Nonprofit Accounting Blog

In order to run an effective and efficient business, companies must select financial reporting software that will provide them with the information they need at the time they need it. Access to timely and accurate data is essential to running and maintaining a business. Implementing a monthly reporting package can help businesses measure their success and plan accordingly for their future. Consider the following when choosing and implementing your financial reporting software:

Get Commitment from Management
Make sure that all members of management have established exactly what is going to be measured, how often it will be measured and at what level. Ask yourself these questions: Do you need an ERP package, or will a tiered implementation that measures financial and operational reporting, HR, budgeting, etc. work? If some elements of your current system fit what you need, implementing a monthly reporting package could be the answer to getting all the company’s pertinent information in one central location.

Once management has established the criteria, make sure that they are committed to the financial and organizational expenses that will be incurred.

Establish What Information You Want Captured
Attempting to get every single detail of information out of your systems will only cause more work for you and result in bogging your system down. Determine what information you need and find a way to easily get that information. Make sure that the data can be understood by everyone involved by creating a central language for what you are measuring (include common data and metric definitions).

Know Your Limits
Will your current IT employees understand your new system? Can they support this new system as is? Or will you need to bring in new skill sets? Whether or not your current IT employees can support this system will greatly affect the decision you make.

Decide Who Will Own the Process Once It’s in Place
Early on, decide who will set the direction and monitor success once the system is implemented. Who is in charge of the reporting package, process and underlying data? Make sure that the owner is thinking about the end goal. Communicate all potential reporting parameters you wish to see in reports from the onset. Clearly communicating your requirements from the beginning will make the process easier for everyone involved.

As you can see, implementing financial reporting software takes a considerable amount of time and preparation. However, the benefits of these reports are never-ending. Once a financial reporting system is in place, companies can use those reports to identify problem areas, as well as see what is working for their business. If you would like to learn more about choosing a financial reporting system, contact us today.

Data security should be a top priority in today’s business world. With companies around the world storing sensitive financial, employee and customer information, one breach would be enough to seriously damage any solid business. However, with a few good tips and some smart online habits, you can protect your business from unwelcome predators.

1. Establish strong passwords.
   The safest thing you can do for your company is to implement strong passwords. Follow this simple tip to create hard-to-crack passwords: use a combination of lowercase and capital letters, numbers and symbols, and make it 8-10 characters in length. Avoid any personal data (such as your birthdate), and avoid common words (even spelled backwords). All passwords should be changed every 90 days (or sooner for highly-sensitive data).
2. Set up strong firewall protection. 
   Firewalls are a must when discussing company-wide protection. They protect your network by controlling the internet traffic in –and out of – your business. Any major brand will be beneficial in protecting your network.
3. Install antivirus protection. 
   Like firewalls, antiviral and anti-malware protection is a necessity. Should an unwanted attack get through your network, the antiviral protection will identify and wipe out the virus or harmful agent.
4. Update your programs regularly.
   Updating your computer and programs is a necessary step if you want to protect your business. Your software is only as good as its most recent update, so keeping each application updated will help keep your data safe.
5. Secure your electronic devices (computers, laptops and mobile phones). 
   Because of their portable nature, laptops and mobile phones present a much higher risk than the company desktop. Taking preventative measures before they are lost or stolen is key. Encrypt your laptop and mobile phone so that the data on the hard drive cannot be accessed without the proper password. Never leave your phone or laptop where it can be stolen or left. Lock it up when you are not using it to further protect your company’s information.
6. Backup your system regularly. 
   Schedule regular backups to your hard drive and information in the cloud. The general rule of thumb for backups are as follows:
   – Servers: Complete backups weekly, partial backups nightly.
   – Personal computers: Backup every week (incremental backups every few days)
7. Be careful with email, IM and web browsing. 
   You’ve seen it happen before. An unsuspecting employee clicks on a link or downloads an attachment that seems harmless, only to find out that their computer has been infected with a virus.Links and attachments are the number one ways malware ends up on computers; therefore, never click on a link that you were not expecting (or that you do not know the origin of).
8. Educate your employees. 
   Finally, teaching your employees about safe practices online and in the office are crucial to protecting your company’s data. Help employees become proactive with your company’s security and show them how what they are doing could lead to serious security breaches. Make sure your employees are aware of how important your company’s data is and ensure that they learn all the measures they can take to protect it.

Nonprofits set and determine budgets based on what it will cost to run their programs and organization for the coming year. A thorough budget gives those in higher positions a full spectrum view of the organization, allowing them to take a proactive approach to situations that arise during the course of the year. Whether you are already in the middle of your fiscal year or if you are just now determining your budget, the following tips were designed to help you develop and maintain a healthy budget for your organization.

1. Match the budget line items to your organization’s chart of accounts.
A chart of accounts classifies the types of revenue and expenses your organization incurs within your accounting system. Salaries, wages, rent, utilities, printing, promotional costs and more are accounted for in the chart of accounts. By using these same categories in your budget, you easily monitor these items against your budget and pull the necessary financial reports as needed.

2. Include indirect costs in your program budgets.
If your organization has more than one activity or program throughout the year, it’s likely there will be some administrative or indirect costs that have no place. These costs can include the cost of your accountant and auditor, property and liability insurance, and some portion of your staff time. By planning ahead and budgeting for these indirect costs in your program budget, you can recover a portion of these shared expenses.

3. Be conservative/realistic about your projected revenue.
When determining your budget, make sure that you are realistic about your organization’s expected revenue. Go back through the funds you’ve budgeted for and identify them according to these three categories: committed, likely or possible. It’s smarter to add a new program into your budget in the middle of the year when its funding is confirmed rather than having to cut it back midyear due to insufficient funds.

4. Involve staff from every level in the budgeting process.
Including your staff in the budgeting process will not only keep them more committed to your budget, but it will also open up avenues for them to share with upper management what programs need to be included in the budget. Someone else may be able to think of things upper management hadn’t included or discuss additional options that may have been overlooked. By including staff from every level within the organization, the nonprofit increases its accountability among staff and expands its awareness of what is happening within the company.

5. Keep notes.
Make sure you keep record of the assumptions, or the source of an estimate, made when developing the budget. Take full advantage of the comment features in spreadsheets, or type your notes in a text file and keep them on hand. Since your budget will most certainly change from now to the end of the year, having these notes to refer back to will save you the headache of tracking down the information used to determine that specific number.

If you would like to learn more budgeting tips geared toward nonprofit organizations, click here.

Does tax time sneak up on you, leaving you feeling unprepared and stressed? Are you so on running the day to day operations of your organization that you lose sight of planning for the financial future? Do you need help navigating through the many forms and documents nonprofits are required to file? If you answered yes to any of these questions, a CPA may be just the answer to what your business or nonprofit needs.

A certified public accountant (CPA) is in charge of monitoring and maintaining financial records for individuals, businesses and nonprofit organizations. A CPA may work on their own or as part of an accounting firm. In order to become certified, a CPA must meet certain requirements imposed by the American Institute of Certified Public Accountants (AICPA), pass a CPA exam and have a particular amount of work experience before practicing as a CPA. These requirements ensure that when you hire a CPA, you are hiring an experienced professional in the field of accounting.

While a CPA can bring nonprofits much-needed relief during audit and tax time, many companies and organizations would benefit from hiring a CPA year-round to make sure their finances stay in order. While most accountants are hired on a long-term basis, there are some accountants that are hired solely to prepare tax returns. CPAs are trained to complete multiple federal and state returns, as well as the various forms nonprofits are required to file yearly.

When hiring a CPA, nonprofits should consider the amount of experience or qualifications a particular CPA has in their industry. Although many individuals feel more comfortable working with a local CPA, there are many accountants that work for successful firms or operate their own personal accounting business nationwide. Each business or nonprofit will have to make their own decision as to what type of CPA they wish to hire for their company.

From addressing your ever-changing and growing needs to helping you establish effective business operations and plan for maximum profitability, a certified public accountant (CPA) can be an essential partner to your business or nonprofit organization. Learn more about choosing a CPA for your business or organization here.

Whether you are an employee or business owner, we are all looking for ways to excel in our business. The key to excellence is looking outside of your immediate world and adopting practices that other businesses and organizations are doing well. While many companies stick to seeking advice from similar businesses, looking outside the business world will offer an even greater insight. Nonprofits are often overlooked by businesses who think they are solely “nice people doing nice things”. However, most nonprofits are also corporations striving to deliver better results, maximize revenue and increase productivity. The following are three lessons businesses can learn from nonprofit organizations:

1. Focus  on mission before quarterly profit. Requiring management to meet measurable financial goals in an allotted period of time can certainly result in productivity gains. However, if employees are only focusing on the goal for the near future, they will miss the heartbeat of the company.A nonprofit’s focus is on mission, not profit. By focusing on the mission before the profit, nonprofits are able to produce amazing results with the little resources they possess. When you focus on your mission, such as creating products that exceed customer expectations, your profit will soon follow.
2. Tap into experience of the board of directors. Just as the board of directors in a for-profit board offers experience, perspective and contacts, a nonprofit board offers the same wealth of information. However, most nonprofit boards do not pay their members to serve on the board. Members of a nonprofit board are volunteers and have a personal commitment to the organization’s mission.Because most nonprofits lack financial and human resources, they have learned to utilize the strengths of their board members. For example, when nonprofits need to make a decision that will have a long-term impact (such as outsource certain aspects of their back-office work or enter into a new project), board members offer insight and help the organization come to a decision. When the organization has made the decision, board members can often identify the consultants and contractors the nonprofit needs.Boards serve as highly competent advisors to a nonprofit organization. As any need arises, the organization has instant access to the board’s highly-trusted advice and insight. A for-profit that adapts this method will not only benefit internally, but they will also gain a competitive advantage.
3. Collaborate as both a means and an end. Nonprofits leverage their limited resources by collaborating with people in the community to accomplish their mission. In the language of for-profits, this is called the formation of strategic alliances.Nonprofits have learned that collaboration can be an end to itself. With the barriers between the organization and the community gone, many nonprofits find that collaboration produces many benefits that are not otherwise achievable. For example, a nonprofit’s mission could be to reduce the length of time a person might be homeless. While collaborating with the circle of stakeholders that are needed to make improvements, the nonprofit can turn to businesses, labor unions, government officials and community activists. The stakeholders can create bonds that carry influence and reduce unproductive conflict in future interactions. Through this process, the larger community becomes aware that there is a process available to address problems, questions and concerns. In turn, the community acts more cohesively and responds better in circumstances.

In order to become successful, businesses and nonprofits can learn from each other. By blending together both worlds, businesses can strive to make a profit and focus on the mission of their company at the same time.

Starting a business can be an exhilarating and complicated experience. While you are excited about the idea of starting your own business, you may be overwhelmed with what you do not know. Rather than trying to go at it alone, consider hiring a small business advisor. Whether you are just starting your business endeavor, or if you have been in business for some time, a small business advisor can help and advise you in running your business efficiently and prosperously. Their years of experience and expertise can help you boost your business’ performance and profit, as well as give you some peace of mind.

Selecting your small business advisor is very important. Your advisor should be efficient and trustworthy. An advisor will help you start from the ground-up, offering suggestions and aiding you in the decision-making process. Select an advisor who has worked with businesses similar to yours and make sure to get references. Speaking to businesses who have worked with the advisor in the past will shine light on to the type of advisor you will be working with. Did the other businesses trust this particular advisor? Did he improve their business and boost their profit? Was he experienced enough to offer guidance? Don’t be shy to ask questions. After all, this advisor will be helping you get started running your business; you want to do it right!

After you have selected and begun working with your advisor, keep track of the progress of the business through financial reports. Creating financial reports periodically (primarily weekly and monthly) will help you monitor the progress of your business since hiring your small business advisor. Take each report into consideration and ask yourself the following questions: Is my profit increasing or decreasing? Have things improved since hiring the advisor? What is the state of my company finances?

These reports will not only help you monitor the state of your business since hiring your advisor; they will also give you insight into the areas that need your attention and improvement. These reports are an insight into the health of your company; treat them with such importance. Go over these reports with your business advisor and see if they can offer you suggestions for further improvement.

A small business advisor has the ability to transform your company into a revenue-producing success. Knowing what to look for in an advisor will ensure that you choose the right advisor for your business and guarantee success. While an advisor does not bring the sales to you, he or she can advise you on how to run your business so as to increase sales and, ultimately, boost your overall profit.

If you would like more information about choosing a small business advisor, contact us today.

Many businesses get overwhelmed by the tax preparation process. Uncertain about the documents they will need in order to file, they often scramble around trying to piece together various records. What those businesses don’t know is that taxes do not have to be so complicated. The right tax preparations can make all the difference between a chaotic tax filing and a simple tax filing situation. The following checklist will help prepare your business for tax time:

Income
– Gross receipts from sales or services
– Sales records (for accrual based taxpayers)
– Beginning inventory (if applicable)
– Ending inventory (if applicable)
– Items removed for personal purposes (if applicable)
– Returns and allowances
– Business checking and savings account interest (1099 INT or statement)

Transportation and Travel Expenses
Local
– Business trip (mileage) log
– Contemporaneous log or receipts for public transportation, parking and tolls

Travel Away from Home
– Airfare or mileage (actual expense if drove)
– Hotels
– Meals and tips
– Taxes and tips
– Internet connection (hotel, internet café, etc.)

Additional Expenses
– Advertising

Commissions paid to subcontractors
– File Form 1099-MISC and 1096 as necessary

Depreciation
– Cost and acquisition date of assets
– Sales price and disposition date of any assets sold

Fringe benefits
– Employer-paid pension/profit sharing contributions
– Employer-paid HSA contributions
– Employer-paid health insurance premiums
– Cost of other fringe benefits

Business insurance
– Casualty loss insurance
– Errors and omissions
– Other

Interest expense
– Mortgage interest on building owned by business
– Business loan interest
– Legal fees

Office supplies
– Pens, paper, staples, etc.
– Other consumables

Rent expense
– Office space rent
– Business-use vehicle lease expense
– Other

Wages paid to employees
– Form W-2 and W-3 Federal and state payroll returns (Form 940, etc.)

Other expenses
– Repairs, maintenance of office facility, etc.

Bookkeeping and accounting are terms that are often confused. Even though they have slightly different meanings, they share two basic goals when it comes to a business’ finances:

• to keep track of your income and expenses, in order to improve your chances of making a profit
• to collect the necessary financial information about your business to file various tax returns and local registration papers

These two basic goals can serve as the starting point for cleaning up your records. Rather than getting overwhelmed by the details of financial management, sort through your books and keep the information that will contribute to the keeping track of income and expenses. There are no requirements to keeping your records a certain way; however, organizing your books with these two goals in mind will keep you sane when trying to find important information. As long as your records accurately reflect your income and expense management, the IRS will find them acceptable.

The process of keeping your books is actually an easy process to grasp; you just have to know what it is your books need to be focusing on. Whether you do your accounting by hand on ledger sheers or use accounting software, the following principles will help you clean up your books:

1. Keep receipts or other acceptable records of every payment to and every expenditure from your business. The accounting process requires that you keep comprehensive summaries of your business’ income and expenses. These summaries, however, cannot just be created. Each sale and purchase must be backed by a record containing the amount, date and other relevant information regarding the sale.Legally, there is not right method to keeping your receipts. Whether you store your receipts in a box or electronically is up to your business. You just want to be sure that the system you choose fits your business needs. Smaller businesses may get by with a “bare-bones” approach; however, larger businesses need a better receipt filing system as they handle more sales and expenditures. Choose a filing system, or adapt a current one, to meet your needs.
2. Summarize your income and expenditure records on a regular basis (generally daily, weekly or monthly). Start by setting up and posting ledgers. A ledger is a summary of revenues, expenditures and everything else your business is keeping track of (entered from your receipts according to category and date). These summaries will answer specific financial questions about your business, such as whether or not you are making a profit and, if so, how much.If you do your accounting by hand, you will start off with a ledger sheet. If you electronically keep track of your books, your ledger sheet will be a computer file of empty rows and columns. On a regular basis, you should transfer, or “post”, the amounts from your receipts to the ledger. How often you do this will depend on how many sales or expenditures your business makes or how detailed you wish your books to be. The more sales you do, the more often you should post to your ledger. It’s important to see what’s happening everyday and not fall behind when your business generates a high volume of sales.
3. Use your summaries to create financial reports that will tell you specific information about your business, such as how much monthly profit you’re making or how much your business is worth at a specific point in time. Financial reports are important to the health of your business. Reports bring together key financial areas of the business and give an insight into how well, or poorly, the business is performing. Your ledger may tell you that your business brought in a substantial amount of money, but until you measure that income with your total expenses, you will have no way of knowing whether or not you made a profit. Financial reports combine the data from your ledgers and form it into a comprehensive picture of your business.

Nonprofit organizations are the heartbeat of the nation. Without them, many people would go without the help and support they need. Since these organizations receive most of their funding through individual donors and are exempt from paying taxes, nonprofits are held accountable to their donors and the government as to where they spend their funds. Auditors will examine your books closely, and it’s best to be prepared for their questions. The following is a checklist that will successfully prepare you for a financial audit:

Accounting Practices
A nonprofit organization’s accounting practice is the main scrutiny of a nonprofit auditor. The accounting system will be carefully analyzed to look for unethical accounting practices or mistakes. The Internal Revenue Service (IRS) or an independent financial auditor will analyze the policies and safeguards put in place to protect the organization’s cash and financial records from theft or mismanagement. Auditors will also compare metrics, such as the number of reporting errors, from the current year to past years. By ensuring that your accounts are running according to code, you will save yourself a lot of time, and stress, when an audit comes around.

Financial Reporting
Make sure that you have copies of every internal report and financial statement shared with the supervisors and managers during the period after the previous audit. These reports, which were produced to keep those higher-up in the organization up to date with the financial climate of the organization, will be the focus of an auditor’s attention. The auditor will also investigate the organization’s management information system to ensure that it is sharing financial information and communicating according to standards.

Nonprofits are also required to submit periodic reports to the government, including the IRS. The audit will review these reporting procedures to ensure accuracy and make sure the reports are submitted in a timely manner.

Management of Contributions
Nonprofits are not only expected to, but they are required to, use their funds from contributors in a responsible manner. Managers within the organization must pay careful attention to the way they distribute contributed funds. A comprehensive nonprofit audit analyzes the way contributions are used. Auditors compute the relative percentages of each type of income distribution and compare it to the results of other organizations serving similar areas of need. The salary levels of top managers will be reviewed. Additional expenses, such as bonus pay, vacations and other incentives, will also be reviewed to ensure organizations are spending their contributed funds wisely and appropriately. Auditors will also analyze any investments held by the organization and determine, through review of the historical and expected future returns, whether the organization is investing its funds wisely.

Nonprofit audits can bring about many emotions in an organization; however, if you prepare for the audit and provide the auditor with the information he needs, you will find yourself less stressed when audit time comes.