In a perfect nonprofit world, with 100% predictable spending and fundraising, year-end balance sheets would show exactly zero on the bottom line. The real world, unfortunately, does not work this way.
In a nonprofit organization, the number represented on the bottom line of your organization’s Statement of Activities (Income Statement by Program) could be a surplus (a positive figure) at the end of the tax year, and although it is not usually desirable, it can sometimes be okay for a nonprofit to have a deficit (a negative figure). Today, we’ll offer suggestions on what your non-profit organization should do if it has a surplus or a deficit.
If Your Bottom Line Reveals a Surplus
If your bottom line reveals a surplus, go ahead and celebrate! Then determine whether or not the surplus contains restricted funds (money that can only be used for specific projects or purposes). If any restricted funds come from grants, be sure you have not exceeded any time limitations. If you are in danger of losing funding, find out whether or not you qualify for a no-cost extension.
If you have surplus unrestricted funds, you have several options regarding what you can do with the money:
- Create a Reserve Fund – You can always keep excess funds on hand to help cover a future deficit or unforeseen expense.
- Pay Down Debt – Getting ahead on debt will reduce your interest expense and bring you closer to being debt-free.
- Reward Employees – Use your excess cash to recognize employees who have gone the extra mile.
- Invest in Your Mission – Use the money to expand a program, offer a temporary program, expand your footprint, bolster fundraising efforts, or improve your nonprofit’s assets.
How to Handle a Budget Deficit
Although they don’t always signal the end, deficits should be taken seriously. If you have one, it’s important to understand why you have it and whether it is a one-time issue or a recurring problem. Then you need to determine how to address the deficit. You have to figure out how you will come up with additional funds to cover the shortage.
Deficits often occur due to overly optimistic budgets, overhead costs, and your nonprofit’s indirect expenses. If you have a deficit, first take a look at the spending rate on your government contracts and grants and consider whether or not you are properly allocating indirect costs for reimbursement.
A deficit, which didn’t occur due to a one-time problem like a burst pipe, means you might have to make tough decisions to ensure the future of your nonprofit. Consider whether you might have to end a program and/or reduce your staff. Come up with a few plans to lower expenses.
Effectively Managing Your Non-Profit’s Finances
In order to effectively manage a nonprofit’s finances, it is essential that the executive director, finance committee, and board of directors have access to accurate and timely financial reports. At Goldin Group CPAs, we have the expertise to ensure your nonprofit has sound annual and program budgets, strategic plans, employee policies, internal controls, and accurate cash flow projections. Without these essential financial resources, your organization increases the risk of over-spending, cash-flow issues, and not fulfilling your mission.
Trust the Professionals at Goldin Group
At Goldin Group CPAs, we can help nonprofits and small businesses with bookkeeping, taxes, and all other accounting needs. We understand that as a business owner or non-profit manager, keeping up with accounting and taxes is time-consuming and can even be overwhelming. We work with nonprofits and businesses, offering a one-stop-shop for financial services. If you are a nonprofit looking to outsource your accounting or if you need help managing any aspect of your nonprofit’s finances, we would love to hear from you! Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.