If at all possible, an individual other than the person writing checks and making deposits should reconcile the bank account each month. Many organizations hire an outside accountant or bookk
No matter how small your organization is, following solid financial management procedures makes good sense. Doing so helps ensure the staff and board of the organization are fulfilling their stewardship responsibilities and makes it more likely the organization will be sustainable for the long term and able to continue to fulfill its mission. Establishing and regularly updating good financial policies and procedures when the organization is small positions it to grow smoothly without needing to completely redesign its financial operating systems.
Personnel costs are often the largest portion of the budget for most small and midsize nonprofits. Folks who work for small and midsize nonprofit organizations generally are intensely devoted to mission accomplishment, sometimes working longer hours at lower pay than their for-profit counterparts. They deserve good tools and ongoing professional development opportunities and skills training. Budgeting to provide equitable pay and benefits for staffers is also a way to keep those well-trained folks with you.
The budget process was described earlier as part of the Budget section as the way an organization goes about building its budget. In this, the third of a four-part series on good budgeting approaches, we discuss budgeting for expenses, with an emphasis on profitability.
Below are some approaches to consider while budgeting for your organization’s expenses.
The Statement of Activities (SOA) is the correct nonprofit term for what we may have commonly called the income statement, budget report, profit & loss, income and expense report, etc. The SOA shows the nonprofit organization’s revenue, expenses, and net revenue (surplus or deficit) for a specific period of time, all or part of a fiscal year.
The Statement of Financial Position (SOFP) is the correct nonprofit term for the balance sheet. The SOFP comprises three sections:assets, liabilities, and net assets.
The Statement of Financial Position (SOFP) is the correct nonprofit term for the balance sheet. The SOFP comprises three sections: assets, liabilities, and net assets.
Endowment funds are permanently restricted and the principal cannot be used for operating, cash flow, or even emergency purposes. For small and midsized organizations, having a good deal of money in hand but out of reach may prove particularly frustrating if fully funding current operations presents a serious challenge. In addition, managing endowments can be complicated and involve some risk if long term investments are involved.
A well-formatted Statement of Financial Position (SOFP) report provides accurate and relevant information with enough context for the board and other stakeholders to thoroughly understand what’s going on with your organization financially. The most useful SOFP reports include columns showing restricted and designated funds separately from unrestricted. They include a prior year comparative and narrative that explains the contents of each line item and any significant changes or unusual balances. (See also Statement of Financial Position.)
Once adequate working capital and operating reserves are in place, along with any necessary equipment/building maintenance/replacement funds, your organization may want to consider establishing funds to support special program activities and strategic initiatives.
