For a nonprofit organization, the fiscal year-end is one of the busiest times of the year. Your staff and volunteers will be busy managing donations, adhering to state and IRS requirements for closing out the fiscal year, addressing recordkeeping activities, and setting your organization up for a successful upcoming year.
Ensuring end-of-year compliance can be overwhelming, especially if you have several tasks to complete before your accounting fiscal year-end. Follow the tips below to prepare for your nonprofit’s fiscal year-end.
1. Prepare Financial Reports
One of the first essential steps to get ready for a nonprofit fiscal year-end is to prepare your financial reports. Review your fiscal year’s numbers during your annual meeting to determine how your budget compared to your actual numbers. You’ll also likely review what percentage of your organization’s revenue went to your charitable programs and purpose. Depending on your organization’s size, an independent certified public accountant may need to review your financial statements.
Each year, your nonprofit needs to compile and release an annual report. This report highlights your nonprofit’s accomplishments from the year, thanks donors for their support, inspires readers regarding your mission, and builds trust via financial transparency. With your annual report, you can attract new supporters and retain current ones.
For example, it’s common to include your major donors in the financial report and identify which projects they contributed to. A financial statement is essential, as it lets your supporters know how their donation is being used and demonstrates to potential donors that your organization manages funds effectively and responsibly. You can use your annual report to encourage others to support your organization and improve your relationships with your existing donors.
Developing a strategy for creating your annual report might involve:
- Interviewing supporters to get feedback.
- Delegating timelines and responsibilities to team members.
- Collecting metrics from your fundraising campaigns.
- Compiling your financial statements.
Your annual report is a great way to close out your fiscal year by thanking those who have helped your organization and highlighting your biggest achievements.
2. Consider Your Calendar Year vs. Fiscal Year
At the end of the fiscal year, your nonprofit should also determine whether you want to change your fiscal year-end. When you file with the IRS, you can choose to use either your calendar year or your fiscal year. The calendar year, of course, starts on January 1 and ends on December 31. The fiscal year takes place over a consecutive 12 months, but the final day can occur in any month other than December and does not need to occur on the final day of the month.
Though some nonprofits are fine with a fiscal year that ends with the calendar year, for many nonprofits, this date could be inconvenient. For tax purposes, you may want to choose a fiscal year that ends earlier in the year. By changing your year-end, you may be able to better control your budgeting, make your revenue streams more transparent, handle fluctuations in your revenue, and adjust the budget if necessary.
Adjusting your fiscal year could make your employees happier as well. When you move your fiscal year to a more convenient month, your employees won’t have to spend their holidays stressed and frantically closing your books. Aim to change your fiscal year-end to correlate with the ebb and flow of your revenue cycle.
3. File Your 990 Form
After your fiscal year ends, you will need to file IRS Form 990, also known as the Return of Organization Exempt from Income Tax, within a few months. All nonprofits with tax-exempt status must file this report annually. Failing to do so could result in penalties and potentially even a loss of your tax-exempt status. This form addresses your organization’s finances, compensations paid, governance, and compliance with tax filings.
Essentially, your annual filings are government accountability tools and are designed to demonstrate to the public and the government that your nonprofit organization is legitimate and working toward your mission.
If you have a large nonprofit organization, you may want to start preparing this form early, as you’ll need extensive information on your programs, leadership, and contributions. As soon as your fiscal year ends, you will want to begin preparing to file this form immediately.
4. Determine Your Budgeting and Fundraising Strategies
Finally, an essential part of your nonprofit fiscal year-end strategy is analyzing your budgeting and fundraising. The end of your fiscal year is the best time to evaluate your budget and determine where you did well versus where you could have done better. Use this budget to create next year’s financial plan.
Your nonprofit’s budget is essential to allocate resources and predict expenses for your organization. Many nonprofits have both a capital budget and an operating budget:
- Capital budget: In this budget, you project your organization’s revenue and expenses associated with your long-term, multi-year projects. With your capital budget, you can cover your capital campaigns and other campaigns that come with major expenses.
- Operating budget: In your nonprofit operating budget, you’ll break down your organization’s projected annual expenses and revenue. This budget breaks down your operating expenses by overhead costs and program and your revenue into different funding sources.
You’ll review your budgets throughout the year to monitor your progress in reaching your goals, fundraising, and completing your projects, along with your financial standing. A budget is a living document that should guide your financial activities and be adjusted as needed.
Additionally, you should take this time to determine your fundraising strategies. Plan when you will do your fundraising and try to correlate your efforts with when annual giving is most likely to occur. Develop some effective methods for getting donors excited about your mission and inspiring giving in the coming months.
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Our software is designed to allow you to easily manage your books and track unlimited funds. With our user-friendly system, you can enjoy simple management of your intricate financial processes. Our platform is purpose-built for nonprofits rather than adapted for your needs from existing solutions. Request a demo of MIP Fund Accounting® today for your accounting needs.