Managing the money is a problem for several new nonprofits, with the culprits which range from establishing no accounting system at all to discounting the value of staying up-to-date. There are a couple errors that are common but easily avoidable with attention and a little time. The top five, and the way to prevent them, are:-LRB-**)
1. Deficiency of nonprofit knowledge
Nonprofits have heavy responsibilities for maintaining accurate accounting and meeting certain “best practice” standards. Every player in the nonprofit should have a basic comprehension of what and why the regulations are, and how they are applicable to the particular conditions of your organization. Issues with the books are a superb way to place your status and will reflect in the reputation of the organization within the community.
2. No accounting system
An accounting process is more than installing a bit of software. Every activity that relates to money and money in out should have written procedures to guarantee consistency and accuracy. Everything from accepting a cash donation buying pizza to paying employee salaries with cash should follow a thorough SOP. To that end, anyone and everyone ought to be doing them every moment, the exact same manner, thus ensuring transparency and consistency. Additionally, the appropriate categories have to be established and used to track all income and expenses (like separating earmarked donations, separating each program’s expenses, and such).
3. Inaccurate data entry
Related to developing solid accounting procedures is including steps to confirm the validity of information entry. Typos that are small can become big issues, and any discrepancy ought to be addressed. Also, pick an accounting software that doesn’t let you skip over the double-entry method (a debit for each and every credit, vice-versa). In this manner, your accounting software will help make certain that sense balances and make.
4. Failure to budget
Setting a well-researched, realistic budget is vital for controlling the cash in a nonprofit. Along with increasing your constituents’ confidence in your management capabilities, a budget is going to continue to keep the organization on track to accomplish objectives that are planned. A budget contains projections based on price study previous performance numbers, and assumptions on where it goes and where the cash will come in. Avoid overloading vague, undefined categories like “Miscellaneous Expenses”…they are only an indication your organization suffers from insufficient planning and research.
5. Failure to review
Although an yearly financial audit is standard for most nonprofits, not all use this information effectively. Furthermore, statements that ought to be reviewed by staff and board members should be provided by any accounting software that is legitimate. Reviewing and analyzing these reports will help identify ongoing issues (mis-categorization of revenue or expenses) and one-time problems (data entry errors, embezzlement).
Establishing and maintaining an effective accounting system should be a priority for any nonprofit startup. More than another kind of business, managing a nonprofit organization’s finances may be the difference between longevity and never getting off the ground.