams (public, private, grants, events, etc.) is vital to a nonprofit's survival, the ability to make clear, easy-to-follow presentations is critical.

Strike the Right Tone
A good nonprofit financial presentation is a tightrope act. You have to balance a high-level overview with enough specifics at the individual program level for the board to carry out its fiduciary responsibility and achieve the organization's mission.

One of the stickiest aspects of accounting for not-for-profit (NFP) entities involves allocations — how these entities account for where they spend the funds they receive.

For-profit businesses don't have to worry about this too much. If you have a pizza parlor, it doesn't matter if you use the profits from your pizza sales to pay the rent and the profits from your soda sales to pay the utilities (or vice versa). The customers don't care what you do with their money, as long as they get their pizza and their drinks.

It's not so simple at an NFP entity.

How You Got the Money Can Determine Where You Spend It
Many NFP entities receive funds that are earmarked for specific purposes. For example, let's say an organization receives a grant expressly to provide wheelchairs for the physically challenged. The organization can't use that funding to sponsor an event instead. They have to spend it on wheelchairs — and they need documentation to prove they did. (This is called "direct identification.")

Many nonprofits try to do more with a smaller budget. This is a challenge when it comes to bookkeeping, as there are specific regulations and tracking and filing requirements for nonprofits.

For these nonprofits, the simplest, most cost-effective solution may well be to outsource their bookkeeping functions. Does your organization fit this description? Here are five signs to look for.

1. You Suffer from "I've Got It/You Take It"
   Businesses with limited budgets may decide to add bookkeeping tasks to people who were hired to do other jobs. This may be expedient in the short-term, but it can be problematic to have people who aren't trained in or knowledgeable about bookkeeping for nonprofits serving in this role.