Running a not-for-profit is a dream for you if social return on investment is your greatest value.
It can be the most rewarding experience of your life.
However, no matter how much that return fills your heart, the business still runs on finances.
The finances for running a charity or not-for-profit business is a balancing act that makes regular bookkeeping look like a beginner’s tutorial.
Donations, grants, expenses, compliance with funding terms, many, many funding streams…
Nonprofit bookkeeping can feel like juggling chainsaws in the dark.
It’s not the end of the world. With the right approach, you can keep your finances organized, stay compliant, and even have a little time to breathe.
Nonprofit Bookkeeping: Why It’s a Whole Different Beast
Regular businesses have the luxury of keeping their focus on their profits. Whether it is the reason they started or not, they can afford to tunnel their vision on that one metric.
While that is also important for charities and nonprofits, they come with an extra set of challenges:
Restricted versus Unrestricted Funds: Some money comes with strings attached, particularly government grants. Spend outside of the agreed terms, and you could be in trouble!
Grant Tracking and Reporting: Grants are great. A sort of reverse financial model where you get your money first, then put it to work. But they also come with rules, deadlines, and an uncomfortable amount of paperwork.
Compliance and Audits: Governments and donors like to know where their money is going. Clean records are for more than just efficiency—they keep you out of hot water.
Transparency Expectations: Nonprofits have to use their funds responsibly and prove it. Poor management can ruin credibility and sink the ship. Not to mention the awkward conversation at your next annual general meeting.
Regular bookkeeping is the process of keeping your business in clear order for stability, efficiency, and growth. Nonprofit bookkeeping is a continual game of preparing for a full-scale financial investigation at any time.
Common Pitfalls and How to Avoid Them:
❌Mixing Restricted and Unrestricted Funds: If the name doesn’t make it obvious, some funds are restricted for a specific use. If your grant was for fuel costs, do not purchase tires with it.
✅ A solution? Set up separate accounts or fund-tracking categories. Make it easy to put the square peg in the square hole.
❌ Losing Track of Grant Requirements: Grants come with conditions. Reporting deadlines, specific spending rules… sometimes you need to return unspent funds.
✅ A solution? Even a simple spreadsheet can help you sort out what goes where and how much you have already spent. A better solution would be proper bookkeeping software, like Quickbooks.
❌Forgetting to Record In-Kind Donations: Donations aren’t always in cash. If someone donates office space, supplies, or even volunteer time, these need to be accounted for.
✅ A solution? The same as above: have somewhere to track them, and don’t hesitate to update! We cannot overstate the importance of proper bookkeeping software, and many have a great support community with how-to videos to help you along.
❌Not Preparing for an Audit Until It’s Too Late: Assume your nonprofit will be audited at some point. You may even require an audit, depending on your funders. Don’t put it off!
✅ A solution? Keep financial records organized, receipts intact, and reports ready to go. Again, proper software is a huge advantage, as it typically allows you to scan and digitize all your records to keep them accessible and in one place.
How to Keep Your Sanity While Staying Compliant
► Use Accounting Software
I said that we cannot overstate the value of proper software and I meant it. Quickbooks is the big boy, but many options can serve you well.
► Reconcile Accounts Regularly
Don’t wait until year-end to sort out transactions. Montly check-ins help catch errors and plug leaks before they get away from you.
► Keep a Paper Trail
Every donation, every grant, and every expense should have a receipt, note, or digital record. Scan it, save it, file it, and keep it accessible. When the auditor asks, you can deliver.
► Budget for Admin Costs
A common error among nonprofits is under-budgeting for operating costs. You’re not in it for the profit, but you still need to pay staff, electric bills, rent, and many others.
► Hire a Nonprofit Bookkeeper
This is not a place to get creative. A trained and experienced professional is always an asset. Moreso, if they have experience in the paperwork-heavy world of nonprofits. They can keep you operating and maybe even avoid legal issues.
The Bottom Line
Nonprofit bookkeeping isn’t just about tracking money, it’s about proving financial responsibility, staying compliant, and keeping your mission alive.
Next time, we’ll talk about taxes because, yes, even nonprofits have tax responsibilities, and no, the government doesn’t make it easy.
Written by Lyle Mustard
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