From youth and community organizations to outreach programs and churches, non-profits help make our neighborhoods and communities enjoyable and livable spaces. Unlike a for profit enterprise, a nonprofit exists to pursue missions that address the needs of society, without worrying about generating profits for shareholders and owners. This vital role is an often-overlooked element in professional services, like accounting, but nonprofits can benefit tremendously from professional partnerships.
Accounting for businesses and nonprofits differs in a few important ways. One difference is in revenue source. A business acquires revenue primarily from selling goods or services. Capital investments also can appreciate, driving income for a business.
Nonprofits rely on donor contributions, membership dues, fundraising events, and program fees to generate revenue to fund their missions.
With these differing revenue sources comes different reports that fall within generally accepted accounting principles. The function of these reports to the business and nonprofit are the same; evaluating the financial health of the organization. But the documents have different names that reflect their functions to the organizations.
Of course, the largest difference is in tax status. A nonprofit holds tax exempt status, meaning they are exempt from income taxes if they are approved by the IRS and maintain approval. While some may assume this means accounting services for nonprofits are less complicated, (no tax preparation, yay!) tax exempt status requires annual filings just like everyone else. Nonprofits still pay employment taxes and may not be exempt from sales or real estate taxes.
Helping nonprofits craft annual budgets is also challenging, due to the unstable nature of their revenue sources. Some revenue sources, like federal or state grants, are subject to sudden changes. And charitable donations can ebb and flow just like sales in a business.
While nonprofits can benefit greatly from a host of professional services, those services are not always within a nonprofit’s reach. Larger organizations will sometimes include financial advisors or accountants on their board of directors, ensuring ongoing services from a partner.
FNG, LLC is proud to partner with our clients in their goals, from profit-seeking businesses to mission-driven nonprofits.