Nonprofit Accounting Blog

Nonprofits always have worthwhile missions and heartfelt causes but they don’t necessarily approach their brand presence with the same commitment that businesses do. It’s important for nonprofits to take a page out of the business book to attract large donors. Many of the donors with deep pockets amassed their fortunes in the for-profit world – and they expect a certain level of professionalism. Here are a few lessons you can learn from business:

Be Transparent and Accountable

Businesses that seek investors are an open book. You can learn about the individuals that run the organization, their total sales, their growth strategy…etc. Your donors expect the same amount of visibility. They want to know everything about your organization before they “invest” in your mission. Make it easy for them to see the breakdown of how their money is spent and you will find that people are more willing to open their checkbook.

Track and Measure Results

We are all good at saying how many people we have served or how long we have been active in the community but that is only the beginning of the story. Big donors want to know if your efforts are effective over the long term. If, for example, you help people with low incomes secure mortgages, how long are they staying in those homes and making timely payments? How have their lives changed five years after you helped them? It’s
important to let donors know that you are making a lasting impact on the community.

Professionalize your Marketing and Development Efforts

Marketing is an easy thing to cut when funding dips and you’re worried about keeping programs intact. Remember that without marketing and development, your funding will continue to drop. Businesses always invest in some level of marketing and nonprofits should as well. There are many firms that offer outsourced marketing if you don’t have internal resources available. Whether you outsource or keep it in-house, be sure to make it happen.

Have a Web-based Presence

Believe it or not, many nonprofits do not have a website. If you are one of them, it is essential that you get one up as soon as possible. There are many user-friendly templates and affordable options available online that make set up a snap. It’s the first place most donors go to research your organization and your cause.

If you already have a website, keep it updated with upcoming events and current programs. An out of date site can seem like a lack of commitment to a potential donor.

Actively Promote your Brand

Even if you already have all of these pieces in place, be sure to do a self evaluation every few months. How easy is it for donors to find you? Is your brand messaging clear and easy to understand? Can they easily determine who you are, what you do and why they should be a part of your cause? If not, think about how a business approaches their branding and update your approach accordingly. The donors will find you once you do.

According to Philanthropy.com, charities got good news about the year-end giving season in a poll released on October 26th of this year. Three out of four Americans say they plan to give at least the same amount as they did last year if not more. That’s better than last year, when only 63 percent of Americans said they would give at least as much to charity as they did in the previous year. Follow these three simple guidelines to ensure that your year-end donations maintain or even exceed levels from last year.

• Send More Appeals: Many successful nonprofits are reaching out to their potential donors with shorter but more frequent appeals and garnering tremendous results. A camp and retreat organization for children with special needs increased their email appeals from 1 per month to 3 per month and doubled the total donations in 2010. A cancer research center also saw a big difference when they increased the frequency of their donor appeals. An email was sent a week before the mailing to let them know to be on the look-out for the donation packet. Calls and follow-up emails were placed on the last Monday, Wednesday and Friday of the year by internal staff. This small change increased revenue by 35%. The lesson? Keep it short and consistent for better results.

• Show them the Results: It’s easy to talk about all the fantastic things their donations will buy but donors often respond to a more emotional appeal. Show them how your charity has specifically helped an individual that has been affected by your cause. This will have a much greater impact. A charity that provides a backpack with school supplies to under-privileged children learned this in 2010. They originally appealed to donors by impressing the need for the children to have school supplies and talked about how far their money would go. They shifted their marketing to showcase pictures and video of the children as they received the backpacks and donations increased significantly. People want to see the people they are helping.

• Go Online: While traditional email, mail and telemarketing are effective tools for fundraising, social media can greatly expand your reach. Find blogs or Facebook pages that have a similar audience and talk them about doing a guest posting. You can offer the same thing to them and both organizations will gain exposure to an entirely new audience. Don’t forget to stay active on your Facebook and Twitter pages as well. Post pictures of people that you have helped and invite them to share their stories. If they are tagged in the post, all of their “friends” will learn about your services as well.

Your financial story can also help raise donations. Read our blog article, The Value of Effective Financial Reporting for Nonprofit Organizations to learn more.

Communication mistakes happen to everyone…but what if they are hindering the level of donations that you can expect this year? We have five mistakes that are easy to make and even easier to fix. Review your existing fundraising text to make sure you are not guilty of these offenses:

1. Assumed Familiarity

We are all so familiar with our cause and our organization that it’s easy to assume everyone else is too. However most donors only know a fraction of what you do. Their main focus is in learning who you are and how they can help. Here is a great list of “Don’ts” from Karen Zapp’s Nonprofit Blog:

• Don’t assume donors know much about your organization.
• Don’t assume donors remember their last gift, date, or amount.
• Don’t assume donors consider you their pal and want to chit-chat; especially when they don’t even know who they’re talking to yet.
• Don’t assume donors remember everything you’ve told them or everything you’ve written to them (because they probably only read a fraction of it).

2. Telling them EVERYTHING you do

Most nonprofits have many programs and want to tell the public everything they do for the community…in one email. The hope is that at least one program will resonate with the potential donor but this often has the opposite effect. The reader gets overwhelmed and stops reading quickly. Focus on one program at a time and make your marketing emotionally charged and full of impact. In a world of constant information, a short and emotional appeal will garner better results.

3. Failing to Show How the Donor Makes a Difference

Your donors are looking for a reason to give, and if you do not give them one in your marketing messaging, you will quickly lose your audience. Show how their life will be different because of the donation. Who will they help? What, specifically, will their money go towards? How will they be emotionally rewarded? Keep those points in mind while writing an appeal to make it more, well, appealing.

4. Using text Written by a Committee

Sharing text with a team of five people and dealing with each of their perspectives dilutes it faster than anything. Write it out then share it with a go-to proofreader to make sure you haven’t made any egregious grammatical errors. You will end up with more authentic messaging that gets to the heart of the matter quickly and effectively.

5. Your text is ALL about YOU

When you say, “Our charity provided a prosthetic limb to this veteran,” or “We flew this man 250 miles for his cancer treatment,” you are not telling the truth. Your donors did those things and your communications should read that way. This will connect the dots for donors so that they see that it is their money or time that is making these things happen. The donations will increase when they see they are making a personal impact.

The word “audit” brings fear to most businesses. Navigating tax law for the first time can be stressful, time consuming and potentially expensive especially for small business owners. James Guarino, a certified public accountant and a partner at Moody Famiglietti & Andronico in Tewksbury, Mass., shares these tips for making an audit less painful.

1. Keep things in Perspective
Most people imagine a full scale probe into their finances when an audit is triggered but this is rarely the case. It is often a small math error that raises concerns. For example, the supporting documents such as 1099s may not match the figures on a company’s return. The problem can easily be fixed by correcting the 1099 and recalculating the tax on the form.

Sometimes a single loss or write-off can raise a red flag for the IRS. “Professional real-estate investors can claim losses and write-offs that casual investors might not be able to,” Guarino explains. “But you have to meet certain criteria to be a professional rather than run-of-the-mill investor.” If the activity you have listed doesn’t fall into the normal range, the IRS will ask for further documentation to confirm that it was a legitimate claim.

2. Get help.
An audit can be emotionally straining, especially when you feel as if you are defending your business. Hiring an attorney or CPA to manage the audit will remove you from the situation. They will be able to identify issues that are not as black and white as the IRS represents them and fight for you. If the IRS alleges that money is owed, your CPA is capable of arguing those points on your behalf. Many times they end up winning because the IRS does not want the case to go to court.

3. Provide exactly what the agent asks for.
It can be tempting to be forthright with any information that may be helpful in the audit but less is always more. Restrict your answers to the matter at hand and the audit will end quickly. If you talk directly to the audit agents, Guarino says, answer with direct speech: “Yes; no; I’ll look into it,” he says. “Any tidbit of information that you offer could bring things to the auditor’s attention that he might not have thought of otherwise. That could open a can of worms.”

This is another example of how an attorney or CPA could help you in an audit. They are trained to answer questions in a limited fashion and will keep the process focused and moving forward.

4. Don’t assume the IRS is right.
Mathematical errors are just as easy to make for IRS agents as they are for you. They could easily miss an important document or, when a law is open for interpretation, choose the side that benefits the IRS. You have the right to argue your point of view and provide supporting documentation for each question raised.

5. Decline requests to extend the IRS’s deadline.
The IRS has a statute of limitations that restricts an audit to the three years previous. Because of the high volume of cases, the IRS often asked companies to extend that deadline. Say no. Although the letter may seem more like a requirement than a request, you do have the right to decline the extension. Consult at tax advisor that can decode the legalese before formulating your response.

A request for a waiver will not, however, release your from the audit. The IRS agent will do as much as possible in the time allotted and let you know if money is owed.

Need help navigating an upcoming audit? Take a look and Beck and Company CPA’s Audit Services.

The phrase, “This donation is tax-deductible,” can be just the thing a potential donor needs to hear. Although this isn’t the only reason they donate, it’s certainly an important factor. About 85% of all charitable contributions are made by individuals who deduct their donations.

It is important to note that their donation is not always tax deductible. Whether or not it qualifies can depend on a variety of factors: who the donation is given to, when the donation is made, the purpose of the donation and the donor’s particular tax situation.

The good news is that it is up to the donor and their tax advisor to decide whether or not a donation is tax deductible. The nonprofit is not required to report donations to the IRS. Their only responsibility is to make sure they comply with any substantiation and documentation requirements for the donations they receive.

What are the Deductible Donation Guidelines?
Each donor’s situation is unique and there is never a straightforward way of knowing that their donation will be deductible. Thus, no matter what your experience may tell you, never give a donor specific tax or legal advice for the donation you receive.

Many nonprofits use the line, “Your donation is tax deductible”. In many cases this can be true, however it is less misleading to state that your nonprofit is a Section 501(c)3 nonprofit and that their gift may qualify as a charitable deduction for federal income tax purposes. Encourage donors to consult a tax professional before declaring that their gift is deductible.

Who Should Know the Rules?
Members of your organization that are involved in fundraising efforts should have a basic understanding of charitable deduction rules. This may include your executive directors, key writers of your newsletter or other communications, board members or any volunteers who help raise funds.

How Can I Take Advantage of Tax Laws?
There may be other tax advantages to donating to your particular organization. If so, include that benefit in your emails, letters, newsletters and phone calls. This may increase donations as people realize the additional advantages of donating to your organization.

Make the basic rules available to your donors through your website in the form of an FAQ (frequently asked questions) or a direct link to the IRS rules. The IRS offers a full document called IRS Publication 526, Charitable Contributions. You can find a link to it on www.irs.gov.

How to Manage Thank you Gifts
If you invite donors to a gala, then send a fruit basket or offer a coffee mug in exchange for a donation, only a portion of their donation will be deductible. The value of the gift must be subtracted from the donation amount before being reported to the IRS. To help donors estimate the deductible portion of a donation, include a statement at the end of a thank you letter that says, “The estimated value of goods or services provided in return for your donation is $____.” This will help them know exactly how much they can deduct.

Don’t forget to remind them to keep the thank you letter as an acknowledgement of their donation. Their tax professional will thank you for it!

If you liked this article, you may also enjoy, Business Tax-Time Problems Grow from Past Mistakes.

Nonprofit special events, whether a black-tie gala, art festival, walk-a-thon, or neighborhood beautification day take time, planning and a budget. But who really owns the nonprofit budgeting process —the finance or development department?

For the finance office, it is as much about cash flow as it is about potential revenue. For the development office, it’s about soliciting underwriters and event sponsors, as well as having the money to secure the various pieces you need prior to the event. For both, it’s about planning.

Usually, things cost more than anticipated, and those sure-bet sponsors choose not to come on board—even though you have given them until the last minute. From event venues to catering, invitations to awards, all pricing varies according to the vendors and the demand. A detailed, comprehensive plan, including various scenarios, options and unexpected or hidden costs, will go a long way in determining the budget as well as the cash flow needs well in advance of the actual event.

In budgeting for an event, it is critical to have all the internal stakeholders, the finance and the development offices, brought together to collaborate on the budget. Some budgeting tips for special events include:

• Review of last year’s event budget, if applicable
• Review of potential sponsors, number of attendees, and other revenue generating opportunities, including a realistic goal of how much money is to be raised from the event (HINT: Be conservative – sometimes the best laid plans fail because of influences that are outside of the organization’s control.)
• Review of anticipated costs associated with the event (HINT: Budget liberally – again, unplanned costs do arise, and sometimes changes need to be made that incur increased expense. When a planned expense is donated as in-kind, you can celebrate and put the allocated monies to the bottom line.)
• Timing of payment for various vendors prior to and following the event
• Expectation of revenue pre-event, event, and post-event
• Determination of how the finance and development teams will communicate budget details and updates as well as manage this information.

Intuitively, both the finance and development offices need to track and record the financial details of the event. With fund accounting and fundraising systems that work together, information can be shared between the systems without the need for manual reconciliation. Flexibility within those systems allows you to customize fields specifically for the way your organization manages the event, and allows for comprehensive reporting once the event has taken place. With options for fund accounting Executive View Licensing, the financial office and the development office can collaborate real-time within the same financial budget, and update those shared budgets as expenses or revenue details change.

We hope these budgeting tips help your future special events go as smoothly as possible. Additionally, if you are interested in professional advice and assistance we offer multiple services to fill the gap between where you are and where you need to be with your financial accounting and back office processes.

List of services…

Being able to tell your organization’s story in a meaningful way can be done with effective financial reporting. Financial reporting for Nonprofit Organizations is similar to a story but is told with numbers. That being said, the financial statement author needs to think about their target audience when deciding what information should be conveyed. The type of audience should also help to determine the best formatting and display parameters that will provide the reader with the ability to quickly understand what message is being communicated through the financial report.

For example, a Finance Balance Sheet, often referred to as the Statement of Financial Position, will communicate information about the health of an organization at a fairly high level. The reader can see how much cash is on hand to pay bills in the near future or the total net assets that are available today. Without context this information is difficult to interpret. Nonprofits utilize the Statement of Financial Position to better communicate to their audience, whether that is their Board or even a prospective donor, by reporting their Net Assets by restrictions. The ideal Statement of Financial Position should be presented on one page. This allows the reader to easily identify the distribution of Net Assets by restriction, which is a key purpose for this report. Prior period information should always be included to provide trending statistics and allow the reader to see how your organization has changed over time. Has it grown? Has the total assets to liabilities improved? Has your organization invested in capital assets? This type of information should be clearly presented in the statement so the reader can quickly identify your organization’s financial story.

Now let’s look at a different audience – your internal report readers, otherwise known as program or department managers. The type of information they require is more granular yet must still be presented in a clear and concise fashion. The clearer the information the more meaningful the translation of the numbers will be for their purposes. How much budget remains as a percent to continue effective delivery of programs? Are personnel costs on track? Etc … Depending on the organization, managers may or may not have interest in and control over revenue information. Providing expenditure information to your managers with corresponding budget amounts and comparative data allows your team to make better decisions and therefore be more productive. One way to present expenditure and budget information is by categorizing expenditures and providing subtotals for the actual and budget. The manager can quickly determine their budget position by simply evaluating the data and forming their conclusion. The idea is to provide summary information in one page for quick reference or answers. By providing supplemental detail reports the manager can drill into variances if necessary. Financial statements should be thought of as chapters of a book, one chapter or statement does not tell the best story. Being able to provide a comprehensive report package comprised of cohesive cleanly prepared statements allows the reader to quickly read and understand the story being communicated.

Reporting Tips:
What to include in a Board Report Package:

• Statement of Financial Position (one page with prior period amounts)
• Statement of Revenue over Expenditures (combining by program or funding source, include ending net assets)
• Functional expenditures: Programs, Fundraising, Management & General
• Supporting Statements or schedule can include – Cash Flows Statements, charts and graphs, cash balances, top 10 expenditures, forecasts, financial notes or interpretation of the statements for the board

What to include in an Internal Manager Report Package:

• Prepare all reports by Function, Department, Activity, Location, etc
• Summary Expenditure Report – Current Period Actual, Current Period Budget, Percent Spent, Year to Date Actual, Year to Date Budget, Year to Date Percent Spent
• Summarize Expenditure Report by Category – Personnel Expenditures, Direct Costs, Indirect Costs

More on how Beck & Company can help you with your reporting…