6 Fundamentals of Not-for-Profit Financial Management
Understanding the specifics of grant agreements, accurately accounting for grant funds and maintaining up-to-date financial records are crucial aspects of financial management for non-profit organizations. It's equally important to have a realistic budget, taking into account known and potential revenue sources. Remember, grant agreements could have conditions beyond administrative requirements, and these conditions directly impact how and when the revenue should be recorded and recognized.
Read on to discover the 6 fundamentals of financial management for non-profit organizations, specifically covering financial statements, budgeting, and grants.
1. Understanding Financial Statements
Understanding financial statements, particularly the statement of financial position and the statement of activities, is crucial for non-profit organizations. These statements provide insights into the organization's financial health and can guide decision-making.
2. Budgeting for Non-Profits
Budgeting is a key aspect of financial management for non-profits. It's important to understand the difference between fixed and liquid assets, and changes in net assets, to make good decisions as you budget. It’s also necessary to align grant budgets with organizational budgets.
3. Navigating Grant Agreements
Grant agreements often have conditions beyond administrative requirements, such as specific outcomes or a match requirement. Understanding these conditions and how to account for grant funds is essential.
4. Conditional vs Unconditional Grants
The difference between conditional and unconditional grants has significant accounting implications. Conditional grants should be recorded as deferred revenue until the conditions are met, while unrestricted funds are fully recognized at the time of receipt.
5. Managing Indirect Costs:
Indirect costs, such as overhead, need to be accurately calculated. Proper documentation and record-keeping for these costs is crucial.
6. De Minimis Rate Changes
The de minimis rate, currently at 10% of the direct cost of a program or project, is set to increase to 15% from October 1, 2024. This rate can be added to most grant proposals to cover indirect costs.
Interested in Learning More?
Check out our webinar from May 23rd, 2024 covering all this and more. Led by CSH Controller Sherry Henning and Director Sherry Saddler, who have extensive experience navigating the non-profit sector. From understanding financial statements and differentiating between assets to aligning grant budgets with organizational budgets, they cover it all and even save time for questions.
