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New Business in the Nonprofit Sector

If you're looking to expand, the growing nonprofit sector may be a smart place to start.

According to the National Center for Charitable Statistics, the number of nonprofit organizations in the U.S. increased 31.5% from 1999 to 2009 and accounted for 9% of all U.S. wages and salaries in 2009. With growth comes opportunity, but for accounting professionals, the nonprofit sector provides challenges as well. If you're looking to expand your business to include nonprofits such as churches or your local chamber of commerce, be prepared to expand your skill set, too.

Money Well Spent
Since the ultimate goal of the nonprofit is to raise funds for a specific cause, nonprofit accounting rules tend to be more strict than for-profit accounting. While both for-profit and nonprofit accounting evaluate financial performance of an organization, nonprofit accounting also includes a detailed look at how the organization uses its financial resources. For example, nonprofit accounting must report on how much money is spent on fundraising to prove that the nonprofit does not spend excessive funds.

Cash Flow Crunch
It's difficult for nonprofits relying on grants and pledges to predict cash flow since monies are often received sporadically over a long time period. In a survey conducted by The Nonprofit Finance Fund (NFF), 60% of nonprofit organizations reported having three months or less of cash on hand and 10% reported having no cash on hand. In addition, tracking which funds have been received and which are still outstanding can be tricky. Position your firm as adept at managing and tracking cash flow.

Update the Rules
As in the for-profit space, accounting rules for nonprofits are continually changing. For instance, the Financial Accounting Standards Board Not-for-Profit Advisory Committee is recommending changes to provide additional transparency to donors and other stakeholders of nonprofit organizations, including revamping current net asset classifications and liquidity reporting and updating disclosure requirements. Keeping up-to-date on the regulatory landscape is critical.

Remember that for the nonprofit that relies on contributions and donations, any doubt in the mind of these stakeholders in the integrity of the nonprofit's financial books can mean a decrease in contributions. Accountants play an important role in ensuring nonprofit survival.


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