Bookkeeping for a non-profit or charity is often like bookkeeping for any other for-profit business – but with a few key differences.
In a for-profit business, your goal is to maximise profits for the shareholders while providing a key service, but for a non-profit or charity, the goal is most often to adhere to the principles and missions of the organisation, all while ensuring steady growth and financial health.
Establish Bank Accounts and Financial Responsibilities
A non-profit or charity necessitates its own bank account. Mixing personal and business accounts leads to confusion and possible legal issues.
Your first step should always be establishing separate accounts to receive and monitor all incoming revenue and expenses.
Many non-profits rely heavily on volunteers, even for financial services. Sometimes, a hired bookkeeper can play an important role in a supporting the volunteers you already have.
A bookkeeper can provide your treasurer with specific insights they need to deal effectively with the challenges of a non-profit and to ensure that long-term goals, both financial and not, are met. Treasurers ensure revenue and expenses are in balance and the non-profit can build a financial base to meet future challenges.
The nature of a non-profit means you might need unique rules and regulations. Fund accounting separates income sources and revenue streams for better clarity in accounting.
For example, a university may have separate accounts regarding scholarships and operations.
Similarly, non-profits have rules regarding how money is spent which requires a thorough tracking system.
A purchase order tells you how much you ordered, what you paid, and when a supplier agreed to deliver goods and services.
Tracking In-Kind Donations
A vendor or service provider may lend time or resources, helping your non-profit as an act of charity. Registering these is an important step in your bookkeeping.
This would be an in-kind donation, viewed differently than a cash donation by taxation authorities. This is another example of an activity that should be differentiated and properly tracked.
Form a Budget
A non-profit has different goals as compared to other organisations, but like other businesses, a non-profit still needs a strong operating budget.
Although a non-profit or charity’s operating budget may look different in some respects, there are a lot of similarities.
Projecting expenses and income is important for future planning and creating financial stability for your non-profit.
Create Financial Statements
A key aspect of a non-profit is accountability.
By creating financial statements for your charity or non-profit, you can help stakeholders understand how funds are allocated across accounts and where you got your income from.
There is a great deal of software that can easily generate financial statements. Consistent and clear statements of financial activities are a great way to build transparency and trust for your non-profit or charity.