Nonprofits don’t have it easy. Everyone expects them to do the world of good, but not everyone puts their money where their mouths are. Nonprofits have to eke out every penny and then explain what they did with that penny, and why. No, they don’t have it easy at all. 

Luckily there are accountants who specialize in the nonprofit sector. They can help make every penny count, and they can work magic with regulatory requirements, board reporting, and strategic planning, enabling nonprofits to go from strength-to-strength.

Let’s explore the fundamentals of nonprofit healthcare accounting together.

What’s Included in Nonprofit Healthcare Accounting?

Good question, and the answer is: A lot.

First, we must remember the single biggest aim shared by all nonprofits: To benefit the community. However, there are many financial hoops they must jump through to be successful.

Many of these hoops can be cleared by sticking to the accepted four standardized financial statements in nonprofit reporting. We’ll look at each below.

Statement of Activities

As you would expect, this includes all financial activity for a set period, like quarterly or annual reports. It weighs income (revenue sources) against expenses to determine, among other things, efficient resource management.  

Essentially:

  • Revenue sources include donations, grants, legacies, and investment income.
  • Expenses include overheads (admin, payroll) and program delivery expenses (fundraising events).

Activities also include the difference in monthly net asset value, which shows P&L patterns.

Statement of Financial Position

It’s a big picture statement that focuses on your overall financial wellbeing. Basically can you cover your expenses, including program and operating costs? It takes into account all assets, from cash and AR to equipment. It also considers all liabilities, from wages and AP to long-term loans.

A final consideration is net assets. These are broken down into two categories:

1) Restricted: Allocated for specific purposes or programs.

2) Unrestricted: Any purpose, including maintenance costs and utilities.

Statement of Cash Flows

The report focuses on your liquidity. Basically, does more cash come into your organization than exits stage left? They reveal the effectiveness of your cash flow management, including revenue recognition and spending patterns.  

The statement looks at:

  • Revenue (donations, grants) and expenses (suppliers, overheads)
  • Purchasing/Selling long-term assets (property, equipment)
  • Financing (loans, debt)

Cash flow management enables strategic financial planning for the sustainability of your nonprofit, as well as future programs and projects.

Statement of Functional Expenses

As you’ve no doubt guessed, this looks at expenses in detail. The aim, in part, is to gather information for strategic resource allocation. It’s also one of the non-negotiable requirements for regulatory compliance.

It’s broken into:

  • Program expenses: Directly related to your mission, like materials and salaries.
  • Admin expenses: Daily operational costs, like office supplies and rent.
  • Fundraising expenses: Things like events and marketing campaigns. 

The report meets transparency and audit requirements, so you keep your stakeholders and the taxman happy.

Why is Financial Reporting so Important for Nonprofits?

Well, there’s the whole compliance thing. Inaccurate or incomplete reporting won’t just cost you in terms of penalties, but will likely result in the closure of your nonprofit. That’s the worst case. Let’s look at other benefits inherent in financial reporting.

  • Better decision-making. You might find that weekend bake sales deliver more (consistent) profit than formal fundraising events. They’re also cheaper and easier to organize, so you can experiment with more frequent events.
  • Better long-term financial planning. You can see your organization’s current financial health and compare it to past performance to see patterns and trends for accurate forecasting and resource allocation. 
  • Improve risk management. Reporting identifies risk areas, like dwindling legacies or consistent overspending in one area, so you can take steps to turn the risk around. 
  • Attract funding. Transparent financial reporting proves your stability and success, so potential donors know that their contributions will be used wisely.

One Last Thing

We’ve covered a lot of information in this blog, which can be overwhelming. However, we want to reassure you that there is a solution that makes all of the above easy to manage. Software automation for nonprofits. 

Automation is your BFG (Big Fricken’ Gun) and we are your weapons instructor.

We’ll work with you to optimize your existing system with automation functionality and integrate additional tools if necessary.