Nonprofits are built to make a difference, and sound bookkeeping can help amplify that impact. Keeping track of finances isn’t just about “staying organized.” It’s about showing donors, volunteers, and the community that funds are used responsibly. Let’s go over some straightforward tips to set up a solid bookkeeping system for your nonprofit.

1. Understand Fund Accounting

Nonprofits have unique needs when it comes to finances. One of the main differences from other organizations is fund accounting. This simply means tracking different types of money separately, based on how it should be used. Donations may be designated for specific programs, while other funds might be unrestricted and available for general use.

Using fund accounting allows you to keep track of how each dollar is spent according to donors’ wishes.

2. Pick the Right Bookkeeping Software for Nonprofits

Choosing software can feel like a big decision, but nonprofit-focused options are available. Look for programs that include fund accounting, easy reporting, and features for managing donations. Some popular choices include:

• QuickBooks for Nonprofits – A good fit for small to medium organizations.
• Aplos – Designed specifically for nonprofits, with donor management tools.\
• Zoho Books – Provides helpful features for both for-profit and nonprofit organizations.

These tools help streamline your records and make it easier to create reports that reflect your nonprofit’s mission and goals.

3. Track Donations with Care

One of the most important parts of nonprofit bookkeeping is careful donation tracking. Each donation may come with different conditions or restrictions, which you’ll need to honor. Track each contribution in your system to make sure it’s recorded accurately. This is also key for acknowledging donors and preparing year-end statements.

Setting up a system to categorize donations helps avoid confusion and shows donors their funds are used as intended.

4. Separate Administrative and Program Expenses

In a nonprofit, you’ll need to separate administrative costs (like office supplies and staff salaries) from program expenses (the costs directly tied to delivering your mission). Clear records of both help to show what percentage of funds go toward the cause itself—a figure often requested by donors.

Having these categories also makes your financials clearer when reporting to your board, donors, or anyone else interested in where funds go.

5. Keep a Record of In-Kind Donations

Nonprofits often receive in-kind donations—goods or services instead of cash. Whether it’s donated office equipment or volunteer hours, these contributions still have financial value. Keeping track of them not only helps with planning but is also essential for accurate reporting on tax forms.

Make it a habit to record these donations promptly, adding notes about the type of contribution and its estimated value.

6. Set Up a Regular Review Process

Nonprofit bookkeeping can be more complex than it appears at first glance, especially with various funding sources. Set up a routine to review finances monthly or quarterly. This helps to catch errors early and keeps records fresh. Plus, regular reviews help ensure you’re ready to answer questions from the board or potential donors at any time.

Having a bookkeeper to support these reviews can make it much easier to manage your nonprofit’s unique needs.

7. Ensure Compliance with Regulatory Requirements

Nonprofits have specific rules to follow, especially around taxes and reporting. Keeping up with these requirements might feel challenging, but a good bookkeeping system can help. You’ll want to stay aware of rules on:

• Financial transparency
• Accurate record-keeping for grants and donations
• Filing necessary forms, such as the T3010 for Canadian charities

By setting up a bookkeeping process that accounts for these needs, you’ll help maintain your nonprofit’s good standing.

8. Prepare Financial Statements for Your Board

Every nonprofit should have clear financial statements available for board members. These typically include:

• Balance Sheets – A snapshot of your assets and liabilities.
• Income Statements – Showing revenue and expenses over a set period.
• Cash Flow Statements – Detailing how cash moves in and out of the organization.

These reports make it easy for board members to understand the organization’s financial health and make informed decisions. Nonprofit-focused software often has templates for creating these documents with ease.

9. Budget Carefully and Monitor Spending

Budgets are essential for nonprofits, as they help plan for future programs, set limits on administrative expenses, and ensure that funds are always available for your core mission. A strong budget also allows for more transparency, which donors appreciate.

At the start of each year, map out a budget based on expected income and expenses, and check it regularly to see how closely you’re sticking to it. If needed, make adjustments to keep everything in line.

Final Thoughts

For nonprofits, good bookkeeping isn’t just about numbers—it’s about trust. A strong bookkeeping system demonstrates to your supporters that you’re making the most of their contributions. By setting up a reliable system and tracking funds carefully, you’ll be ready to focus more on your mission and less on the paperwork.

If you ever need help along the way, a bookkeeper like Sharon Haslip, experienced with nonprofit needs, can offer support and guidance. Whether you’re just getting started or fine-tuning your existing setup, having reliable support can help your organization stay on track.