Learn how financial rules impact your nonprofit and how to adapt.

Understanding and meeting financial reporting standards is essential for your nonprofit’s success (even if you are a small to medium size nonprofit).

Why We’re Sharing This

We frequently encounter nonprofits that are unaware of the financial reporting standards or have accountants who do not specialize in nonprofit accounting.

This lack of knowledge can lead to detrimental and costly outcomes, such as losing out on grants, donations from serious donors, or missing deadlines tied to vital funding opportunities.

Over the past decade, there has been an eight-fold increase in the number of new non-profits registered with the IRS.

Even if they do not all survive, there is ostensibly more competition for the same number of donors. Accountability, transparency, and compliance in a timely manner are therefore more important now than ever.

What Financial Reporting Rules Mean for Non-profits

Simplified Categories:

• Funds without restrictions (can be used for anything).
• Funds with restrictions (must be used for specific purposes).

Detailed Information Required:

• How much money is available.
• Any restrictions on how funds can be used.
• How well the organization can cover its short-term financial needs.

Why These Changes Matter:

• Better Transparency: Easier-to-understand financial statements build trust with donors and the public.
• Improved Management: Clearer insights into finances help manage resources more effectively.
• Increased Accountability: Detailed reporting shows how funds are used, ensuring they are used responsibly.
• Meeting Stakeholder Needs: Provides necessary information for donors and regulators to make informed decisions.

How to Meet These Standards with Your Accounting Platform

Track Expenses with Categories:

• Why: Helps categorize spending into core areas like Administration, Program, and Fundraising.
• How: Most accounting platforms allow you to set up categories or classes to track spending. Assign categories to each transaction to ensure detailed tracking.

Track Fund Purposes with Categories:

• Why: Shows exactly how funds are collected and spent.
• How: Assign a category to each row in transactions to capture specific details. This helps comply with reporting rules by showing fund usage clearly.

Use Locations or Projects for Better Tracking:

• Why: Tracks income and expenses accurately by location or project.
• How: Enable location or project tracking in your accounting platform and assign these to each transaction for detailed financial reporting.

Regular Reports and Alerts:

• Why: Ensures all transactions are correctly assigned and improves financial management.
• How: Run profit and loss reports by category and location each month. Set up alerts in your accounting platform to remind you to enter category and location details before saving transactions.

By using these features in your accounting platform, non-profits can comply with the financial reporting rules, improving transparency, accountability, and trust with donors and stakeholders.

Start Implementing These Practices Today!