Accounting & Finance

Financial Planning and Management

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1. Budgeting Essentials:

• Understanding Financial Statements: Familiarize yourself with the Income Statement and Balance Sheet with a focus on Year-to-Date (YTD) comparisons.
• Resource Exploration: Before creating a budget, consider all available resources, including pro bono services and volunteer time.
• Realistic Income Estimates: For estimated income, rely on your network initially, as grant funders often require a positive track record before contributing funds.
• Diverse Fundraising Approaches: Explore various fundraising options, from "Go Fund Me" campaigns to events like golf tournaments and walkathons.
• In-Kind Donations: Seek "in-kind" donations, such as office space or free printing, to save costs.
• Designated Donations: Track and utilize donations designated for specific programs only for their intended purpose.

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2. Communication and Budgeting:

• Message Clarity: Refer to the Communication chapter #13 for guidance on crafting a clear and impactful message for fundraising events.
• Expense Listing: For estimating expenses, create a detailed list, including staff, rent, equipment, and more, with budget notes to justify each line item.

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3. Expense Categories:

• Fixed, Variable, and Capital Expenses: Categorize expenses as fixed (e.g., rent, salaries), variable (e.g., mileage, utilities), or capital (e.g., vehicles, computers).
• Startup Expenses: Recognize one-time startup costs, some of which may be expensed in the current year while others become capital expenses (allocated over a period of years).

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4. Cost Efficiency:

• Program Cost Evaluation: Determine the cost of each program to assess its efficiency and cost-effectiveness.
• Overhead vs. Program Expenses: Categorize expenses as overhead/administration or program-related to ensure proper allocation.

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5. Expense Recording and Transparency:

• Accurate Expense Recording: Create a method for accurately recording expenses to maintain transparency.
• Donor and Grantor Expectations: Maintain low overhead costs to allocate more funds toward achieving the organization's mission.
• Gift Taxation: Understand the tax consequences of gifting to individuals, especially employees, to avoid unintended tax liabilities.

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6. Financial Sustainability:

• Planning for Sustainability: Ensure adequate funding for operations before launching programs and hiring employees.
• Integrity and Reputation: Prioritize long-term sustainability over quick launches to avoid damaging your reputation.

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7. Financial Oversight:

• Audit and Review: Understand the differences between compilation, financial review, and full audits, selecting the appropriate review level based on your budget size.
• Banking Relationship: Establish a banking relationship with a local community bank.
• Financial Literacy: Learn to read financial statements and consider hiring an accountant for deeper analysis of financial implications.
• Financial Policies and Controls: Develop financial policies and controls, keeping an eye on cash flow.
• Financial Expertise: Secure financial expertise through board members or external sources.
• Donation Seasonality: Factor in the seasonality of donations when creating budgets.
• Taxes and Reporting: Familiarize yourself with tax-related responsibilities, including filing the 990-tax return.

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8. Donor Diversification:

• Diversify Revenue Streams: Seek income diversification through various revenue sources and donor relationships.
• Relationship Building: Maximize relationships and maintain trust with donors while delivering on promises.
• Vulnerability and Assistance: Don't hesitate to ask for assistance when needed.

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9. Long-Term Planning:

• Planning for the Future: Anticipate funding needs for the first few years and source initial funds from friends, family, events, or fundraising.
• Track Record Importance: Recognize that many grants and foundations prefer organizations with a track record.

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10. Financial Health and Evaluation:

• Defining Financial Health: Define what "financial health" means for your organization, considering factors like cash reserves and annual costs.
• Peer Learning: Learn from similar organizations to establish financial benchmarks.
• Independent Review: Conduct a financial review with an independent expert to ensure strong systems and controls.

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11. Fiscal Agent Consideration:

• Fiscal Agent Option: Explore partnering with another nonprofit as your fiscal agent, offering mutual benefits and support.
• Early Bookkeeping: Hire a bookkeeper early and use financial software, such as QuickBooks. Do not put it off or it can damage your reputation with stakeholders such as board members and donors.

Websites

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• Guidestone has a free guidebook on Federal Reporting Requirements for Churches. This article has links to many other tax and financial websites. https://www.guidestone.org/federalreportingrequirements?utm_source=CD&utm_medium=email&utm_campaign=FRR2024&utm_id=1249083&_cldee=KT94bD6Q5wn1AP6tORxNnAXpJjs24UsOa1x1vXagNPZWgea34GoM8jJt7aQhCuwd&recipientid=contact-2c3cc7842c65ed119562000d3a532d7a-933c8fed5ec545388c6d3c00761e91a9&esid=33711884-a6b4-ee11-a568-000d3a57a969 https://www.churchlawandtax.com/
• Minnesota Council of Nonprofits has 19 points on “Financial Management.” https://www.minnesotanonprofits.org/resources-tools/principles-practices-for-nonprofit-excellence/financial-management
• Minnesota Council of Nonprofits has 12 points to consider on transparency and accountability principles: https://www.minnesotanonprofits.org/resources-tools/principles-practices-for-nonprofit-excellence/transparency-and-accountability
• Armanino provides benchmark analytics to ensure your organization is performing well against expectations, past experience, and industry norms for productivity and profitability. https://www.armanino.com/software/integrations-toolkits/nonprofit-benchmarking/
• The Nonprofit Association of Oregon has several articles on the topics of 1. Financial Management, 2. Financial Controls & Policies, 3. Financial & Annual Reporting for Nonprofits, 4. Financial Service Providers, 5. Accounting Procedures, 6. Audits & Related Options, 7. Single Audit Service Providers, 8. Fund Investments. https://nonprofitoregon.org/resource-library/
• The Nonprofit Association of Oregon has several articles on the topics:

1. Starting & Dissolving a Nonprofit
2. Types of Nonprofits 
3. State & Federal Resources
4. Bylaws
5. Conflict of Interest & Confidentiality
6. Document Retention
7. Ethics & Accountability
8. Fiscal Sponsorship
9. Mergers & Strategic Alliances
10. Nonprofit Insurance
11. Nonprofit Legal Service Providers + forms & sample docs https://nonprofitoregon.org/pp/legal

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Books

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• Fool Me Once: Scams, Stories, and Secrets from the Trillion-Dollar Fraud Industry by Kelly Richmond Pope
• Accounting Fundamentals: A Non-Finance Manager's Guide to Finance and Accounting by Shihan Sheriff 
• Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas Ittelson
• Financial Intelligence, Revised Edition: A Manager's Guide to Knowing What the Numbers Really Mean by Karen Berman, Joe Knight, John Case