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  1. Improving Cash Flow In Your Nonprofit

There are many ways to improve cash flow, so let’s take a look at some of the strategies that have been working for our clients.

  1. Review your cash flow statement (cash summary) regularly 

If you want your cash flow to improve, you’ll need to keep a regular eye on how your cash is moving.

Fortunately, accounting software like LessAccounting makes it very easy to generate cash flow statements and reports. 

Here’s an example of a cash summary: 

Top 9 Accounting Basics for Nonprofits

We’ll discuss additional types of reports later in this guide.

  1. Prepare regular cash flow forecasts using a cash flow forecast 

The cash flow forecast is one of the most important financial documents for your non profit organization.

Unfortunately, it’s also one of the reports business owners tend to ignore.

A cash flow forecast is an estimate of the amount of money you expect to flow in and out of your business every week, month or even a year.

It’s particularly useful when you foresee a cash shortage coming up, so you can apply a corrective action before it’s too late.  

You can build your own simple cash flow forecast template using a spreadsheet, or you can save time and use our free cash flow forecast template by emailing us at cashflow@lessaccounting.com 

  1. Reduce business operating expenses

Do you really need to be paying for the most expensive customer relationship (CRM) software, or will a simple spreadsheet do the trick?

What about all those online courses and training that you’ve paid for that you’ve never even looked at?  

We get it. Seriously, we’ve been there too.

It’s easy to get caught up in the latest technology and shiny objects. But failure to stay on top of your monthly spending can spell doom for your business.

Don’t assume that you can just write it all off as a tax deduction. What if your business goes under before you get a chance to claim those expenses back on tax? Ouch.

  1. Attract New Clients as part of your Non Profit Business Plan

Whilst writing a 60-page business plan probably isn’t the best use of your time, having some kind of strategic plan and understanding your business model can be very useful for identifying opportunities to improve your cash position.

Some questions to get you thinking:

  • Who are your best and most profitable clients? What about the least profitable ones?

  • How can you add complementary products or services to increase Customer Lifetime Value (LTV)? How can you remove or tweak underperforming ones?

  • What’s your marketing, lead generation, and sales strategy? What’s been working for you in the last 90 days? What hasn’t?

  • Are there any sales and marketing tasks that you could outsource?

  • Are there other funding avenues that you haven’t considered?

  • How can you wow your current clients better, so that they stick around longer and/or refer more clients to you?

  • Are you effectively leveraging strategic partnerships as a channel for attracting new business?

 

2. Getting Paid In Your Non Profit Organization

Naturally, getting paid is one of the most important parts of running a business, which is why we’ve included it early in this bookkeeping guide. If you want a successful business, you’ll need to make sure you’re paid accurately and timely.  

It’s important to make it as easy as possible for your customers to pay you. If they have to jump through hoops to send you money, there’s a good chance it will fall to the bottom of their to-do list.

  1. Invoicing Tools

The simplest way to get paid is with a clear and easy to read invoice.

There are hundreds of invoicing tools on the market. No matter which tool you decide to use, you need it to do four things:

  • Look professional

  • Create and send invoices easily

  • Let your customer pay easily through the invoice

  • Integrate with your accounting tool

Those four features are so important that we recommend using accounting software that includes an invoicing function.

Your customers should be able to click a “pay” link on the invoice to send a payment, and that payment should be recorded straight into your accounting software.

LessAccounting does all of the above. 

Here’s a screenshot demonstrating how to manage invoices for a customer in LessAccounting:


Top 9 Accounting Basics for Nonprofits

  1. Payment Processors

Once you have a way to send invoices, you’ll need an account with a payment processor like Stripe, Square, or PayPal. These services let you process credit cards.

They’ll charge a fee of about 3% of your invoice amount. Our accounting software and payment processor are integrated and work well together. 

LessAccounting lets you process payments at a discounted rate of approximately 2.5% for credit cards and 1% for bank transfers.

If you run a membership site or intend to charge for repeated services, you’ll also have to make sure your payment processor lets you charge recurring billing. Setting up recurring invoices in LessAccounting is just a matter of a few clicks.

 

  1. Billing Upfront

Consider advance payments: NonProft is built on respect, trust, and mutual accountability.

If a client does not pay you or pays late, it’s a sign that one of these areas is lacking.

Consider billing upfront based on an agreed-upon scope of service. By doing so, you ensure they’ll be covered for the time you spend on agreed-upon services while also maintaining a position to charge for “extra” hand-holding or uncharged work.

  1. Chasing Late Payments

If you can’t bill upfront, make sure to stay on top of your accounts receivable. If you let your clients get away with late payments (or worse, failing to pay), your cash flow and growth will suffer.

Use the tools in your accounting software to monitor unpaid invoices. LessAccounting allows you to automatically follow up on unpaid invoices and see who owes you money.

 

Follow up on late invoices. You may want to charge a fee for late payments. Too scared to ask for late payment? Read these helpful tips

 

3. Managing Expenses

As a non profit organization, you won’t have as many expenses as a manufacturing or retail business. But you’ll still have spendings, and your bookkeeping should account for them. Identifying, calculating, and analyzing your expenses is the only way to minimize them.

Poor expense management almost always creates cash flow problems. Without healthy cash flow, you’ll struggle to pay your operational costs and you’ll lack money to invest in growth.

  1. Tracking Expenses

LessAccounting uses advanced algorithms and data collected from thousands of banking institutions to properly categorize your expenses. Learn more in this one minute video.

Tracking your expenses is simple with LessAccounting software and a bookkeeper. Make sure to keep your personal expenses separate and only pay for business items from your business bank account.  

  1. Receipt Management

We recommend using a receipt management software to manage and file copies of receipts and suppliers’ invoices. 

LessAccounting software already comes with this feature.

  1. Paying via Direct Debit (e.g. Software Subscriptions)

As a non profit, you’ll undoubtedly pay some costs like software subscriptions via direct debit.

The bookkeeping for direct debits is reasonably straightforward. Create bank rules in your accounting software to classify those payments to the correct account code.

  1. Financing Large Purchases

In a non-profit business, your regular expenses may be quite minimal, but there could still be larger projects like building a new website or developing an online course that requires additional financing.

Having proper bookkeeping and accounting will give you peace of mind when applying for loans with lenders.

  1. Saving Up a for a Rainy Day

Our parting advice regarding expenses is to be prepared for unexpected expenses.

One way to address this is to save up a ‘war chest’ or an emergency fund that can be used when unexpected expenses crop up. 

Keep this in a separate bank account to your everyday business bank account.

4. Accounting Software

We’ve mentioned the LessAccounting tool a few times so far, but we want to expand a little.

Your accounting software is a critical component of this bookkeeping playbook, so pay special attention to this section.

If you take your business seriously, you need to be using cloud accounting software rather than a spreadsheet. 

  1. Here are 10 reasons why you use accounting software!

  • Save time compared to manual bookkeeping

  • Generate reports about your financial position at any time

  • Stay on top of your cash flow

  • Be aware of financial problems before they grow serious

  • Most tools scale up to medium size businesses effectively

  • Integrate your invoices and payment processor for a smooth workflow

  • No need to maintain hard-to-organize paper records

  • Minimize mistakes by reducing manual inputs by using the built-in cross-checks

  • Check your reports on any computer or mobile device

  • Make tax time easy for you and your accountant

There are a lot of tools available, so choose the one that best fits your needs. Limit your search to tools that include these features:

  1. Cloud-based. This means the platform stores your data and makes it accessible anywhere and at any time. LessAccounting fits that profile perfectly.

  2. Bank feeds. You want the tool to automatically pull your transaction history.

  3. PayPal/Stripe/Zapier integration. If you use either of these services, you’ll want the tool to integrate with them.

  4. Multiple users. If you’re a solo operation at the moment, this isn’t entirely important. But someday you’ll want additional user accounts to let your team use the tool.

  5. Two-factor authentication. This is a security feature that requires a password plus another form of authentication, like a temporary passcode sent to your phone.

  6. Bank rules. By setting rules, you can have your accounting software automatically categorize transactions without your approval. This greatly reduces how much time you spend managing the tool.

  7. CMS integration. Ideally, you’ll want a tool that links with your website platform.

Once you’ve chosen an accounting tool, we strongly recommend you have an accountant or bookkeeper look over the setup of your software before you get started doing your regular bookkeeping.

As previously mentioned, LessAccounting is our favorite cloud accounting tool. We use it with all of our clients. 

b) Cash vs Accrual Accounting

One of the first decisions you’ll have to make when you start taking your bookkeeping seriously is which type of business accounting you’ll use. There are two types: cash basis and accrual basis.

In cash basis accounting, revenue is recorded when you receive cash from customers/clients. Expenses are recorded when cash is paid out to suppliers and workers.

In accrual basis accounting, you record revenue when you earn it and expenses when you consume them, even if you haven’t collected or paid out yet.

Top 9 Accounting Basics for Nonprofits

Over time, both types of accounting produce the same results. What’s different is when you record transactions.

Example: In October, you send a $700 invoice to a customer for a month’s worth of consulting, but the customer doesn’t pay until November. On an accrual basis, you would record the revenue in October. On a cash basis, you wouldn’t record it until you receive the check in November.

Should a Non Profit Use Cash or Accruals?

You’ll probably prefer a cash basis. It’s simple and straightforward since you don’t use complex transactions like deferrals and accruals. The only challenge is that the random timing of income and expenses can make your cash flow fluctuate.

Most large businesses use accrual accounting, so if your business has significant growth, we recommend coming back to review this decision and discussing this with your accountant.

5. Paying your team

You may intend to do everything yourself to run your nonprofit organization, but you’ll be surprised how soon you need to hire contractors or employees to fulfill some function. You might not hire them full time (or even for a consistent schedule), but you’ll probably need some kind of help.

For instance, you might need to pay a designer to create some art for your course pages. Or you might need to hire an editor to touch up your videos. You might also choose to outsource your bookkeeping!

  1. Employee vs. Contractor for your Non Profit organization?

In most places, you either pay employees as independent contractors or put them on the payroll. The rules around when you must treat someone as an employee rather than a contractor vary from region to region, but here are a couple of general examples (which may be different in your country):

Employee A

  • Works full time for you.

  • Comes into your office every day.

  • You provide all of the equipment required to complete the work.

In most places, this is generally an employee on the payroll.

Employee B

  • Completes projects for you at different times every week.

  • Sometimes you don’t hire her for a week or two.

  • You give her project details, but don’t oversee the work.

  • She uses her own equipment and materials.

In most places, this is generally an independent contractor.

If you need to hire someone and aren’t sure if they’re independent or should be placed on payroll, check into your local laws for clarification. If you still aren’t sure, ask your tax accountant.

  1. Paying Contractors

When it comes to paying contractors, it’s actually quite simple. Just have them submit invoices and pay them like any other expense.

  1. Paying Employees

Paying payroll employees is a little more complex. It’s your job to deduct taxes out of payroll employees’ checks and send them to your tax agency. You’ll want to use the payroll feature in your accounting tool to calculate their tax liability.

Another option is to utilize a full-service solution like SurePayroll to handle the tax calculations and filings. LessAccounting integrates seamlessly with SurePayroll. 

6. Reporting

Inputting your expenses and payments into an accounting tool isn’t enough. You’ll realize the true value of bookkeeping when you generate regular reports.

Reports are the financial representation or narrative of the impact of those business decisions you’ve made over a period of time.

Reports help you benchmark your business. They give you snapshots of your business at a point in time that you can compare to see how your business changes over time.

Your accounting tool can produce a variety of different reports. As non profit organization, you should be looking at the following 3 reports at a minimum:

  • Balance sheet

  • Profit & loss

  • Cash flow forecast

  1. Bank Reconciliations

Furthermore, it’s critical that you perform a bank reconciliation at least quarterly (ideally monthly). This is a report that compares your bank account balance in your accounting tool with your bank statement balance.

It helps you identify errors in your accounting tool or expenses/income in your bank that you aren’t aware of.

An important piece of advice: Once you produce your reports, it’s important to actually use them. Make the time to sit down, read and understand them and create action items based on the insights you’ve gleaned. If you work with a bookkeeper, lean on them to help you understand your reports.

 

7. Non Profit Business Structure

  1. Pros and Cons of Popular Business Structures

The best structure for your business depends on your needs and the country where you operate. Most countries have a sole proprietor structure which essentially means doing business under your own name.

If you work with another person (or a few people), or you have liability concerns (perhaps there’s a chance you could get sued in court), consider forming a company or corporation.

Make sure to consult with a tax accountant to assess your individual needs to determine the appropriate business structure for you. You can also schedule a call with one of our experts and they will be able to point you in the right direction.

  1. Separate Business Bank Accounts

Part of structuring a business is separating its finances from your personal finances. This is as simple as opening a business bank account.

An important reason to separate your business and personal finances is to simplify your bookkeeping. In order for your bookkeeping software (more on this in a moment) to track your transactions accurately, it’s best that the only transactions that flow through your account relate to your business.

Otherwise, you’ll have to categorize all of your personal transactions within the accounting software too.

Here’s are a few more reasons why having a bank account solely for your non profit organization benefits you:

  • It lets you accept payments by credit card (some processors want a business account).

  • It helps you avoid tax problems because you can clearly categorize business and personal expenses.

  • You can delegate banking tasks to an assistant without giving them access to your personal account

  • You can present yourself as a professional.

Furthermore, use your business account to get yourself a credit card. Paying workers and suppliers with a credit card is much easier than using bank transfers. Plus you gain the benefits of a credit card company, like fraud protection and the ability to initiate chargebacks.

8. Paying Taxes

Whether you choose to manage your own books or hire a bookkeeper, it’s critical that you hire a CPA or equivalent to manage your tax returns and payments. This is not an area of finance you want to wade in by yourself.

Working with a tax expert who understands tax law can often result in tax savings. Gaining that level of intimacy with the tax law just isn’t feasible when you’re trying to grow your non profit organization.

The best way to find a good tax accountant is to ask people you trust who they use. Don’t be afraid to conduct several interviews until you find the CPA that’s right for you.

We can help you find a CPA for your business – please contact cpa@lessaccounting.com

9. Hiring a Bookkeeper for your Nonprofit Organization

It’s smart to reduce your expenses as much as possible, but proper bookkeeping is a specialized skill that takes time to learn and manage.

If you take one thing away from this bookkeeping playbook, let it be this: Sometimes it’s better to hire someone else to manage your books for you.

The bookkeeper’s role is to manage your day-to-day transactions within your accounting software. They’ll make sure each item is categorized properly in your chart of accounts.

If your payments and expenses aren’t organized accurately, it will create a ripple effect that will disrupt all of your finances.

You can also request that your bookkeeper works directly with your tax accountant, to reduce the time you need to spend on accounting tasks.

Bookkeeping is actually one of the most common services companies outsource. So when you are next doing your own bookkeeping think about whether this time would be better spent on growing your business.

Accountant vs Bookkeeper – Who Should I Be Working With?

The bookkeeper’s role is to handle the day to day transactions in the accounting software and to make sure that each item is allocated correctly to the right account in the chart of accounts.

At LessAccounting, we specialize in bookkeeping and tax advisory for your nonprofit business. If you have any questions about LessAccounting or bookkeeping feel free to get in touch.

LessAccounting is an easy to use accounting system loved by thousands!

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