Non-profit organisations range in size from small community projects to some of the UK’s biggest and best-known charities; public sector organisations may also be designed to deliver services without making a profit.
So what are the common features of a non-profit organisation? ACCA, the global body for professional accountants, lists some of their common characteristics (also known as not-for-profit organisations) as follows:
- Typically no risk capital from external shareholders
- No dividends – any surplus is retained
- Usually a social, cultural or environmental dimension
However, running a non-profit organisation does not mean ignoring the financial aspects that are involved in the effective running of any other business.
Ultimately, many non-profit organisations do run at a surplus, and it is important to be able to account for the funds that are retained by the company at the end of each financial year.
Getting a bank account
The first step towards getting your accounting in order is to make sure you have the right bank account – and the Small Charities Coalition says there is plenty of variety in this area.
“As well as charity bank accounts, some banks offer other specialist accounts, such as ‘community’, ‘not for profit’ or ‘clubs and charities’ accounts. There are also specialist charity banks, as well as high street banks.” – Small Charities Coalition
Do plenty of research in this area – speak to the banks to find out what you will need to provide in order to open a non-profit bank account, and whether the product on offer meets your needs.
In some circumstances, you might prefer to open a treasurer bank account in the name of an individual, rather than having an account for the charity or organisation as an entity in its own right.
The Small Charities Coalition recommends making sure this account is kept wholly separate from the treasurer’s other finances, and authorising a second signatory for cheques if possible.
You may also want to issue a statement to trustees, if you have any, to confirm the treasurer is holding the money in the account on behalf of your organisation; you should keep a copy of this statement for your records.
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Sticking to a schedule
Like any other business, you will need to file accounts on an annual basis, so you should take care to keep to a sensible schedule when doing this.
The Brighton-based Resource Centre offers guidance on managing money for community groups, charities and non-profits.
It stresses the benefits of annual accounts as a way to define your aims for the future, as well as to manage your finances more effectively on an ongoing basis.
If you are registered as a charity, you must prepare a set of accounts, an annual return, and a trustees’ annual report.
Other non-profit organisations may be subject to different rules on exactly what types of accounts and financial reports you must prepare – these depend on your legal structure, income and any assets you hold.
Within the year
The end of the financial year is not the only time when you may need to prepare a report. You may also need:
- Quarterly statements for the board of directors
- Quarterly progress reports for grants and contracts
- Weekly/monthly budgeting updates
By embracing accounting for your non-profit organisation’s finances at every stage throughout the year, you put yourself in the best position to know exactly where you stand, what you are working towards, and how to respond to any changes in your circumstances and the wider economy.
As with any company, this helps to insulate you against economic shocks, as you will be able to respond with greater agility when an issue arises.
Audits and examinations
Depending on the constitution of your non-profit organisation, you may need to have your accounts audited, or you may need to have them independently examined.
A full audit is typically needed for larger charities but for smaller non-profits, the company constitution should let you know what you need to do.
The Resource Centre describes independent examinations as follows:
“This is the process of scrutinising a charity’s accounts below the level of a professional audit. The procedures are defined by law and by the Directions of the Charity Commission.
The independent examiner will gain an understanding of the charity, look at the accounts and supporting documents, and write an independent report to accompany the accounts and Trustees’ report.”
Independent examiners can be accountants, finance workers and charity treasurers, and should confirm that the necessary accounting records have been kept and, if relevant, that the accounts comply with the terms of the Charities Act.
A full audit, on the other hand, must be carried out by a registered auditor, who must confirm that in their opinion, the accounts filed represent a true and fair view of your organisation’s financial position.
Accounting software can help you to stay on top of your finances on an ongoing basis by making it easier to keep your records in electronic form, and in turn making it easier to generate reports at any point throughout the year.
Many non-profit organisations use accounting software to do just that, from weekly and monthly budgeting through to quarterly reports and end-of-year accounts.
Good online accounting software simplifies record-keeping, making it faster and easier to enter your organisation’s income and outgoings, and to make sure that the two balance, taking into account any surplus or shortfall.
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