5 Strategies to Account for Diverse Funding Sources 

accounting for diverse funding sources
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How easy is it for you to manage accounting and reporting for diverse funding sources for your organization? 

If you’re using workarounds or multiple spreadsheets to manage multiple funding sources, you could be working inefficiently and limiting opportunities to optimize your fiscal sustainability. Having organized, accurate data when accounting for grants, donations, corporate sponsorships, membership fees, and endowments allows you to: 

  • Demonstrate financial transparency 
  • Identify growth opportunities 
  • Properly allocate expenses 
  • Evaluate KPIs 
  • Ensure compliance 
  • Communicate your financial position to the board 

Let’s explore five best practices for managing diverse funding sources: 

1. Implement a systematic process to track key data 

Collaborate with stakeholders from other areas in your organization to track and manage critical data from various sources to fully understand your organization’s financial health. A complete process moves beyond just monitoring cash flow and assets and considers data on elements like donor engagement and events—anywhere resources are involved.  

Using a systematic process, you can track a broad scope of data and better understand growth opportunities to make more informed decisions and influence your organization’s strategic growth. 

2. Establish a process and schedule for each type of report needed 

Your organization has multiple reports to communicate with its stakeholders. Creating a process and schedule to share your financial position in budgets, internal financial reports, monthly and quarterly board reports, IRS reports (Form 990), audited financial statements, annual program reports, and annual reports not only keeps your stakeholders informed but also increases fiscal transparency.  

Creating a reporting calendar and identifying a point person will ensure your reporting is timely and sufficient.

3. Stress test your funding sources on a semi-annual basis 

Periodically stress testing your funding enhances strategic planning and raises awareness of changing conditions. When stress testing your funding, include general all-staff and detailed department-specific surveys, which allow you to lean into positive trends and understand when to pivot. 

4. Understand restrictions for each funding source 

Different funding sources often have additional restrictions on how your organization can spend funds and how you can code those expenses. Be sure the entire team understands the rules for each source.  

5. Ensure you have an easy way to track monies between funds. 

Tracking monies between funds is one of the most essential aspects of accounting for diverse funding sources. Attributing each funding source to the correct “bucket” allows you to manage accounting correctly and reduce errors and double work.  

Accounting software, like MIP Fund Accounting, makes accounting for diverse funding sources simpler. From creating report schedules—using automation and notifications to alert you of reports that need to be made—to providing warnings and preventing users from making coding errors, accounting software helps your organization increase efficiency and correctly track diverse funding. 

“We have approximately 10-15 grants and can use the system to track expenditures, employee time, and costs allocated to the appropriate grants,” said the fiscal director of a healthcare nonprofit. “MIP handles budgets operating on different grant periods and the product is easy to use.” 

Managing diverse funding is half of the picture. How your organization tracks and reports on funding sources is just as crucial, consider these tips and tricks to assist with tracking budgets with diverse funding and managing grants or unusual funding. 

Tips for Tracking and Reporting on Funding Sources 

Tracking budgets with diverse funding and managing grants and unusual funding is vital when considering and communicating your organization’s financial health.  

When tracking budgets with diverse funding, consider these scenarios:   

  • Large funding rarely lines up with a fiscal year—even a six-month grant can impact budgets for multiple fiscal years  
  • After an accounting period ends, comparing budget-to-actuals and investigating any variances should be done on time  
  • Your accounting system should be properly configured to track operational budgets, capital budgets, grant budgets, restrictions, classes, and programs

When tracking grants or unusual funding like large, one-time gifts, endowments, and capital campaigns, consider: 

  • Preparing financial schedules that show the anticipated annual usage for the life of the grant or the expected usage period for the unusual funding
  • Communicating in a multi-year format to move attention away from the impact on any single-year
  • Tracking balances between funds and even inter-fund payables versus receivables 

For example, a common example of unusual funding is if a supporter makes a non-monetary donation, like a truck, for the express use of your organization. What should you do? Your team should attribute the truck donation under the Fixed Assets account and handle the corresponding accounting and reporting accordingly.  

Using accounting software for managing budget tracking and unusual funding takes the guesswork out of both, and lets you create timely reports that are detailed and easy to follow. These reports:

  • Help you justify continued funding, prioritize expenses, and analyze KPIs and YoY performance
  • Enable you to make projections and ensure you’re on the right course
  • Allow your board to understand your financial health and make better financial decisions
  • Showcase critical data in the proper formats for internal and external stakeholders’ requirements 

Watch this webinar to learn more future-proof strategies for accounting for diverse funding sources, ways to achieve and maintain financial health, and how accounting software helps make the entire process simpler. 

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Eric Oliver

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