3 min read
Accounting as a non-profit entity works a little differently to accounting as an ordinary business, not least because the goal isn’t to make as much money as possible.
In this guide, we’ll take you through everything you need to know about non-profit accounting, from how to get started, to tips to keeping things running smoothly.
How is non-profit accounting different?
Sometimes known as non-profit entities, non-profits are usually charities or small community clubs. They handle money through either memberships or donations, but their goal isn’t to make a profit. However, this aside, their accounting operations resemble that of a regular business. They have money coming in and going out, and they are required to pay employees and run their operations.
All of these processes have to be accounted for by law, and there are certain legal processes that non-profits need to honour which other types of businesses don’t. For this reason, non-profit accounting requires a certain diligence.
How to get started as a non-profit
Starting a non-profit organisation requires you to complete a number of steps. These include:
Finding a minimum of 3 trustees
If it’s a charity, ensuring that it has charitable purposes
Deciding on a name for your charity
Deciding on a structure
Setting up a governing document
If your annual income exceeds £5,000, you will need to register as a charity. This is also the case if you set up a charitable incorporated organisation (CIO).
In order to claim tax relief, your charity must be recognised by HMRC.
Accounting for non-profits: recording revenue
Non-profit entities can have multiple sources of revenue. These include:
Donations - This is money received via donations. It comes as a response to cold-calling, web appeals or street collecting.
Pledges - A pledge is a promise to donate money.
Volunteer time - A volunteer giving up their time to work with an organisation should be treated as a form of revenue, especially if the individual has a specialist skill, such as bookkeeping.
Membership fees - This is a fee members pay in exchange for access to facilitates or a club.
Fundraisers - This includes entry fees, raffle tickets sales etc.
Investments - Big non-profits may have investments in land or shares.
Grants - These include government and private sector grants.
All forms of revenue must be fully and accurately recorded.
When it comes to collecting revenue, GoCardless offers some great solutions for non-profit organisations.
GoCardless offers pricing for charities and non-profits and enables non-profit entities to collect regular and one-off amounts seamlessly. In fact, the major UK charity Comic Relief is among the many charities and not-for-profit organisations that GoCardless partners with.
Tips for successful non-profit accounting
Just like with ordinary businesses, efficiency is key to keeping operations running smoothly. Below are some tips for facilitating high quality accounting in non-profit entities:
Use accounting software
Good accounting software can help streamline accounting by minimising errors and keeping everything easily accessible in one place.
When choosing an accounting software, make sure you opt for one that caters to non-profit organisations. It should also have extensive accounting features, including accounts receivable ratio, liquidity graphs, expenditure, expense reports and analytical tools.
It can also be a huge advantage to use cloud-based software as this allows accounts and records to be accessed from anywhere with internet access. This means accounting teams can potentially work remotely.
Take advantage of your non-profit status
You may be required to turn out less paper work than other entities too, as governments try to keep red tape minimal for non-profits. You may not be required, for instance, to provide regular balance sheets or income statements.
These exemptions should leave you with more cash in your pocket and more time in your hands, which can be used to better serve the community your charity or club seeks to help.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.