Running a nonprofit or church in Delta County comes with its own set of challenges. One area where many organizations struggle is financial management. From complex reporting to donor transparency, even small mistakes can lead to major headaches down the road.
As a nonprofit or church, it’s crucial to avoid financial missteps that could hurt your credibility, compliance, or long-term growth. In this post, we’ll go over five common financial mistakes nonprofits and churches often make and how to avoid them.
1. Failing to Track Designated and Restricted Funds
When it comes to nonprofit and church finances, designated or restricted funds are funds donated for specific purposes, such as building projects, missions, or charity programs. A typical mistake is failing to keep these funds separate or not tracking them accurately.
The Problem:
Mixing restricted funds with general operating funds can lead to confusion, misreporting, and potential misuse of funds. If you don’t track restricted donations properly, you could violate donor intent, which may harm your relationship with funders and damage your reputation.
How to Avoid It:
Implement a fund accounting system that clearly tracks restricted and designated funds separately from your general operating budget. This way, you’ll know exactly where your funds are going, and donors will be assured their contributions are being used for the intended purpose.
2. Not Keeping Up with Tax Filings and Reporting
Many nonprofits and churches have tax-exempt status, but that doesn’t mean they’re exempt from filing certain reports, such as the IRS Form 990. Even if your organization is small, failing to file on time can lead to penalties, or worse, the loss of your tax-exempt status.
The Problem:
Nonprofits often overlook the importance of timely filings and annual reports. Some may also fail to track in-kind donations or follow other reporting rules, which can result in noncompliance.
How to Avoid It:
Set up a system that ensures you’re aware of key tax filing deadlines and requirements. If you’re unsure, seek professional help to stay on track with IRS filings and ensure you’re keeping all necessary documentation in place.
3. Poor Donation Record-Keeping
Nonprofits and churches rely on donations, and accurate record-keeping is essential for tax purposes and donor relations. Inaccurate or incomplete donation records can lead to unhappy donors and possible issues with tax reporting.
The Problem:
Failing to record donations properly can result in giving tax receipts that are incorrect, losing track of recurring donations, or failing to provide year-end statements for donors.
How to Avoid It:
Use a dedicated software solution that tracks donations accurately. Make sure every donation, large or small, is recorded, and provide timely tax receipts to your donors. Setting up automated reminders and reports can make the process much smoother.
4. Mismanaging Grant and Fundraising Expenses
Grants and fundraising activities often require precise tracking of both income and expenses. Nonprofits and churches may fail to align their expenditures with the terms of the grant or fundraising campaign, which could cause problems with compliance and transparency.
The Problem:
Not tracking fundraising expenses separately from other costs or not allocating grant funds properly can lead to inaccurate reporting, especially when you need to demonstrate the use of funds to grantors or other stakeholders.
How to Avoid It:
Implement a system that tracks grant income and expenses in a way that aligns with the grant’s stipulations. Keep separate records for each fundraiser, and make sure every expense has supporting documentation to ensure compliance and transparency.
5. Not Preparing Financial Reports for the Board
Your board members depend on clear, accurate financial reports to make decisions. Without regular reports that provide insight into your nonprofit or church’s financial health, you risk losing board support or running into strategic challenges.
The Problem:
Many nonprofits fail to prepare financial reports that are easy to understand, leaving board members confused or uninformed. Without these reports, it can be difficult to gauge whether your organization is on track with its budget or fundraising goals.
How to Avoid It:
Prepare monthly or quarterly financial reports that are concise and board-friendly. Focus on key performance indicators, such as fund balances, revenue trends, and major expenses. Don’t overwhelm the board with too much detail; instead, highlight the information they need to make informed decisions.
Final Thoughts: Stay On Top of Your Finances
Avoiding these common financial mistakes is essential for the long-term health and sustainability of your nonprofit or church. By tracking restricted funds, staying up to date on tax filings, keeping accurate donation records, managing grant expenses, and providing clear financial reports, you can help your organization maintain trust, compliance, and growth.
If you’re feeling overwhelmed by your financial tasks, it might be time to work with a professional bookkeeper who understands the unique needs of nonprofits and churches in Delta County. At Western Slopes Bookkeeping, we specialize in helping organizations like yours maintain clean, organized financial records so you can focus on your mission.
📩 Contact us today to get started with a tailored bookkeeping plan that fits your nonprofit or church’s needs
0 Comments