Author: kathy-beck

Effective Budgeting Tips for the Small Business

As we near the end of the financial year and begin closing out 2013’s books, it’s important to start thinking about next year’s financial situation. For small businesses in particular, reviewing this year’s financial situation and projecting next year’s is crucial to success; however, many businesses enter the new year grasping last year’s budget hoping it will be enough to get them through the year successfully. Instead of planning for the new challenges and situations ahead, they rely on what “worked” for them in the past.

This is a recipe for failure.

Effective budgeting requires planning, often yearly and monthly. If you are not looking ahead and actively anticipating costs, then your budget is not preparing you for success. Here are a few crucial tips to help you develop an effective budget so your business can succeed in 2014 and beyond:

  1. Take the timing of payments and expenses into account.
    Many small business owners make the mistake of averaging yearly incomes and expenses and allocating that amount for every month in the year. While this may seem like a good practice in theory, reality is that your business is probably not be bringing in the specified amount of income every month. You need to take into account the timing of your payments and bills. If you make the majority of your money during peak seasons, make sure that your budget reflects this. If some of your expenses are only annually or quarterly, your budget will need to reflect that as well. Dividing the sum over 12 months is not a realistic – or effective – budget, and it can lead to some serious cash flow errors. Effective budgeting involves projecting each month’s income and expenses so you have a better idea of what you are facing every month.
  2. Review last year’s numbers.
    Before you start planning for next year’s budget, you need to thoroughly evaluate this last year’s budget. Make sure that your employees and business partners have taken a look at last year’s capital and rate of returns, as well as your business’ expenses. Brainstorm ways to cut costs in the coming year and anticipate changes, such as the need to purchase new software or hire additional employees.
  3. Run periodic budget comparison reports.
    An important part of effective budgeting involves comparing your budget to your business’ actuals. We suggest performing a monthly, quarterly and yearly budget comparison in which you compare your budget with the actual amounts earned and expenses incurred in the specified time frame. This will help you determine the changes you need to grow your business, as well as provide you with some insight into your business’ current financial situation. If you are not running periodic budget comparison reports, your budget is ineffective. Don’t let your budget be something you look at once at the beginning of the year; make sure that it plays an active role in your business and business decisions.
  4. Reevaluate your technology purchasing plans.
    Investing in new technology is usually a good idea. New technology solutions, such as Peachtree, Sage software or Microsoft Dynamics, often save small businesses a significant amount of money and time, as well as help them improve efficiency and employee productivity. Investing in too much technology, however, can be detrimental to your business. Before you invest in yet another technology, take a look at your budget. An effective budget will give you a realistic picture of your company’s financial situation and help you determine if that purchase is a “smart” investment.If, in fact, you do have room in your budget to justify the purchase, make sure that you have thought through the alternatives before you add the technology purchase to your budget. Is there a cheaper alternative? Is there a more affordable way to accomplish the same task? How have you been able to get along without the technology this far? Is it really necessary? Answering these questions will help you determine whether or not your company should make the investment.

Effective budgeting requires extensive planning and realistic oversight. If your budget is not realistic, it is not going to do your company any good. For more effective budgeting tips, stay tuned to our blog.

Should You Hire a Tax Preparation Business Consultant?

Does your business prepare and file its own taxes? While preparing and filing your own taxes may seem more logical than hiring out a professional to do it, it may be in your best interest to hire a tax preparation business consultant. As the tax code continues to expand and become even more complicated, business owners are having a hard time understanding new tax laws. That is, if they even have time to read the lengthy tax code.

While the cost of hiring a tax preparation business consultant may seem expensive at first glance, it will actually save your company a substantial amount of time, money, and frustration in the long run. A professional consultant will know the tax laws and regulations that apply to your business and be able to prepare an accurate return for your business. Choosing the right consultant, however, is essential.

The IRS has provided a lengthy list of requirements business owners should use when hiring a tax professional. For your convenience, we have compiled a tax preparation business consultant checklist to assist you in your search for the perfect tax consultant. Keep the following characteristics in mind as you review your tax preparation business consultant options:

  • Is the consultant licensed? Licensed professionals are the only ones authorized to represent you before the IRS on tax matters (including audits), so make sure your tax preparation business consultant meets the proper licensing requirements. You can view these requirements here.
  • Do they offer a free consultation? The initial consultation is essentially the “interview”, and it is just as important as hiring a new employee. Remember, you are legally liable for the information on your tax return, so you your tax preparation business consultant with care. Bring a copy of last year’s tax return to the consultation and discuss how your business situation has changed over the year. Clarify your needs during this consultation to see if the consultant can deliver upon your requests.
  • How will they charge you for their services? Find out as much information as you can about the tax preparer’s fees before you begin your service with him or her. Some consultants will charge for the number of forms (also known as Schedules) filed while others will charge by the hour. Gaining an understanding of these fees beforehand is important so you aren’t blindsided by a high bill months down the road. One good way to gain an understanding of their charges and fees is to ask what they would have charged to complete last year’s tax return.
  • Will the consultant be available a year from now? It’s important for businesses to be able to contact their tax preparation business consultant about any questions they have regarding their tax return, whether that be months or years later. Make sure your consultant has a stable history before you hire them.
  • Does the consultant have any complaints filed with the Better Business Bureau? Make sure that you have thoroughly investigated his or her credentials and find out if they have any complaints filed with the Better Business Bureau. If they do have complaints, begin looking for other options.
  • Does the consultant ask for receipts / more information to determine whether expenses qualify for deductions? A reputable tax preparation business consultant will ask for any and all receipts to determine what expenses qualify for deductions, and they will ask multiple questions to gain a better understanding of your business expenses.
  • Will your tax return’s preparation be outsourced? This could lead to significant security risks, particularly if your personal information is being transmitted via the Internet. Find out if the consultant will be preparing your tax return his or herself. If not, you may want to look elsewhere. After all, you are paying for the consultant – not the outsourcing service.
  • What is the consultant’s experience with IRS audit? Ask about their history with the IRS and whether or not they would represent you should your tax return be audited.
  • Do they have a reimbursement policy in case you end up owing back taxes on a return they prepared? Many reputable tax preparation business consultants have insurance for this particular case.

A tax preparation business consultant is a smart investment if you choose the right person. By using the above tax preparation business consultant checklist, you will be prepared to ask the right questions and – ultimately – hire the right consultant for your business.

If you are looking for a tax preparation consultant, contact us today. Our team consists of Certified Public Accountants (CPAs) and Business Advisors to help your business navigate the complicated tax laws and legislation.

Checklist for a Financial Audit of a NonProfit Organization

The term “audit” usually sparks fear and apprehension in businesses and nonprofit alike. An audit can refer to any internal review, contract review, or external review by the nonprofit Board or other managing body; however, many people immediately think of a visit from the IRS.

This is not the most common type of audit for nonprofit organizations. A financial audit typically refers to an independent review of a nonprofit organization’s books and accounts. This is usually done annually as a way to ensure that the nonprofit is in compliance with federal regulations and private donor requirements.

If your organization is getting ready to undergo a financial audit, you need to be prepared. In order to ensure a smooth auditing process for all parties involved, we’ve compiled a checklist for a financial audit of a nonprofit organization. The following checklist is designed to help you prepare for your financial audit and know what to expect from your auditor.

Before the Audit

Before you even begin to compile documents and reports for your financial audit, you need to select a CPA or auditing firm. When it’s time to find a CPA or audit firm for your nonprofit’s financial audit, keep the following in mind:

  • Ask other nonprofit organizations for recommendations on CPAs or auditing firms in your area
  • Check each professional’s references and request a copy of their Peer Review
  • Prepare a Request for Proposal (RFP) once you have narrowed your selection down to a few CPAs or audit firms
  • Involve your board members in the selection process
  • Interview all potential CPAs and audit firms
  • Ask for the references or resumes of CPAs in larger firms
  • Make sure the CPA or audit firm has experience in nonprofit financial audits
  • Research their memberships and associations in the accounting profession
  • Review each firms costs and fees

Preparing for the Audit

There is a lot your nonprofit organization can do to successfully prepare for a financial audit. The following checklist will help you save time (and frustration) during a nonprofit financial audit:

  • Ask the auditor for a list of documents you will need during the audit and compile these documents before the auditor arrives
  • Make sure the documents are in the proper format suggested by the auditor
  • Make sure your accounting records are organized, accurate, and up-to-date
  • Create an electronic folder on your computer for all of the documents and records you will be needing for the audit
  • Make sure that you have the proper documentation for every financial transaction made throughout the fiscal year
  • Create an audit committee or oversight group
  • Plan a pre-audit meeting to get further guidance on what your organization will be needing for the audit

After the Audit

  • Once the audit is complete, the audit committee meets with the auditor to ask the following questions:
    • Was our team cooperative and forthcoming with the requested information and documentation?
    • How do our accounting procedures and policies compare to similar nonprofits?
    • Are there any “at-risk” items that could be disputed by the IRS? If so, what documentation do we need to prepare in order to support these items?
    • Did the team follow suggestions recommended by past auditors to improve our internal accounting system?
    •  Do you have any suggestions for improvement in reporting, accounting, or other procedures?
    • The audit committee, financial directors, and executive director reviews the draft of the audit report
    • The above group asks questions about the auditor’s discoveries
    • The group evaluates any recommendations prior to presenting the final audit report to the board
    • The final audit report (signed and dated by the auditor) is delivered to the board of directors
    • The final audit report is presented to the board of directors

As you can see, the audit process is a lengthy one. However, it does not have to be a scary one. With the right amount of information and preparation, you can come out of a nonprofit financial audit successfully.

If you’d like to learn more about the auditing process or would like to connect with a CPA, contact us today. Our CPAs are experienced in nonprofit financial audits and have the tools and information you need to prepare you for a smooth auditing process.

Bookkeeping and Accounting Tips for Business Owners

A business owner’s job is never ending. In addition to ensuring that the business is running smoothly and meeting customer expectations, business owners are also required to keep track of important data and information that is crucial to the business’ operation. Many business owners prefer to do the “bookkeeping” in their heads, a method that – while proven sufficient – is not highly recommended. As federal laws and regulations become more stringent, business owners are seeing a need to reevaluate their current processes and move their bookkeeping to a more reliable system.

If your business does not have a financial system and specific processes in place to account for your company’s financial situation, it’s time to invest in a new bookkeeping and accounting system and processes. This will help you gain a better handle over your company’s financial situation, help you better meet your business goals, and maybe even increase your profit.

We’ve created a few crucial bookkeeping and accounting tips to help business owners just like you prepare their company for financial success. Keep the following tips in mind as you reevaluate your company’s bookkeeping and accounting processes and procedures:

  1. Track your expenses.
    This may seem obvious, but you’d be surprised how many business owners skip this crucial step. Tracking your expenses is extremely important, otherwise you may miss crucial tax write-offs or put your business at risk during an audit. Many business owners track their expenses by using a single credit card for the business only. Once the credit card statements come in, they enter the information into the bookkeeping and accounting system to they can keep track of all their purchases throughout the year.Business owners should also write down business trips, lunch meetings, and other events that require a company pay-out or reimbursement in their day planner (or phone). This habit, while hard to establish at first, will ensure that you have all of the information you need for your tax records in the case of an audit.
  2. Plan for any major expenses.
    Take a look at your business goals for the next five years and plan out any potential expenses you see on the horizon. If your company is expecting to upgrade its computer software a year from now, go ahead and put it on the calendar (as well as in your budget). This will give you adequate time to prepare for the upgrade, both financially and operationally.
  3. Record your deposits accurately.
    Implement a system that is designed to keep your financial information straight. You can record your deposits in a variety of systems, such as Excel, Quickbooks, Peachtree, or Sage accounting software. Business owners make a variety of deposits into their bank accounts every month; therefore, it is crucial to keep meticulous records so you don’t accidently report on income you don’t actually have.
  4. Put your tax money aside.
    We cannot stress this point enough. Putting money aside for your taxes as you generate income is extremely important as you can be penalized for not filing and paying quarterly taxes on-time. By automatically setting aside money throughout the year, you will be more than prepared to pay your quarterly taxes on-time, every time.
  5. Watch your invoices.
    You cannot do it all. Assign someone within your company to track your billing process, for late or unpaid bills will only serve to damage your cash flow. Once you have set up someone to keep track of your company’s invoices, establish a process for follow-up. This can either be in the form of a second invoice, phone call, or letter stating that the client will be billed an additional fee if the invoice remains unpaid. Just because you’ve sent out the invoices does not mean the billing process is over; it has, in fact, just begun.

Stay tuned to our blog for more bookkeeping and accounting tips. If you are a business owner and would like some help developing new bookkeeping and accounting processes, give us a call today at (703) 834-0776. We would be more than happy to help you find the best way to keep track of your company’s finances.

5 Tips for Effective Business Budgeting

As we have discussed in the past, budgeting is an important part of running a successful business. If your business is not creating and maintaining an effective business budget, than you are doing your business a disservice. Budgeting can help your business not only plan for future expenditures but also prepare your business for unexpected financial challenges. It can give you greater control over your company’s finances and help you minimize unruly business costs.

We have prepared the following 5 tips to help you gain a better understanding of what constitutes an effective business budget:

  1. Determine the strategic goals of the business and incorporate these goals in your business budget. Without any goals, your company has no direction and your business budget has no purpose. Before you even begin the budgeting process, you and your company’s executives need to sit down and develop several strategic goals and strategies for your business. Once you have determined your strategies and goals, you will need to translate these into specific long-term (achievable) goals, budgets, and operating plans. Make sure your goals include earnings growth, sales, cost minimization, production volume, and product or service quality.
  2. Prepare a budget for every major area of the business. As we stated above, you need to have long-term, achievable goals in place before you create your business budget. When you are ready to develop your budget, you will need to focus on every major area of the business. It’s also smart to prepare a budget for your business’ expected revenue, costs, profit, cash flow, and so on. This will give you more control over your company’s finances and help you measure your goals when the time comes.
  3. Have a company-specific budgeting process in place. It’s important that you have a specified budgeting process in place for your company. Every company has different processes and procedures, and budgeting is no exception. Make sure that the budgeting process makes sense to your company; don’t simply adapt another company’s process. What works for them may not necessarily work for you. Develop a budgeting process tailored to your company’s specific needs, and don’t spend too much time in the budgeting process.
  4. The budget should be reviewed by a group of people within your company. Business budgeting is not a solitary task; it involves the input and oversight of key company executives and business managers. Make sure to include department managers and executives in the budgeting process and allow them to review the budget before it is finalized.
  5. Develop budgets for each department. This is often an overlooked area in business budgeting; however, developing specific budgets for each department in your company is crucial. Your company’s budgets should reflect the goals and objectives of each department within the company, as well as lay out the allotted costs for the specified time-period for each department.

Budgeting for your business is an important task that should not be ignored. Budgeting will help all areas of your company prepare for success, including management, marketing, production, distribution, personnel, and facilities. By taking a little time to implement the above tips for effective business budgeting, you can transform your budgeting process and gain better control over your company’s finances. Budgeting allows you to respond more quickly to unexpected changes and aids company executives in making more informed business decisions.

If your company could use some more tips for effective business budgeting, give us a call today at (703) 834 – 0776. Our CPA’s will be more than happy to discuss your particular needs and help you determine the best course of action to take in regards to planning your company’s budget.

Help! I Need to Prepare an Event Budget for My Not-for-Profit

Is your not-for-profit organization getting ready to host a special event? Do you have everything you need to ensure that your event goes off without a hitch? Many not-for-profit organizations hold special events throughout the year to raise support and awareness for a particular cause. Whether it’s a charity dinner to raise funds or a yearly celebration to foster community among your supporters, not-for-profit events require extensive forethought and preparation. Not-for-profits need to have a plan in place far in advance and need to develop – and stick to – what is called an event budget.

An event budget is designed to help not-for-profits better plan and prepare for their upcoming event. Most not-for-profit organizations have a set amount of money they can spend on special events; however, if there is no plan in place, many organizations run the risk of coming out over budget. Developing an event budget is about more than coming out under budget; it’s about working smarter by planning ahead and saving time, money, and resources.

While similar to the general not-for-profit budgeting, event budgeting requires organizations to follow a specific process and format. The following steps in the event budgeting process will help you develop an effective event budget and help ensure a successful event.

Step One: Review Your Past Events

Before you even begin developing your budget for an upcoming event, you need to review your past event budgets (if you have them). Examine your budgeting processes for past events and determine what worked and what didn’t. Make sure you adjust your current budgeting process to encompass what you’ve learned. You will also need to review historic trends in your industry (or similar nonprofit organizations) and past events to gain a realistic expectation for your upcoming event. While you cannot predict everything, reviewing your past events will give you a basic understanding of what you need to plan for your upcoming event.

Step Two: Anticipate Your Expenses

In order to create an effective event budget, you need to have a general idea of your expenses. Write down your projected expenses, including venue costs, advertising and promotion, event program design and printing, catering, guest speaker/performer costs (including travel), equipment, and staff and administration costs. Make sure to leave room for unplanned or last-minute expenses as events always seem to incur surprises.

Step Three: Factor in Projected Income from the Event into Your Budget

More often than not, nonprofits include the anticipated income for an event in the event budget. Because many not-for-profits do not have the funds to pull off an event from start to finish, they have to rely on the income generated from the event to offset the expenses. Determine how much income you plan on receiving from the event, whether that be from ticket sales, sponsors, or merchandise sales, and how much income you plan on incorporating in your event budget.

Step Four: Create Your Working Budget

Now it’s time to create your working event budget. Include your anticipated expenses, as well as the funds you have to work with for the event. The actual budgeting process is lengthy and requires the following:

  • Determine “hot areas” that need more dollars or attention
  • Review your event attendance goals and “fall out” trends to determine your projected attendance
  • Negotiate and streamline supplier contracts to minimize event costs
  • Develop a system to track your expenses daily
  • Prepare your team for unplanned or surprise expenses and train them to determine worthiness
  • Keep an eye on on-site expenses and cut costs where you can (i.e. venue, event staffing, food, audio/visual, etc.)

Step Five: Have a Post-Event Meeting

Meet with your event staff following the event and review the budget and planning process. What areas could you have improved upon? Did you come out under or over budget? Review all supplier bills and dispute any unapproved expenses directly after the event. Once you have thoroughly reviewed all pending expenses, pay your suppliers on-time. Compare your event budget to the event actuals and discuss any discrepancies among your team. While you cannot go back and change time, you can ensure that you are sufficiently prepared for your next event.

Top 5 Characteristics of Effective Financial Reports

As we have discussed in past articles, effective financial reporting can increase your small business’ efficiency and transparency, as well as help you make better business decisions. In order to create effective financial reports, however, you need to have a basic understanding of what makes a financial report effective in the first place.

Effective financial reports are not basic charts reflecting a company’s financial status or sheets of paper with facts and figures. Effective reports show trends and answer questions rather than simply providing raw data to be sifted through at a later time. They provide insight into a company’s unique financial situation and help solve problems before they even begin.

Effective financial reporting is crucial if you wish to grow your business. Without effective reports, your company will remain stagnant and your questions will remain unanswered. Take a look at the following characteristics that make up effective financial reporting:

  1. Effective financial reports show context and keep investors in mind.
    Effective financial reports begin with the end in mind, or rather, the investors in mind. Your financial reports should provide your investors (or potential investors) with context. This can be achieved through written anecdotes, honest disclosures, and compliance with accounting standards, regulations, and rules.
  2. Effective financial reports are a result of automated processes.
    Even if your financial accounting system has automatic controls built-in, do not assume that these are turned on or configured properly. Automated controls are often overridden or bypassed, so you need to ensure that your financial reporting team has access to the tools they need to make reporting efficient and compliant.
  3. Effective financial reports are compliant reports.
    Compliance is a must when you are dealing with financial reporting for businesses. If you are not aware of the rules and regulations, you need to brush up on these ASAP. By maintaining compliance, you will avoid filing errors and labor costs. Effective financial reporting requires the use of software that is able to deliver important information accurately and, ultimately, provide a large return on investment (ROI).
  4. Effective financial reports follow the Disclosure Management Cycle.
    The Disclosure Management Cycle outlines the life-cycle of a financial report. The cycle includes:

    • Setting internal controls
    • Applying reporting procedures
    • Benchmarking best practices
    • Receiving regulatory input
    • Submitting to industry regulations
    • Distribution to the public
    • Review of the report
    • Suggestions for improvement
  5. Effective financial reports are created through company collaboration.
    In order to create more effective financial reports, you need to have collaboration among your business team. Encourage dialogue between your financial reporting team and other department managers. Streamline communication throughout your business and implement more robust systems to create a seamless exchange of information across departments. This will ensure that your financial reports are not missing any crucial information.

Your financial reports can open up a new realm of business opportunities. By improving your financial reporting process and creating more effective financial reports, you are increasing your efficiency and transparency. For more effective financial reporting tips, stay tuned to our blog. We will be highlighting key tips and tricks to help businesses like you accomplish your financial goals.

Embracing Financial Accountability through Effective Financial Reporting

There is a lot of talk regarding accountability today, particularly in the case of financial accountability for nonprofit organizations.

Nonprofit organizations need to embrace accountability in order to protect the organization, its mission, and the people it serves. Accountability helps nonprofit organizations fulfill their financial responsibilities to the government, donors, and the public, as well as demonstrates an openness and transparency that the public can trust.

While financial accountability sounds like a good idea in theory, how can nonprofits embrace it for their organization? First of all, nonprofits need to have a good governing body. No organization can run effectively without participating board members and directors. These people are key to ensuring that your nonprofit organization is compliant with all applicable rules and regulations as well as best practices. Proper governance ensures that your organization is keeping in line with its mission and guiding principles, including the integrity of your finances.

When it comes to nonprofit accountability, the responsibility lies on your board. For this reason, it is crucial for your board to understand its responsibilities and focus on carrying out the organization’s mission – not the day-to-day processes that can be completed by nonprofit staff.

Effective financial reporting is also critical to embracing financial accountability. Ensuring that your organization’s financial records are spotless is important. Complete regular, board-approved audits, and have management present financial statements to the board on a quarterly basis. Also make sure that your organization is complying with all financial reporting requirements from federal and private donors. If one of your funders requires you to provide key performance indicators or other reports, make sure you do so. Effective financial reporting requires some work, but in the end your organization will be better because of it.

Financial accountability requires you to make the best use of your resources. Make sure that your resources and funds are only being used for carrying out your mission and benefiting the community in which you serve. Evaluate your organization’s program accordingly to ensure that they coincide with your organization’s mission. If not, your funds and resource could be better used elsewhere.

Communication is key if you plan on embracing financial accountability and maintaining effective financial reports. Your annual report should reflect your organization’s mission and summarize the year’s activities. Make sure that the report also includes financial data and other information for the year, including a list of board members, staff and other key employees.

Giving the public access to your Form 990 is key to establishing and embracing accountability. This form will give the public a good overview of your organization’s activities, finances and compliance, governance, and compensation methods.

Embracing accountability will generate a positive response from the public. Once the public sees that your organization is committed to being open and transparent, they will want to support your efforts even more through donations, funding, volunteering, or simply spreading the word about your organization. Contact us today if you’d like to learn how our CPAs and accountants can help you create more effective financial reports and maintain a level of transparency the public will trust.

How Nonprofits Can Improve Transparency and Maintain 501 (c) (3) Status

Your status as a tax exempt “public charity” provides you with significant benefits. In addition to paying no federal, state, or local income taxes, the designation from the IRS allows you to accept private donations and receive government funding in the form of grants. Your 501 (c) (3) status also entitles you to reduced rates for services, such as mail delivery. Overall, the status allows your organization to focus more of your financial resources toward your mission and goals.

Keeping your 501 (c) (3) status is never guaranteed. With that in mind, how can nonprofits improve transparency and maintain their 501 (c) (3) status?  In order to maintain your status, you will need to do the following:

  • Comply with nonprofit reporting requirements. Nonprofit organizations face different reporting regulations than their for-profit counterparts. You are required to file Form 990 (either Form 990, Form 990-EZ, or Form 990-N) depending on the amounts of your total annual receipts and assets. If you fail to file this form for three years in a row, your tax-exempt status will be revoked.If you do not need to file the full Form 990 (based on your annual receipts and assets), you will need to complete Schedule A, Part 1 (“Reason for Public Charity Status”) annually. You are also required to file payroll tax returns for your employees and 1099 forms for all public contractors. Make sure you are aware of any additional federal or private donor reporting requirements. Some donor require additional financial reporting, so make sure that you are maintaining those reports.
  • Pay employment taxes and properly withhold from employee paychecks. Even though your organization does not pay income taxes, your employees do. Make sure that you are paying applicable employment taxes, such as each employee’s Social Security and Medicare taxes. You must also withhold the employee portion of employment taxes from your employees’ paychecks, as well as federal, state, and local income taxes where they apply, and report the withheld amounts to the appropriate governmental agencies.
  • Use a formal process to approve employee compensation. The salaries and benefits you pay your directors and key employees must be available to the public on your Form 990. The process you use to determine each director’s compensation is just as important as their compensation. Make sure that the process is reasonable and that your compensation packages are comparable to the amounts paid by similar organizations in size and activity. The IRS determines this review and approval process as the responsibility of your board of directors and committees.
  • Maintain the required level of public support. If your nonprofit organization is primarily supported by a government unit or the general public or is a community trust, you will need to complete and pass the public support test on Part II of Schedule A. If your nonprofit is exempt because it receives more than one-third of its funds from private donations or contributions, you will need to pass the public support test on Part III of Schedule A every year.

In summary, it is your responsibility to make sure that you maintain your 501 (c) (3) status. In addition to the following the do’s, we have created three don’ts that are necessary to maintaining your status: don’t operate for the benefit of private interests; don’t generate excessive unrelated business income; and don’t pay more than market rates for goods and services.

The above tips will help you maintain your tax-exempt status so you can continue serving your local community for years to come. If you have any additional questions regarding your tax-exempt status, contact us today. Our nonprofit accounting experts  can help you determine which tools to use to demonstrate the proper transparency and accountability necessary to maintaining your 501 (c) (3) status.

How to Introduce a New Financial Budget to Your Company

Budgeting is crucial to the success of your business or nonprofit organization. As we have already discussed extensively on this blog, budgeting can improve your business’ efficiency and help you make smart decisions in regards to your company’s finances. Re-evaluating your company’s financial budget periodically is essential, for your company’s financial situation is always changing. Make it a point to re-evaluate the company financial budget at least once a year to make sure that your budget is still working. If you need to make adjustments or craft an entirely new budget, do so.

Once you re-evaluate your company’s financial budget, you will need to introduce the new financial budget to your employees. The new budget will most likely have an impact on how employee projects progress, so employees will need to be informed of the new budget before it is put into place. It is also a good idea to share the new budget with your employees simply so they have a better idea of your company’s financial standing and can make more informed decisions.

Prior to announcing the new budget, consider the information you’d like to receive and make a list of the people you’d like to receive it. If you make this a standardized process, all of your employees will be on the same page and you won’t have to worry about anyone being misinformed.

  1. Identify the employees to receive the new budget information. If there are employees on different levels, decide if certain employees (such as managers) should hear the budget announcement first. Make a list of who will receive the budget announcement and when, and announce the new budget accordingly.
  2. Write up an overview of the new budget. In your budget overview, highlight any major changes from the previous budget. This will give your employees an idea of the numbers without having to wade through the entire budget.
  3. Make a list of action items the employees will need to perform based on the new budget announcement. If certain areas of the budget are being cut, make sure that your managers are made aware of the cut so they can determine how to account for the decrease in funding. By providing your employees with a list of action items to be performed, you are preparing them for success.
  4. Create an information packet for each employee detailing the new budget. This should include your budget overview, the action item list, and the budget itself. If the information varies between departments or employees, make sure that you mark each packet accordingly so the employees receive the right information.
  5. Send out an email letting your employees know that a new budget has been prepared. In the email, announce the date that the new budget will be released.
  6. Set a time and date for a meeting to discuss the new budget with your employees. This will give your employees an opportunity to ask questions about the new budget and how it pertains to them. If you need to hold several meetings with various departments or teams, schedule them accordingly.

Keeping your employees in the loop is crucial to the success of your new financial budget. For more information about re-evaluating your company’s financial budget and rolling out your new strategies, click here. As always, contact us for any budgeting and financial questions. Our CPAs and business advisors would be more than happy to guide you toward financial success.