Nonprofit Accounting Blog – Page 25

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:

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.
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.
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.
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.
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:

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.
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.
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).
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
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.

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.
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.
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.
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.
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.
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.

5 Finance Tips from Small Business Owners Just Like You

Are you a small business owner? If so, you are more than likely familiar with the stress related to running a small business. You are required not only to be available to answer questions pertaining to the day-to-day activities of the business, but you are also required to keep an eye on your business’ finances and plan for the future. It’s a hard job, but somebody’s got to do it…right?

While we cannot assist with the day-to-day tasks or make the hard decisions for you, we can offer some tips designed to help improve your finances. Our Washington DC CPAs and business advisors meet with business owners like you every day to provide financial services to their companies, and we receive a countless number of tips from our time meeting with them. Keep the following finance tips in mind as you continue on in your business ventures:

Always keep your finances in order. This may seem like a no-brainer, but you’d be surprised at the state of some companies’ finances. Make sure that you are maintaining your finances effectively and have someone who is keeping an eye on the financial status of your company. Hiring a CPA or accountant to perform crucial financial services would be a smart move if you do not have one on staff. Remember that potential investors will want to take a look at your company’s finances, so don’t let this area slide. Maintaining your finances now could make you more attractive to investors, not to mention that it will set up business up for future success.
Minimize financial risk. Minimizing risk is essential in financial management. Make sure that your most important and valuable business items are well-insured, and evaluate all financial decisions prior to making them. Make sure that your financial records are well-maintained so you have the knowledge you need to make all financial decisions.
Maintain separate personal and business financial accounts. Maintaining boundaries where money is involved is always a good idea. Consider separating your personal and business bank accounts. This will not only be helpful when it comes tax-time, but it will also be useful in maintaining your company’s finances.
Record all of your transactions. This is bookkeeping 101. If you haven’t been recording all of your transactions from Day 1, it is time to start now. It is crucial to be meticulous about your financial and business records so you can answer any and all questions about your company’s finances. Maintaining good records will help you with taxes, running your business, and investing in other business ventures. Make sure you write down (or input into your accounting system) everything. Don’t leave any financial questions unanswered and don’t set yourself up for an audit by maintaining poor records.
Remember to file your taxes quarterly. Self-employed business owners have different tax obligations. Rather than filing once a year, small business owners are required to file their federal and state taxes quarterly. Don’t make the costly mistake of filing only once a year. Figure out what you owe every quarter, and remember to put the money aside prior to its due date. Consider your tax bill as simply another bill you have to pay and – if it helps – invoice yourself regularly so you remember to put the money aside.

Stay tuned to our blog for more important small business tips from business owners just like you. If you are looking for financial services for your small business or simply need an accountant to come alongside you, contact us today. We offer many financial services to businesses just like you and would be more than happy to answer any financial questions you have regarding your business.

Using the Financial Statement for Effective Financial Reporting

Whether you run a nonprofit organization or are in charge of running a small business, effective financial reporting is crucial to the success of your business or organization. While there are many components necessary to creating effective financial reports, the financial statement plays an important role. Financial statements are used to show the true status of your company or organization’s financial standing and are usually run on a monthly basis. Monitoring the financial health of your company periodically can mark the difference between your company’s success and failure. We recommend reviewing your financial statements once a month in order to gain a good picture of your true financial standing and to adjust your financial planning for the remainder of the year.

What is a Financial Statement?
A company’s financial statement, in simple terms, is composed of three primary financial statements: the balance sheet, the income statement, and the cash flow statement. Each statement provides valuable insight into your company’s financial health. The balance sheet, for instance, is a summary of all your financial balances as a company or organization. It is often described as the “snapshot” of your company at a particular point in time. The balance sheet includes a summary of three parts: the company’s assets, liabilities, and the owner’s equity. The assets include everything pertaining to the business’ value (everything that is owned or owed), liabilities include everything that the business itself owes, and the owner’s equity is the owner’s share of the business (calculated by subtracting the company’s liabilities from its assets).

The income statement, more commonly known in the business world as the Profit and Loss statement, summarizes the profitability of a business (or lack thereof) at a single point in time. Companies can measure the profitability from any given time, such as from Quarter 1 to Quarter 2 or from August 1^st to February 1^st. The cash flow statement simply converts the company’s finances from an accrual basis to a cash basis and measures the flow of cash that has gone – and is going – out of the business.

How Can the Financial Statement Lead to Effective Financial Reporting?
Seeing the true financial status of your company can help improve your decision-making skills and clarify any questions you may have. Financial statements summarize business trends, measure the rates at which you are collecting receivables and paying creditors, summarize cash flow problems, help you determine which customers are in good standing, and highlight customers who are in need of collection efforts (or who have uncollectible open invoices). They also help you create more effective financial reports which – in turn – help guide your business to success.

Financial statements generally include a summary of your company’s accounts payables report, letting you know much you owe to other companies and when it is due. You can also run financial reports showing your current inventory levels and the value of that inventory. The purpose of the financial statement is to answer any questions you have regarding what you owe, what you own, and how much your company is making. These questions need to be answered in order to make strategic decisions on how to run your company more effectively in the future.

All statements and reports included in the financial statement are valuable to the financial process and should be treated as such. Reviewing these statements on a regular basis can increase your chances for success and provide you with an accurate view of your company’s financial standing at any given point in time.

If you need help making strategic financial decisions for your company (or would like us to walk you through the value of a balance sheet), contact us today. If you run a nonprofit organization and would like to learn more about effective financial reporting, stay tuned to our blog.

What Makes a Good CPA or Accountant?

A good CPA or accountant is hard to find. When it comes to entrusting your business’ important financial information to someone else, you ought to have high expectations. After all, the CPA or accountant you choose to manage your business will have access to all of your financial records and will provide you with insight into your financial decisions. This person should be chosen carefully.

While many business owners attempt to “handle it all themselves”, the reality is most business owners cannot manage their businesses successfully and handle the financial side of things at the same time. As a result, they look to outside help (usually in the form of a CPA or accountant). While we cannot pick your CPA for you, we can offer you some insightful tips to help guide you to the right CPA for your business or organization. We believe the following traits characterize a good CPA or accountant:

They must have a basic understanding of your industry.
This one should be a given. Your CPA or accountant needs to be familiar with your business’ industry in order to give you the advice you need and manage your accounts properly. While they do not need to be an expert, they do need to have a clear understanding of what sets your industry apart (particularly in the area of accounting). It’s possible to work with an accountant who is unfamiliar with your industry; however, it will be easier on both you and them if you choose an accountant who knows a little about your particular industry. Each industry has different terms and insider information that can only be learned on the job, so be sure to look for someone who knows the terminology.
They must be attentive to details.
An accountant or CPA needs to be detail-oriented in order to properly manage your finances. They must be aware of every tiny detail and change that occurs within your organization. You won’t have time to update your accountant on every single financial detail; that is something he or she will have to do for themselves. Make sure that the accountant you choose can take charge of your business’ finances and take care of the little things when it comes to your basic financial situation.
Good communication skills are a necessity.
You will be communicating with your CPA frequently, so make sure that you feel comfortable with your CPA or accountant. If he or she does not understand something, they have to be willing to ask for clarification or help. Communication is absolutely essential to the success of your accountant-business relationship, so make sure that your CPA possesses the skills they need to communicate effectively.
They need to know how to work a computer.
In this day and age, this may seem like a ridiculous request; however, there are many accountants and CPAs out there who have limited knowledge when it comes to computers and various software programs. In order to get quality reports, you need to have a computerized accounting system in place. Make sure that your CPA or accountant is familiar with the system and knows the basic workings of Word, Excel, email and the Internet.
They must always be striving to learn something new.
The accounting field is always changing. New regulations are passed, new laws are instated, and new industries emerge. Your accountant or CPA should be committed to learning more about the laws and regulations of the field. Some CPAs will acquire new skills through attending classes, while others will join groups to help them learn new tips and tools. Whatever they choose, make sure that they are committed to furthering their knowledge about accounting and preparing your business for success.
They need to understand the big picture.
A good accountant or CPA will not focus only on the accounting; they will take a look at the business as a whole and offer suggestions for improvement. A good accountant understands that the financial aspect of the business is simply one part of a whole, and he or she understands that one financial error can affect the entire business.Before hiring an accountant or CPA, give them an overview of your business and what you do. In order to accomplish the work you need, your accountant will need to understand the work you do. By providing them with an overview of your business, you are helping your accountant keep the big picture in mind as they focus on the little things.
They must be willing to follow through.
You want someone who will be reliable and who will finish projects through to completion. As you are interviewing accountants and CPAs, check their references and current clients. Are they happy with the accountant’s work? Does the CPA follow through on all of their projects? How does he or she respond in the case of a project delay? Find out how reliable they are before you hire them, or you could be faced with many incomplete (or late) projects.
They must understand how to do proper job costing.
Your accountant or CPA must understand how to do job costing properly. This includes tracking all costs by item and job detail. This will help you gain a better understanding of how much your projects are costing you, so you must depend upon their information to be accurate.
They must be willing to commit to your business.
This is the most important trait in a good accountant or CPA. He or she must be able to fully commit to your business. Without his or her full commitment, you might as well be doing the job yourself. You want someone who is committed to your vision and will make your business a priority. Don’t be squeezed into their schedule. If you are considering hiring an accountant who cannot meet the commitment level you desire, look elsewhere. You need to be sure that your accountant is doing everything possible to ensure the success of your business.

As you can see, there are certain characteristics that make up a good CPA or accountant. If you have any traits to add to the list, please leave your comments below. If you are looking for a CPA or accountant to take care of your business, contact us today. Our Beck and Company CPAs provide many services to help your business achieve the success you desire.

For a look at how a Beck and Company CPA can help your business, read our CPA client stories. Discover more tips for choosing the right CPA or accountant.

How to Prepare for a Nonprofit Financial Audit in Five Easy Steps

Nonprofit financial audits are unfortunately a common occurrence. Because nonprofit organizations rely solely on donated funds from the government and private donors, they are more susceptible to financial audits than businesses in the for-profit sector. In addition to ensuring that your organization complies with the various nonprofit financial reporting requirements, nonprofit financial audits can be used as an accountability tool and best practice for nonprofit success.

A nonprofit financial audit – though unwelcome – can highlight your organization’s weaknesses so you can focus on areas to improve over the next year. Keep the following tips in mind as you prepare for your upcoming audit. While it may seem unappealing and stressful now, your nonprofit financial audit can provide significant value to your organization. With the right amount of preparation, you can successfully survive and conquer any nonprofit financial audit thrown your way.

Choose your auditor carefully.
Just as you would choose any financial service provider, choosing the right auditor is crucial to making the audit process less painful. You need to select a nonprofit financial auditor that you and your team feel comfortable with. Make sure that your auditor understands your organization and can provide valuable recommendations and insight. If they are not familiar with your organization or industry, look for somebody else. Remember that choosing an auditor is essentially choosing a partner for your organization, so choose wisely!
Prepare ahead of time.
Your auditor will send you a list of items to prepare prior to his or her team’s arrival. Make sure that you have all of the items on the list and are fully prepared when the auditors arrive. Preparing these documents ahead of time will allow you to relax and focus on the actual audit, rather than scrambling around trying to find certain documents or information.You should also be prepared for the auditor of your nonprofit financial audit to request additional reports and information based off of the documents you supply. Make a note of any of the items requested during the audit so you can have them prepared in advance for the next nonprofit financial audit. Maintaining your reports and documents throughout the year can also help you come audit time.
Set clear deadlines – and follow them!
Be sure to communicate any deadlines to your audit team early on in the process. These deadlines could include bank submission deadlines, audit committee deadlines, board deadlines, or grant deadlines. If you begin the nonprofit financial audit process communicating clearly, you will be less likely to experience surprises or delays further on in the process.
Set a timeframe for completion.
Your nonprofit financial audit should be completed onsite as much as possible. Talk to your auditor and agree on a set completion goal before you even begin the process. If there are outstanding items after your auditor leaves, agree upon a deadline for open items before they leave your office. The more you know what to expect, the less you will stress over the unknowns.
Incorporate the auditor’s suggestions into your organizational plan.
Nonprofit financial audits are invaluable to nonprofit organizations. At the end of an audit, you should receive a management comment letter. In this letter, your auditor will highlight any areas of deficiency and concern, as well as provide suggestions for improvement. Don’t let your audit (and audit stress) go to waste. Implement the auditor’s suggestions wherever they are appropriate. This will not only improve your organization, but it will also prepare you for future audits.

If you are looking for an accounting firm who specializes in nonprofit financial audits, contact us today. In addition to our accounting services, we also provide nonprofit financial auditing services. Give us a call at (703) 834-0776 extension 8001 to learn more about our auditing and accounting services.