Solid Financial Records Accomplish These 3 Things

Today I want to share with you the three things that make your financial records the tightest, most solid that they can be. 

Nonprofit Financial Records Should Stand On Their Own

What do I mean by that? Well, when you have a financial transaction, whether it's a payment or a deposit, you want to have the supporting documentation to go with it. No one should have to dig through a box of receipts to find out what a charge is for. When documenting an expense, here are the must-haves: 

•  A detailed receipt: Your receipt should always have more than just the vendor’s name and a total amount paid.  If goods were purchased, they should be itemized to reflect what was purchased, how many, and at what price. If the receipt is for a service, it should show what kind of service and what dates those service were provided. 
•  Who? What? Where? Why? Along with a detailed receipt showing what was purchased, your documentation should also answer these questions to help justify this purchase within the context of your mission. For example, if a meal receipt is submitted, your documentation should include the names of each person served on that receipt, where they met (typically already listed on the receipt), and the purpose of that meeting. Was that meal used as a planning meeting for an event? Was that meal used to train or develop a leader? Make it clear enough that someone outside your organization could look at this record and understand the purpose of this purchase. 

Nonprofit Financial Records Should Integrate With Accounting Software

Use of digital tools is a must. In this day and age, most accounting software will allow you to attach receipts to their corresponding transactions. Let’s continue our previous example of a meal receipt. Whether it’s a credit card charge, a reimbursement to an employee, or a check being cut to a restaurant for catering- however that transaction is entering your accounting software, that’s where you should be attaching the receipt and the explanations we just discussed. I can’t overstate the importance of continually and consistently integrating your own documentation within each transaction in your accounting software. 

Code Your Nonprofit Expenses to the Appropriate Category

What does that mean? Well, let’s look once more at our example of a meal receipt. If you have a lime item in your budget for meals, code it there. Or if that meal was a planning meeting for an upcoming event, then maybe you’ll want to code it to that event’s budget. In either case, do not code that meal to “Office Supplies” simply because you’ve got some money left in that budget category! I know it’s tempting! I find that’s the most common reason that transactions are coded incorrectly, but please don’t fall into that trap! Make sure your expenses are coded to the account that best reflects their purpose. Accurate coding becomes a very valuable tool when reflecting on the true cost of delivering that particular service, ministry, or mission, and helps you plan more effectively for future budget years. This kind of diligence may require more flexibility on your part. As your nonprofit ebbs and flows throughout the year, you may need to add a category or split one category into two so that each transaction has a logical category. If you are willing to make small adjustments throughout the year to keep coding transactions correctly, you will ultimately end up with much more accurate records at the end of the year. 

So there are my top three tips to solid financial records! Keep in mind, even in nonprofits, people come and sometimes people go. But if your accounting records are solid, you should be able to access, search, and utilize your accounting history in a way that is strategically available to help you plan for the future.