Nonprofit Bookkeeping: Ultimate Guide + Best Practices
As with most decision-making processes at your nonprofit, financial management is most effective when it’s data-driven. Keeping clear records of your organization’s finances allows you to develop analysis, planning, and reporting procedures that lead to greater efficiency and sustainability. This is accomplished through a process known as nonprofit bookkeeping.
If you aren’t sure where to start with nonprofit bookkeeping, you’ve come to the right place! In this guide, you’ll learn all you need to know about bookkeeping for nonprofits, including:
Not only is nonprofit bookkeeping different from its for-profit counterpart, but a bookkeeper is just one of the professionals you should have working on your organization’s finances. Let’s begin by clearing up these points of confusion and ensuring we’re all on the same page about what bookkeeping is.
What is Nonprofit Bookkeeping?
Nonprofit bookkeeping is the process of systematically recording, organizing, and tracking a nonprofit’s financial activities. It allows your organization to monitor its spending, fundraising, assets, receivables, payables, and other transactions essential to its operations.
Naturally, the job of recording and managing financial data falls to your nonprofit bookkeeper. This position is one of the four key nonprofit financial roles—the other three are your:
Since your treasurer is typically a member of the board of directors and your CFO works closely with the rest of your executive leadership team, their roles are fairly easy to distinguish. However, your bookkeeper and accountant are both professionals below the executive level who work with financial data in distinct ways. Because of this, bookkeeping and accounting are frequently confused—let’s dive deeper into the differences between them.
The Difference Between Nonprofit Bookkeeping and Accounting
Bookkeeping covers your nonprofit’s day-to-day financial needs, mostly concerning data entry and simple transactions (more on these duties to come!). Although bookkeepers need some on-the-job training and financial know-how to do their jobs well, they aren’t required to have specific degrees or certifications.
Accountants, on the other hand, need at least a bachelor’s degree in accounting or a related field and a CPA certification to do their jobs well. This is because accounting encompasses more complicated financial duties, such as:
The relationship between bookkeeping and accounting is that bookkeeping lays the foundation for the accounting processes that follow it. Once your bookkeeper records financial data, your accountant will base their analytical work and reports on that information.
Learn more about your accountant’s responsibilities in our Beginner’s Guide to Nonprofit Accounting.
Why is Nonprofit Bookkeeping Important?
Besides informing your accounting practices, your nonprofit can experience multiple benefits by prioritizing effective bookkeeping, including:
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While small organizations can often manage their bookkeeping activities in a spreadsheet, mid-sized to larger nonprofits will likely need to switch to specialized accounting software to fully experience these advantages. Since these solutions often limit user permissions for security reasons, create open lines of communication between your financial professionals and the rest of your staff so everyone can receive the data they need quickly and easily.
Core Nonprofit Bookkeeping Duties
Generally speaking, your bookkeeper will step in to keep records whenever funds change hands or new financial data is created. To give you a better idea of how this works in practice, here is an overview of six of the main activities associated with bookkeeping for nonprofits:
Every organization has different financial needs, so the exact activities that are considered “bookkeeping duties” will vary from nonprofit to nonprofit. Use the responsibilities listed above as a starting point when creating a role description for your bookkeeper, then consult with your team to add and remove tasks from the list so it’s customized to your organization.
How to Hire a Nonprofit Bookkeeper
If your nonprofit is just getting started with bookkeeping, you may not have the resources or level of need to bring on a new team member to fill that position. Small organizations can often keep effective records by incorporating bookkeeping duties into the role of the existing staff member with the most financial knowledge or asking a trusted volunteer to serve as the bookkeeper.
However, as your organization grows and its financial data becomes more complex, you’ll likely need to hire a bookkeeper—whether on a full-time, part-time, or outsourced basis. Once you’ve determined which of these routes you’ll take, follow these steps to find the right bookkeeper for your nonprofit:
If you outsource your bookkeeping needs, consider choosing a firm that also does accounting so you can have a wider range of financial needs met by one expert team for a single price. At Jitasa, our mission is to do just that—improve the efficiency and effectiveness of nonprofits through our affordable, tailored bookkeeping and accounting services. We’ve helped more than 1,500 organizations take their recordkeeping and analysis to the next level, and we’re prepared to work with your nonprofit no matter what financial challenges you might face!
As your nonprofit gets started with bookkeeping, remember that your goal in financial management should always be to further your mission. Use your past records to strategize ways to continuously improve your organization’s fundraising and service delivery. Additionally, consider outsourcing your bookkeeping needs to give your team more time to focus on making a difference in the community.
For more information on nonprofit bookkeeping and financial management, check out these resources: