Bookkeeping is a must for any organization, but it’s especially important for nonprofits. Clean books and transparent finances help you keep your 501c3 status and maintain the goodwill of your members, supporters and donors. Clean and clear bookkeeping also demonstrates that you are a responsible steward of the funds entrusted to your organization.
But what exactly is bookkeeping for nonprofits, and how does it differ from accounting? Let’s take a deep dive into nonprofit finances, why they matter more than you think — and how Harmoney’s bookkeeping services can help you stay compliant.
Nonprofit Bookkeeping vs. Accounting
Bookkeeping and accounting are two sides of the same coin, and they each have a role to play in nonprofit finances. Bookkeeping is all about recordkeeping: your bookkeeper is responsible for recording financial transactions like grants, donations, and payroll. They organize these records and produce financial statements for stakeholders.
Accountants, on the other hand, are responsible for making sense of those numbers. Their job is to review your books, explain why they turned out the way they did, and make a budget or financial plan to better allocate your resources.
Nonprofits often have unique financial considerations, such as restricted funds that can only be used for a certain purpose, so it’s important to choose a bookkeeper who has experience with nonprofit finances. They can help you avoid the top 5 bookkeeping mistakes that could cost your organization money — or your 501c3 status.
Why Clean Bookkeeping Matters Even More for Nonprofits
In a broad sense, we all know why clean bookkeeping matters: it helps you stay solvent and prevent serious issues like fraud or embezzlement. But there’s more to it than that. Here are five reasons why clean bookkeeping matters on a day-to-day basis:
Budgeting
Let’s face it: many nonprofit organizations are doing the best they can on a shoestring budget, and every cent counts. If you don’t know where your money is going, it can be hard to solicit money from donors and get the funding you need to fulfill your mission.
Timely and accurate bookkeeping helps you make smart budgeting decisions on a day-to-day and annual basis — and saves you money in the long run.
That means recording every expense — and saving the receipts — so you can track your purchases and avoid wasteful spending. It also means categorizing donations, whether they’re cash donations or in-kind donations (i.e., goods and services).
It’s never too late to start budgeting so you can get the clarity you need to keep your nonprofit finances on solid ground.
Grant tracking
If you get any of your funding from grants — government, foundation, or otherwise — then you will have some extra obligations when it comes to tracking your spending.
As a grant recipient, you’ll need to show that you’re using the money wisely and in line with your grant agreement. Federal grants in particular come with strict accountability requirements, and you may be subject to additional audits and oversight.
No one likes being audited, even when your books are in tip-top shape! But having a solid grant tracking system makes the process far less painful, since you’ll be able to show that you’re using your grant funds as intended.
Payroll
For nonprofits, every minute and dollar count—and payroll shouldn’t be a guessing game. Outsourcing payroll ensures your team is paid accurately and on time, while keeping you compliant with ever-changing tax laws and reporting requirements. It takes the stress off your plate so you can focus on what really matters: your mission, your people, and your impact.
Just like any for-profit business, you’ll need to withhold payroll taxes and file annual reports with the IRS. But you’ll also need to consider things like:
- What is “reasonable compensation” for executives and board members?
- Can you provide a stipend or other benefits to your volunteers?
- Can you use grant money to compensate your employees?
A good bookkeeper can help you understand your payroll and payroll tax obligations. Have questions? That’s what our full-service bookkeeping advisory services are for!
Board meetings
Board meetings don’t have to be stressful—and your financial reports shouldn’t be either. With the right bookkeeping partner, your director can walk into those meetings feeling confident, prepared, and proud to share your nonprofit’s story.
When your books are clean and clear from the start, your financials become a powerful tool—not a burden. You’ll not only elevate your operations in the eyes of your board, but also equip your leadership with the insights and data they need to answer questions with ease and back up every decision with confidence.
Financial analysis
Love ratios? We didn’t think so. But ratios are a key financial tool for nonprofits, helping you understand your financial situation and how it changes from year to year. Some of the most useful financial ratios for nonprofits are the self-sufficiency ratio and reliance on government funding ratio, which help you monitor your financial solvency.
A financial analysis can also help you glean more insights from your financial reports, such as your Statement of Activities or Statement of Financial Position. If you aren’t sure how to read these reports, our Financial Reporting Literacy Service can help you out!
Struggling with Bookkeeping? Let Us Help
Maintaining clean books as a nonprofit is easier said than done — especially when your treasurer and board members are volunteers and bookkeeping isn’t their full-time focus. By engaging with the team at Harmoney, you’ll benefit from our financial expertise and our down-to-earth approach to nonprofit finance.
Outsourcing your finances to a bookkeeping service pays for itself by saving you time and money and allowing you to focus full-time on your mission. Embarrassed by your books? Don’t worry — our GleamUP service is specifically designed to clear up the clutter and get you back on track.
Book a call with us today to get started!
