In the nonprofit world, success generally is measured by demonstrating impact. But before impact can be measured, funds need to be raised to perform the mission-critical tasks that lead to impact. It is Fund Accounting that can assist your nonprofit in securing those funds. Here’s how.
What major donors want to know
Most major donors have a history of giving to several favorite nonprofits. While they may initially be attracted by the work of a particular organization or have a relationship with someone high up in that organization, savvy donors want to know:
- If I make an unrestricted contribution, exactly how will that money be used?
- If I make a gift restricted to one program, how can I be sure that’s how my gift will be appropriated?
- How much of my gift is going to overhead, and how much to direct services?
- How well has this nonprofit stewarded its funds in the last two years? Do they run a deficit? If so, why?
Essentially, your major donors – whether they provide individual gifts or grants – are looking for trustworthy stewardship of funds, and also, what Charity Navigator refers to as, “Alignment of Mission, Solicitations, and Resource Allocation.” In other words, “look for signs that the charity dedicates both money and staff time in ways that are consistent with what their stated mission is, and with how they represent themselves when seeking donations.” All full 990 forms, which are publicly available, include a section on the nonprofit’s largest programs and funding for those.
What system is best to prove your stewardship of funds to donors?
First, many savvy major donors have served as Directors, or Trustees, on nonprofit boards. They know that only fund accounting can deliver the line-item detail that tracks every dollar of revenue, earned or donated, and specifically how that dollar was expensed. They can read spreadsheets, audit reports, and 990 forms.
- Whether that donor is on your Board of Directors or not, assume they understand that level of detail, and that they expect fund accounting to be the source of your reports.
- Listen to what the donor is looking for. Offer reports, based on fund accounting, at the level of detail the donor requests. One of the many advantages of fund accounting is the flexibility to provide reports at any level of detail.
These assurances of how donated funds were expended – whether in an audit report or a simple spreadsheet – can help your organization retain savvy donors critical to your mission’s success.
Second, the Financial Accounting Standards Board and the Governmental Accounting Standards Board require nonprofits to use fund accounting for financial recordkeeping, regardless of the size or scope of the organization.
Take heart. There is no need to be a CPA to use fund accounting. With today’s technology, you can – with some training – use fund accounting software and do your financial tracking in a way that allows Board members as well as other donors to trust your financial reporting.
To learn more about attracting and retaining donors by generating trusted financial reports, please contact us.
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