Nonprofit organizations require more than the desire to make a change in the community; they require business sense. In addition to raising funds and fulfilling their missions, nonprofit organizations are required to comply with strict financial reporting requirements. While the actual execution of these reports is fairly simple, staying current with these reports can prove to be quite challenging in the business that comes with running a nonprofit organization. There are a variety of financial reporting tools available to help nonprofits create insightful financial reports according to industry standards.
Gain a clearer understanding of your organization’s reporting cycle and maintain your financial reports accordingly. Like a for-profit business, most of the reporting will be due following the close of the organization’s fiscal year. However, many reporting tasks need to be performed on a much more regular basis (such as monthly or weekly).
Creating effective financial reports is not hard. In most cases, a nonprofit organization’s financial reports can be generated using Microsoft Excel and other basic programs. Take the time to discover the financial reporting requirements for your organization. These requirements will determine what type of reports you produce and when. Here are a few nonprofit financial reporting basics to keep in mind:
Financials
While the purpose of your organization is not to earn a profit, you still need to document and report on every piece of financial information. The most common financial reports for nonprofits are the statement of activities (income and expense) and the balance sheet (assets, liabilities and net assets). Many organizations also find cash flow statements to be helpful. Financial reports are typically prepared on a monthly or quarterly basis for board members, donors, and others who have a stake in the organization’s financial condition. Fortunately, there are many software solutions that will make generating these reports easy.
Annual Report
Most nonprofit organizations are also expected to prepare an Annual Report. Completed at the end of the fiscal year, the Annual Report focuses on describing the activities and accomplishments of the organization over the reporting period. If you do not include financial information in your Annual Report (the decision is entirely up to you), you will need to have the financial information readily available for donors. Many of nonprofits use the Annual Report as a marketing tool to highlight the organization’s achievements and generate enthusiasm for its mission. However you choose to use the Annual Report, you will find it to be a valuable resource as you plan ahead for the organization’s future.
Form 990
Nonprofits are not required to pay federal income tax, but they are required to file an annual form (Form 990) with the IRS. Form 990, Return of Organization Exempt from Income Tax, is due on the 15th day of the 5th month following the close of the organization’s fiscal year. If needed, organizations can receive a three-month extension by filing Form 8868 before the due date. Form 990 is lengthy and is fairly comprehensive including requests for information about contributions, expenses, assets, and the organization’s board of directors. While these are just the basic financial reporting responsibilities of nonprofit organizations, they are crucial in nonprofit management. Over time, you may also find it necessary to fulfill other reporting requirements for your organization. Reports such as payroll withholdings and insurance reports are standard reports for many organizations and do not involve any special requirements for nonprofits. In fact, they usually fall under the same reporting procedures as for-profit businesses.
Stay tuned to our blog for upcoming changes regarding nonprofit financial reporting requirements.