The 6 Segments: FINANCE
If Administration is the bones of the organization, financial management is the blood - traveling throughout the body carrying much-needed oxygen. The Finance function requires regular habits to manage money as it comes in and goes out. You may want to schedule a specific time on a specific day to ensure that there is always time to attend to the bookkeeping, accounting, budgeting, and analysis.
Even if you have a bookkeeper or an accountant, put the deadlines and task days on the calendar to ensure that the work is done - and to give yourself time to review it even if someone else does the tasks.
Scroll down for examples of ONGOING tasks and ANNUAL tasks that you should get onto the calendar.
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Goes without saying - get that money in the bank. But record it write away - in your financial system and in your donor system. If the deposit is a donation, get that tax letter out immediately to the donor to recognize the contribution.
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record expenses in the financial system on a regular basis - no later than monthly - ideally once a week. Make sure that you have the proper documentation on hand - receipts, invoices, bank statements, etc.
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In addition to staying on top of your revenue deposits and expenses, always monitor your cash balance - how much money do you have in the bank? Do you have any “cash on hand” which means Cash at the organization but not yet in the bank? Stay on top of it and get it into the bank as soon as possible.
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Create a regular process for receiving, reviewing and paying bills. Ideally, you’ll choose a certain day of the week or month to do this while also monitoring your deposits, expenses and cash balances.
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At the end of every month, you should formally “close the books” meaning you have recorded all the transactions of the prior month. The outcome of closing the books is a set of financial statements reporting the financial health of the organization supported by bank reconciliations.
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It’s awkward to send invoices, but you have to do it - invoices for donation pledges or for Programs you’ve provided to a partner who agreed to compensate you. It’s easier if you schedule a day each month to review what you are owed and send out the invoices in batch as part of a regular process.
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Your Board Treasurer should be providing regular financial reports to the Board of Directors. Every time you have a Board meeting scheduled, schedule to have the Treasurer’s Report finished a few days in advance. This is the report that updates the board on the financial health of the organization.
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Create an annual projection for revenue and expense for the upcoming year. Typically, this is presented to your Board. It is the financial reflection of your strategy for the year.
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990s are the annual tax returns you must file. The 990 goes to the IRS and a state version of the 990 is filed with your state’s Attorney General. The due date is based on the last day of your fiscal year.
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Each month you’ll close the books and at the end of the year you’ll officially close the books for the fiscal year. Often, you’ll need to record some year-end bookkeeping entries, to ensure that revenue and expense are recorded in the correct year. Once the books are closed for the year, the resulting financial statements will inform your 990 tax filings.
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Organizations of a certain size are required by state law to be audited - which means an external accounting firm will review your financial statements and the underlying documents for accuracy and appropriate accounting treatment. Check with your state Attorney General to determine the revenue level that demands an annual audit.
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If you are lucky enough to have significant cash, you may have investments in savings, CDs, money markets and even securities or property. Check on them regularly and do a full evaluation at least once a year.
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If you have any short term or long term debt - credit card debt, a line of credit, mortgages or long term debt - then you likely are making interest payments and principal payments. Do a full evaluation at least once a year - determine whether you should pay down, pay off or refinance any of them.
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In a for-profit, we call the bottom line “net income.” In a nonprofit the difference between revenue and expense is called “net assets.”
You should have an annual budget for total revenue and an annual budget for total expense; the difference, positive (gain) or negative (loss) is called net assets. Work towards having a quarterly (or even monthly) budget as well, and track your progress.
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If you have a good finance person, they are on top of deadlines as much as they are on top of the debits and credits. But whether you have someone doing this work for you or whether you are doing it yourself, get the tasks on the calendar so that you are in touch with the financial management of the organization. Further, the Board itself has a fiduciary duty to make sure the financial management is sound - and the 6+4 System helps make that happen.
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