A typical narrative about nonprofit employees is that they so deeply believe in the mission that they are willing to sacrifice their own financial stability in order to help facilitate meaningful change in the world. No doubt more than once, they’ve probably received the most unhelpful feedback: “You’re not going to get rich working for a nonprofit!”

Yet, there’s no reason why nonprofit employees can’t be saving the world while meaningfully saving for their own future. If you start early and are consistent with your savings, nearly anyone can become a 401(k) millionaire. And it’s even easier if you have some support from your employer.

Providing life-changing benefits to your deserving employees

Let’s imagine a 25-year-old nonprofit employee who earns $58,000 a year. If she invests 6% of her salary a year, her employer matches 3.5%, and her investments see an 8% annual rate of return, she’ll have more than $1 million saved by retirement. If she’s able to save 10%, her retirement nest egg grows to over $2 million.

It should go without saying that nonprofit employees should be able to retire comfortably after years of dedicating themselves to helping others. But frequently, these hardworking, dedicated employees aren’t receiving the same quality benefits that their corporate counterparts enjoy.

Sure, nonprofit leaders have a lot of competing responsibilities. And managing a nonprofit budget requires leadership to make sure that donor dollars are used efficiently to help the cause. It’s not entirely surprising that employee benefits might be one of the last things a nonprofit leadership team wants to worry about. But that could ultimately hurt the mission.

Caring for your employees should be a top priority. Offering a 401(k) with matching should be standard in the industry. When every dollar of a nonprofit’s budget matters, it’s more important than ever to make sure you’re taking care of your employees in an effort to retain the best team for your organization.

Choosing the right retirement plan for your nonprofit

There are a number of retirement plan options for nonprofits to choose from. Most have heard of the 403(b), which is the traditional nonprofit retirement plan. In many ways, a 403(b) plan is similar to the widely used 401(k) plan. A 403(b) plan allows employees to set aside some of their salaries each pay period in individual retirement accounts, and the money is allowed to grow tax-free until it’s withdrawn.

The investment options available through 403(b) retirement accounts are typically more limited than the options associated with some other retirement savings plans. Generally, 403(b) account investments are limited to annuities and mutual funds, and these plans typically do not offer an employer match.

But one of the biggest drawbacks to a 403(b) plan are the fees. A 2022 study from the U.S. Government Accountability Office found that the expense ratios for the annuities and mutual funds range from about 0.01% to 2.37%. That amounts to investments costing up to 237 times more than other lower-cost retirement plans. Additionally, there may often be surrender fees, or fees for selling or withdrawing money from an investment within a set period of time, charged when investing in annuities in a 403(b) account. Surrender fees can be as much as 10%.

These fees can have a huge impact on a nonprofit employee’s long-term savings goals. When you only have a small amount to invest in the first place, you want to make sure you’re not paying more in fees than you’re earning on your investments.

Let’s go back to our young nonprofit employee. If she’s paying 2% AUM fees each year, she’ll forfeit more than $600,000 over the course of 40 years. Even an AUM fee of 0.5% will cost her $200,000+ over the course of 40 years.

While 403(b) retirement plans have been a nonprofit standard for years, there’s no reason why your organization can’t use a more cost-effective plan that ensures your employees can enjoy the full benefits of the years they spent working and saving.

The benefits of a Safe Harbor 401(k)

The most widely offered retirement plan option, 401(k) accounts allow employees to make pre-tax payroll contributions from their paychecks each pay period in the same manner as 403(b) plans. And like 403(b) plans, the money is allowed to grow tax-free until it’s withdrawn during retirement.

A 401(k) plan typically offers employees a wider range of investment options including stocks, bonds, and mutual funds. Equally importantly, when offering a 401(k) retirement plan, employers, including nonprofits, can make contributions to employee accounts, thus helping employees to be more adequately prepared for retirement. Fees tend to be lower as well. The best 401(k) plans offer AUM fees that are less than one percent. Unfortunately, many of the big financial institutions charge their customers upwards of 2%, which again, can take a big chunk out of an employee’s long-term savings.

While the investment diversity is indeed a benefit, as is the ability to make matching contributions, traditional 401(k) plans also come with more significant reporting and administrative requirements. Specifically, traditional 401(k) plans must adhere to non-discrimination rules established by the federal government. And to ensure that plans meet these requirements, employers must conduct annual tests known as the Actual Deferral Percentage and Actual Contribution Percentage tests. As the IRS explains, these tests are designed to verify that deferred wages and matching contributions from employers do not favor employees who are more highly compensated.

But don’t let these administrative requirements trip you up. With the right 401(k) provider, you won’t have to worry about these steps. One of the best solutions is a Safe Harbor 401(k). A Safe Harbor 401(k) is a type of retirement savings plan that allows employers to avoid most annual compliance testing that traditional 401(k) plans must undergo. If a company meets the requirements for Safe Harbor matching contributions, it is deemed to be in compliance with certain nondiscrimination tests.

By offering employees a Safe Harbor 401(k), nonprofit leaders can avoid losing time on all the administrative headaches that used to be involved with offering an employer-sponsored retirement plan. All they have to do is set up the plan, automatically enroll their employees, and start matching their contributions.

Employer-sponsored retirement plan benefits everyone

Offering a 401(k) plan and a match can make a meaningful difference in an employee’s life. But it can also have a huge impact on a nonprofit. A 2023 Morgan Stanley study found that 92% of employees view retirement planning assistance as a priority when choosing where to work.

Keeping a good employee will not only save nonprofits money potentially lost to recruiting costs, but also help them earn more in the long run. 

Time is also of the essence, as there’s never been a more affordable time to set up a new 401(k) plan. Small business employers, including nonprofits, with up to 50 employees, are eligible to receive a tax credit covering 100% of administrative expenses (up to $5,000) for the first three years of a new plan.

Offering a cost-effective 401(k) plan to your nonprofit employees is a win for everyone. You can help them achieve financial security while they help you achieve your goals for saving the world.

Top Nonprofit Hashtags of 2023

In today’s digitally connected world, hashtags have become more than just a trend. They can act as a tool to amplify the impact of nonprofits on social media platforms. 

Nonprofits can add hashtags to their social media strategies as a way to enhance their visibility, expand reach, and engage with a wider and more diverse audience. 

Hashtags categorize social media posts, making it easier for users to discover and connect with causes they care about. 

By utilizing relevant and popular hashtags, nonprofits can tap into ongoing conversations and trends and increase the likelihood of their content being seen and shared.

A few things to remember about nonprofit hashtags 

Before you go adding 50 new hashtags to all of your social media posts, there are a few things you should take into account: 

• To utilize hashtags, your social media account must be public. 
• More is not always better. Limit the amount the amount to 5 to 10 per post. If you add too many, it can come across as spammy.
• While using already created hashtags is helpful, you should also make your own unique ones for your organization or fundraising event.
• Don’t always pick the top hashtags. If you consistently only add hashtags that are used over a million times, there is a good chance that your post will get buried and not easily seen. Use a mix of top nonprofit hashtags and some that are more specific and used under 100k times. 

Top Nonprofit Hashtag List

You can use this list as a guide and inspiration for hashtags to include in your social media posts. The data below is pulled from Instagram in August 2023. 

General 

#Nonprofit – 8.5 mil 

#Dogood – 3.2 mil

#Philanthropy – 1.9 mil

#Nonprofitorganization – 1.7 mil 

#Socialgood – 1.5 mil

#Causes – 661k 

#Changemaker – 581k

#Notforprofit – 460k

#NonprofitsofInstagram – 336k 

#Nonprofitlife – 283k 

#Supportnonprofits – 138k

#Nonprofitorganizations – 106k 

Regional 

#ChicagoNonprofit – 33.2k

#HoustonNonprofit – 26.1k

#DallasNonprofit – 20.7k

#NYCNonprofit – 19.1k

#ColoradoNonprofit – 15.1k 

#AZNonprofit – 14.2k

#MiamiNonprofit – 12.3k

#DCNonprofit – 11.5k 

#NashvilleNonprofit – 11.4k

#ATLNonprofit – 10.7k

#SeattleNonprofit – 10.6k

Donation/Fundraising

#Donate – 8 mil 

#Fundraiser – 4.9 mil

#Giving – 2.5 mil

#GivingTuesday – 2.3 mil 

#CharityEvent – 1.2 mil

#DonateToday – 487k

#CharityFundraiser – 225k

#Fundraisers – 194k

#GivingTuesdayNow – 155k

#CharityAuction – 121k

#GivingSeason 130k

#FundraiserEvent – 118k

Volunteering 

#Volunteer – 9 mil

#GiveBack – 5.7 mil 

#Activism – 2.2 mil

#DoSomething – 824k

#CharityWork – 431k 

#GivingBackToTheCommunity 327k

#VolunteerWork – 313k 

#Volunteerism – 257k

#SocialActivism – 233k 

#AnimalActivism – 154k

#EnvironmentalActivism – 46.2k

*Volunteers (I would avoid this one, especially in the fall. It is often tagged with the Tennessee Volunteers Football team and has nothing to do with nonprofits.)

By thoughtfully adding these nonprofit hashtags, your organization can harness the full potential of social media to drive awareness, mobilize resources, and ultimately make a more significant and lasting difference in the world.

Why Nonprofits Should Integrate Marketing & Fundraising

At many nonprofits, the marketing and fundraising teams work separately. One may handle all emails, social media accounts, and advertising, while the other cultivates donors and plans events. While this separate approach can work, nonprofits miss out on major benefits by keeping marketing and fundraising apart. 

Here’s why you should integrate these two essential elements of your nonprofit.

1. Fundraising IS marketing.

The goal of marketing is to raise awareness about what your organization is doing and to sell what you have to offer. The “sale” for your nonprofit may look different than for for-profits; instead of selling products, your nonprofit may use marketing to connect new people to your services, get new volunteers, or raise money. 

Your fundraising team is trying to sell something, too. They’re trying to convince donors that your organization is worth investing in. This is often done through the same channels and with the same approaches that marketers use: emails, social media posts, newsletters, and even ads. Your fundraising team will lean on classic marketing strategies to secure donations, like crafting powerful stories, creating a sense of urgency to donate, and showing the value of what your organization has to offer.

Fundamentally, there are few differences between fundraising and marketing. By bringing together your fundraising and marketing teams, you can leverage your marketing expertise to create the most powerful fundraising efforts. You’ll also be able to use your fundraising team’s experience to inform your broader marketing efforts, meaning both teams—and both their goals—will benefit from integration.

2. Fundraising and marketing reach the same audiences.

Your best donors often already support your work. This includes volunteers, people you help, and engaged community members. Your donors and general supporters are not separate groups. They all have a common interest in your work.

When you communicate with these groups separately, you risk tiring your supporters. Your donors and supporters may not know which messages are from marketing or fundraising. They just notice the volume of messages like ads and emails. If fundraising and marketing don’t collaborate, you’re more likely to overwhelm your most engaged supporters. This is a common way nonprofits lose email subscribers, social media followers, and small donors.

By integrating marketing and fundraising, you can ensure proper communication frequency with supporters. You can provide consistent messaging across channels. This is key to cultivating long-term donors and supporters.

3. Integrating efforts lets you pool resources.

Nonprofits often have tight budgets. Adding staff is a major expense. Combining marketing and fundraising helps maximize staff time. It prevents duplicating work. Instead of separate teams writing emails and posts, one person can oversee communication for both. This frees up your team for more outreach, donor connection, and other key tasks. You can fully utilize your team and budget this way. You can achieve your goals without adding staff.

4. Marketing = stewardship.

Donor stewardship is the way to turn one-time donors into recurring, lifelong donors. By cultivating relationships with your donors, you can ensure your organization will be top-of-mind the next time they’re looking to give. You can also ensure your donors feel appreciated and that their donation matters, no matter how big or small it is. 

Your marketing efforts won’t just bring in new donors—they’re part of the stewardship journey for your existing donors. Sharing the new and exciting things happening at your organization can be an excellent way to steward individual donors and corporate sponsors. By keeping them up-to-date about your big developments or opportunities to get involved, your donors will feel invested in your work and will be excited to keep supporting you. 

5. Your organization needs one voice.

Your organization’s voice includes how you speak about your work, what language you use, and whether your tone is formal or casual. When your organization has a cohesive voice, supporters (and potential supporters) will be able to recognize your organization across communications and more easily connect with it. An inconsistent brand voice can confuse supporters and make them wonder if your team is on the same page about how your organization wants to present itself publicly. 

An organization is more likely to have an inconsistent voice when its teams aren’t collaborating, such as with separated marketing and fundraising teams. Your marketing team may be using a casual tone on social media while your fundraising team is sending emails to donors with a more formal tone. One team may be using an entirely different set of terminology to talk about your work than the other team. This makes it difficult for supporters and other donors to understand what you do and how they should speak about it to others. This also makes it tough for new staff or board members, who may be unsure of the “correct” way to talk about the organization based on your teams’ different communication styles.

By merging your fundraising and marketing efforts, you can ensure everything your organization puts out into the world has the same message, tone, and impact. Your fundraising and marketing staff can work together to determine the best ways to speak about your work, finding a balance that resonates with both groups’ goals and needs.

6. Integration ensures everyone is invested in the same goals.

When your teams are siloed, your marketing and fundraising teams often set and work toward separate goals. Your marketing staff may focus on building an audience and driving new clients to your nonprofit. Meanwhile, your fundraising staff concentrate on cultivating new donors. While the teams may incidentally support each other’s goals, they are not invested in achieving them.

Integrating your marketing and fundraising teams helps ensure your staff strive for the same goals. Their support of one another becomes intentional instead of incidental. When marketing experts back a fundraising campaign, they do not feel sidetracked from their main work. Rather, they feel part of achieving a shared goal.

How To Integrate Marketing & Fundraising

Integrating marketing and fundraising can feel daunting. Your nonprofit may have longstanding teams with their own systems. Integration should happen slowly and carefully. This ensures confidence in the new setup.

A good first step is gathering everyone together. If the teams don’t know each other, introduce them. Have people share duties. Note responsibility overlaps. Understand each team’s strengths and weaknesses. Encourage voicing concerns early so you can address them.

Once you understand what both teams are working with, have both teams share their goals. What have the marketing and fundraising teams been working towards? Where do those goals overlap? How can each team help the other achieve those goals? It will likely take multiple meetings to understand how your combined teams can best work together. You may also want to encourage team members to meet individually with those who do similar work on the other team to get a more in-depth understanding of each other’s strengths and how they may want to divide work up between them.

As you integrate the two teams, be sure to check in often, both with individual staff members and with the group as a whole. There are many concerns that could arise during this process, and it’s important to catch them early. Some staff members could feel that work is being taken away from them or that they’re being “demoted.” Others may worry about reporting structures, management, or who will be ultimately responsible for various aspects of the work. Regular communication can assuage any fears and ensure logistical kinks are worked out before they become larger issues.

Integration isn’t an overnight process. Your teams may initially feel some discomfort about sharing their work with one another. But by creating a safe environment for the teams to share, connect, and collaborate, you can ensure they’ll reap all the benefits of integration. Your team will be able to make the most of everyone’s unique skill sets, pool resources, and present your organization with a unified voice. 

Rapidly Rehousing: A Nonprofit’s Use of Modular Homes

When Cyclone Gombe devastated Malawi, it left many families displaced without housing. Ethel Chamba, a single mother already struggling financially, lost her home. Unable to rebuild, she and her children lived in unstable conditions with relatives. Traditional rebuilding takes years, leaving victims vulnerable. However, Habitat for Humanity challenges this by quickly providing modular shelters. Through an innovative partnership with Nostos Homes, Habitat built a modular community in rural Malawi in just a week. Families like Ethel’s now have secure, quality housing. Rapid shelter stabilizes and supports disaster victims.

Nonprofit Hub celebrates the work of Nostos Homes while they strive to combat one of the biggest challenges of our time. Nostos Homes is a UK-based charity led by young people and provides sustainable homes for families forcibly displaced worldwide. The organization and its leadership garner extensive international recognition and support, with endorsements from various entities such as the World Bank, IFC, Goldman Sachs, HRH Prince William, Royal Commonwealth Society, and The Diana Award. The work of Nostos has also been acknowledged as a finalist for The Org Impact Awards.

Devika Narayanan is the Chief of Staff of Nostos Homes and leads strategic partnerships like these for the organization. Her creative problem-solving skills have assisted the nonprofit in its growth and success.

Habitat’s prefabricated modular construction enabled a swift, effective response. Nostos’ steel-frame, insulated-panel homes are made off-site then transported and assembled on location. This modular technique allows much faster deployment than traditional building. While brick and mortar construction takes months or years, a modular community of 8 houses can be completed in under a week. The customized, resilient units also cost half as much as comparable permanent housing. Consequently, the speed, flexibility and affordability of modular construction helped Habitat rapidly provide over 350,000 nights of shelter.

For vulnerable families, a home provides more than four walls—it also means safety, stability and dignity. After months of instability, Ethel Chamba said her modular Habitat home gave her children hope and peace of mind. Access to shelter helps restore livelihoods, health, and education. When rapidly rehoused after disasters, people can rebuild lives rather than remain displaced. Habitat’s work demonstrates modular innovation’s immense potential to address housing shortages globally. Whether displacement stems from disasters, conflicts or inequities, quickly providing quality housing is key to supporting families and communities in crisis. By using modular construction, Habitat helped victims in days instead of the usual years by moving them out of displacement. This model shows partnerships and technology can respond at scale to pressing shelter needs of vulnerable global populations.

Habitat for Humanity’s rapid rehousing of Malawian cyclone victims highlights modular construction’s life-changing potential. Innovative housing solutions can help nonprofits respond swiftly and effectively to shelter crises. This powerful model demonstrates cost-effectively scaling efforts to provide quality homes, restore stability, and rebuild lives. By challenging traditional slow housing relief, Habitat’s innovative modular technology delivers rapid results and a path forward for humanitarian organizations addressing global displacement.

Read more about this incredible initiative here.

*This featured article was originally published on nostoshomes.org.

12 Steps for Your Midyear Fundraising Tune-up

When most people hear the word ‘tune-up,’ they naturally think about automobiles, and probably that their own car is overdue. A car represents a major investment, and timely service and maintenance ensures the best return on that investment. Similarly, giving your fundraising efforts a ‘fundraising tune-up’ can significantly enhance their efficiency and yield better results in achieving your organization’s goals.

All for- and non-profit organizations will enormously benefit from similar tune-ups to ensure operations are performing at peak efficiency. We often hear that non-profits should model themselves more like businesses. I’ll take that one step further: Non-profits that typically even in good times need to stretch nickels into dimes, have more motivation to make sure they are running as efficiently and cost-effectively as possible. There is little, if any, fat to trim.

The pressures to maintain and increase gift income mount as the need for programs, services and benefits escalate during times of inflation and challenging economic realities when more people are struggling.

Here are 12 elements to consider for conducting a mid-year fundraising tune up to diagnose, make repairs and improvements that will drive up gift income that is so essential in carrying out noble missions that touch, improve and save more lives.

Assess Where You Stand

1. Make a brutally honest assessment of where every part of the resource development program stands. What were the goals and objectives set at the beginning of the year? As temperatures rise during the summer, how is your organization doing? Are you ahead, on or behind pace?
2. Engage as many members as possible of your nonprofit family in these frank discussions. If the mindset is that resource development is solely the responsibility of the development staff, the nonprofit is handcuffing itself and compromising its potential. All professional and volunteer team members of the nonprofit have a role to play, and this starts with contributing their ideas and best thinking on where fundraising is succeeding and where there are opportunities for improvement.
3. Be sure your assessment addresses the external environment. How is the local economy fairing? Have any major employers moved in or out of your community? How severe was the impact of the pandemic? How visible and positive is the perception of your nonprofit’s leadership?

Evaluate Your Approach

4. How well do you understand the motivations of your donors? The fundraising tune-up needs to feature private conversations with your leading donors on what they believe provides the greatest satisfaction from their gifts. What have they enjoyed from gifts made to other good causes that they haven’t seen receive enough attention from your non-profit?
5. Communications and fundraising are seamless. In other words, you can’t tell where one ends and the other begins. The good news is that communications has never offered so many tools to connect with donors and prospects. The challenge is to most effectively integrate all of the different communications activities so that they truly reinforce each other. The first step is spending enough time to precisely identify your three most essential messages. Then make sure that your print, electronic and digital media efforts are relentlessly pounding those messages home.
6. Though their share has dropped a few points in recent years the vast majority of gifts still come from individuals. When you add bequests and gifts from family foundations to individuals, this share of the pie is about 85% of the philanthropic pie. By all means, welcome gifts from corporations and foundations, but prospect lists must emphasize individuals, because in the words of the infamous bank robber Willie Sutton: “That’s where the money is.”

Cultivate and Steward Donors

7. We live in a fundraising environment increasingly dependent on major gifts as fewer and fewer donors are making larger and larger gifts. Keep your prospect list of major gift donors in front of you every day of the week. Are they receiving priority cultivation? If not, identify the bottlenecks. The larger the gift target the more challenging it is to get on the prospect’s schedule. Quality interaction is at a premium as money follows time. Is your major gift prospect list missing potential individuals, corporations and foundations? The Six Degrees of Separation reminds us that everyone on the planet is separated by no more than six personal relationships. Take full advantage of doors that can be opened by staff — both fundraising and programmatic — board members, volunteers and donors. A fundraising tune-up can help assess if major gift prospects are receiving proper priority and cultivation.
8. It is amazing how often this simple truth is overlooked: You have to ask every donor prospect for a specific amount, for a specific purpose to be paid by a specific time. The more that you ask — especially in face-to-face meetings — the more money you will raise. There is no precise formula on the duration of the cultivation period, other than we know that the greater the desired gift the more cultivation is necessary. Sometimes the cultivation phase — forging a personal and emotional alignment between the non-profit’s mission, vision and values and the donor prospect’s philanthropic priorities can be completed in months if there is enough quality interaction. For major gifts, this may take a year or more. But no organization should delay its ask one day more than is absolutely essential. Remember that your donor prospect is likely being cultivated by other deserving non-profits championing admirable causes.
9. Your most likely major gifts will come from your current donor base. Is your stewardship program genuine and robust in acknowledging and thanking people for their gifts of time and money? This can take a wide range of forms from intimate recognition events to much larger public events. Stewardship should be carefully designed with the donor’s personality in mind. The deepest concern for the vast majority of donors is understanding how their gift dollars are making a difference. New technology is providing more and more effective strategies such as impact videos. Never underestimate the power of donors personally interacting with the beneficiaries of their generosity. In higher education, this power is evident when donors meet with scholarship recipients. Study your retention rate to keep donors and encourage repeat, and potentially larger, gifts each year. This approach offers a fundraising tune-up and proves more cost-effective by retaining a current donor base instead of solely focusing on acquiring new ones.

Implement Improvements

10. Are all your outreach channels emphasizing new and popular ways of giving? Donor advised funds have emerged as the most dynamic component of American philanthropy. according to the most recent data from the National Philanthropic Trust. Grants from DAFs rose 28% to $46 billion. Your website, marketing material and especially solicitation activities should inquire about opportunities to give through DAFs.
11. People can make gifts several times larger through their estates than through wealth. Be sure to discuss the wide range of options from charitable bequests, retirement funds, insurance policies, gifts of stock and other assets.
12. Celebrate victories. Recognize the roles played by everyone in the discovery, cultivation, solicitation and stewardship of gifts. They don’t come easily, especially major gifts. Let everyone know that they are directly contributing to the power of your mission to advance good works.

This list, by no means, is all-inclusive. No doubt, you can and should add other components to assess, analyze and upgrade the caliber of your resource development program. Final word: Don’t be afraid to make changes. Keep to sound fundraising principles and best practices but take full advantage to adjust strategies as circumstances warrant. Your nonprofit needs to be operating at peak performance as you enter the later stages of the year when most gift income is raised.

How to Implement a Chart of Accounts for Nonprofits

The first step is integrating a complete and cohesive Chart of Accounts (COA). The COA actively serves as both an index of account numbers and names and a resource for categorizing all financial activities. In this guide, we’ll walk you through how to implement a chart of accounts for nonprofits into your organization’s financial management.

What is a Chart of Accounts?

A Chart of Accounts actively lists all the accounts a company or nonprofit uses to record financial transactions. We can view it as a map that helps navigate an organization’s financial landscape. Each account in a COA represents a different type of financial transaction, such as revenue, expenses, assets, liabilities, and equity. It generally includes a numbering system for easy identification of each account, and people use it to organize financial data and generate financial statements. By using it, maintaining precise financial records, making data-informed decisions, and adhering to regulatory obligations becomes much easier.

Since nonprofits must comply with specific regulatory requirements, a COA tailored to their activities can help ensure compliance. A well-organized COA provides clarity and transparency around the organization’s financial activities, making it easier for donors to understand how their contributions are being used. Similarly, a COA helps nonprofits make informed decisions, such as identifying cost-effective programs or areas needing cuts.

Steps for Nonprofits to Implement a Chart of Accounts

1. Analyze your organization’s needs and objectives.

Your COA should align with the specific needs of the organization and reflect its unique financial activities. For example, a nonprofit that relies heavily on grant funding may need to create specific accounts to track grant income and expenses. Similarly, an organization that holds regular fundraising events may need accounts to track funds raised and associated expenses.

Questions to ask:

• What financial reports do we need to create?
• What information must our financial reports include?
• What level of detail does each financial report require?
• Are there any specific regulatory and compliance requirements for the reports?
• Will grant reports require specific accounts for separate transaction types?
• How many accounts do we need per financial transaction and what level of detail per account?
• Do we need to track financial information for multiple locations and/or departments?
• How frequently must we generate financial reports and who will use them?
• What are the (KPIs) we need to track and how will they get reported?

2. Define the Chart of Accounts Structure

Establishing the COA structure involves determining the account categories and numbering system to organize financial data. This ensures transactions consistently get recorded and categorized, easing financial management, report generation, and regulatory compliance. Defining the COA structure also ensures that all financial management team members use a uniform system, reducing errors and ensuring accurate reporting. A well-structured chart of accounts for nonprofits is key for organizational success.

Identify Accounts

What accounts are needed for financial reporting? Reporting is critical for nonprofit financial management, and having the right accounts enables accurate reports.

To identify necessary accounts, consider specific reporting requirements like taxes, grants, or other forms.

Decide on the Numbering System

The numbering system should be universally understood as it organizes accounts and transactions, enabling individuals to easily access and use data.

Also, an understandable system ensures consistency in recording and processing transactions, reducing errors, and facilitating reporting. Well-structured numbering helps individuals quickly navigate the chart of accounts.

For example, a numerical sequence like 1000, 2000, 3000 is easy to understand and use. Also, ensure the system is logical and follows a consistent pattern, like grouping similar accounts or reflecting the organizational hierarchy.

Organize Accounts into Categories and Subcategories

When organizing accounts into categories and subcategories in a COA, several approaches can be used:

• By Account Type: Categorize accounts based on type – assets, liabilities, equity, income, expenses. This is common and helps individuals understand the different financial transaction types.
• By Function: Categorize by function – administration, fundraising, program delivery. This shows how resources achieve the mission.
• By Product/Service: Categorize by product or service offered. This shows financial performance of each.
• By Location: Categorize by location of transaction – office, program site. This shows performance by location.
• By Time Period: Categorize by transaction time period – monthly, quarterly, annually. This shows performance over time.

3. Set Up the Chart of Accounts

After covering the bases, it’s time to start building the chart of accounts. Split into Balance Sheet and Profit & Loss categories.

Balance Sheet

The balance sheet provides a financial snapshot. Include:

• Assets: Owned resources that can generate future economic benefits like cash, accounts receivable, inventory, equipment.
• Liabilities: Obligations owed to others like accounts payable, taxes payable.
• Equity: Residual interest in assets after liabilities. Further broken into retained earnings and contributed capital.

Profit & Loss

Shows revenues, expenses, and profit/loss over a period. Also called income statement.

• Revenue: Income from sale of goods or services.
• Cost of Goods Sold: Direct costs of producing/delivering goods/services sold.
• Gross Profit: Revenue minus Cost of Goods Sold.
• Operating Expenses: Normal business costs like rent, salaries, marketing.
• Net Income: Profit or loss after expenses deducted from revenue.
• Other Income and Expenses: Revenues/expenses not related to core operations.

4. Implement Tech Stack: Maintain the Chart of Accounts

Ensure the COA integrates with other software like donor management and budgeting/forecasting to maintain consistent data and accurate reporting. Financial information should be accessible to key stakeholders when setting up the chart of accounts. These may include board members, investors, donors, managers, and others needing to understand the financial health and performance.

The COA should have robust reporting processes generating accurate, timely reports designed for easy understanding and customized to each stakeholder group. For example, high-level overview reports for boards and detailed program performance reports for managers.

Should you use QuickBooks or alternative software?

QuickBooks is popular with nonprofits and small businesses for its ease of use. It allows integrating other applications like donor and budgeting software, enabling consistency. QuickBooks can be a great platform for implementing and managing a nonprofit chart of accounts for nonprofits.

When choosing software, consider your nonprofit’s size, transaction complexity, and number of users needing access. Compatibility and required technical expertise also matter. While some options are user-friendly, others less so. 

5. Test the COA for Accuracy

Testing the COA accuracy is critical in setup. Conduct a trial balance – a report listing all account balances. It identifies errors like misclassifications, incorrect balances, or inaccurate descriptions. Comparing to financial records verifies COA accuracy and proper reflection of activities.

The setup should include COA training and guidelines for employees on proper account use. This ensures they understand each account’s purpose and proper transaction recording, increasing financial literacy. Employees can then better identify risks/opportunities, make informed decisions, and contribute to financial health.

6. Establish Best Practices for Team

Three COA setup best practices are: don’t delete old accounts, have a process for modifications, and aim for simplicity and consistency.

Rather than deleting, mark old accounts inactive or archived to preserve historical data. This data can provide useful future analysis while maintaining integrity.

Have a process for periodic COA review and modification as needs change over time.

Design for simplicity and consistency – group accounts reflecting activities, develop clear, concise account descriptions accurately reflecting purpose. This improves COA usability and understanding, enabling better financial management and decision making.

7. Monitor COA Use and Compare Budget vs. Actuals

Monitoring COA use and comparing budget to actuals keeps you financially on track. Establish regular meetings to ensure alignment and identify discrepancies. Adjust spending accordingly and make informed financial strategy decisions.

Comparing actuals to budget identifies variances and whether budget or spending adjustments are needed. This information enables informed financial goal decisions.

Remember, monitoring and budget versus actual comparison should be regular routines to achieve financial goals.

Get Started Implementing a Chart of Accounts

In summary, a well-organized chart of accounts (COA) is crucial for accurate reporting and decision-making. To successfully implement a COA, key steps include identifying accounts, creating a numbering system, and establishing hierarchy.

Accounting software can significantly streamline COA maintenance by reducing errors and increasing efficiency. A well-maintained COA enables easy transaction tracking, report generation, and issue identification.

We hope this guide assists in establishing proper financial organization. Please schedule a free consultation if you need assistance. We’re happy to help!