5 important tips for nonprofits approaching fiscal year end
No matter the mission of a charitable organization, those running it share a common trait: They became involved in the nonprofit world out of a desire to do good.
But some organizations focus so much on the mission that they neglect the “taking care of business” side of running a nonprofit. And if they’re not careful, that inattention can suddenly become a roadblock to being able to continue to accomplish those important charitable goals.
As the end of each fiscal year approaches, here are five tips even the best-run nonprofits would be well-advised to check to ensure they – and those counting on their help – are not headed for a nasty surprise.
1. Invest in a financial pro
I once worked with an agency whose CFO kept assuring his board they were at least breaking even. But at the end of the year, when they were significantly in the red, the charity had a nasty shock and the CFO was gone.
Sometimes nonprofits, needing to cut costs, see the back office as a place to save money. But every organization, even those with an in-house CFO, needs an unbiased financial pro who understands and can advise on ways to stay on budget and avoid financial fiascos.
2. Keep the IRS informed of any changes to the mission
It’s only natural that a nonprofit starts out providing a particular service, and then sees other areas where they can help. That’s not a problem – as long as they remember to update their IRS charitable registration. Say an organization formed to provide meals to the homeless adds an after-school program. Failure to account for the new program with the IRS could mean the charity has to pay business tax on any income. Or, if the income is reported as exempt, the nonprofit could risk losing its tax-exempt status altogether.
3. Deadlines matter
Unfortunately, it’s not uncommon to find nonprofits missing the end of the fiscal year deadline to file their 990. I’ve seen organizations that have sat on multiple IRS notices about missed 990 filings, which can lead to having to pay interest and penalties.
And that’s not the only one – nonprofits frequently have other important deadlines to watch. Banks that issue lines of credit many times want to see an annual audit by a certain date. You don’t want to be in a position of having the bank call your loan because of a missed reporting requirement.
Grantors may want progress reports – and failure to provide documentation can put grants in jeopardy. Agencies typically face multiple deadlines throughout the year – all of which need to be tracked to avoid serious consequences.
4. Keep reviewing your grants
One of the quickest ways to lose out on getting the same grant the following year is to not use all the money you initially received. Make it a practice to have multiple people regularly review your grants and ensure your programs are running as promised. It’s important that the people providing the services work hand-in-hand with your fiscal department to keep everyone on the same page.
5. Let your budget be your guide
It’s surprising the number of nonprofits that start a year without a firm budget. What isn’t surprising is that those organizations get off track pretty quickly – and the larger and more complex the nonprofit, the faster it can happen. Plan out large expenditures. Perhaps you need a new computer system – make sure you plan for the cost as well as other contingencies so an unexpected additional expense doesn’t leave you scrambling.
When you’re putting together your next fiscal year budget, pay attention to recommendations made by your auditor. Every annual audit comes with a planning letter – following that advice can help you avoid nasty shocks down the road.
Remember, budgets are living, breathing documents that grow and change as you move through the year, but they still need to be updated so your organization knows at any given time where you stand and where you need to go.
Bottom line: In addition to tracking the money you spend and careful budgeting, never forget who makes everything possible: Your donors.
Start with a simple thank you. And then really take the time to let them know their generosity is helping people and how their contribution is vital to the success of your organization’s mission. Not only do you need them to survive, but in today’s world of competing needs, this kind of communication can turn mid-range donors into larger ones.