The 5 Most Important Steps to Setting Up Your Nonprofit's Budget

budget of a nonprofit organization

A nonprofit organization is not some special organizational form when registering a legal entity. It can be a union, a party, a public organization, or a cooperative. The difference between these organizations and other commercial ones is only the presence of a non-commercial status, that is, the absence of the goal of making a profit with its distribution among the participants.

Step one: Establish a charter for the nonprofit organization

The choice of a certain legal form does not automatically give the status of a nonprofit organization. It may refuse registration if the charter explicitly lists the activities for profit. However, this does not mean that a nonprofit organization cannot conduct economic activities, trade and sell something, and provide services.

Maybe, but such activities should be aimed at achieving the organization’s statutory goals and not be carried out for profit. It is not necessary for the charter to emphasize that the purpose of such activities is profit.

Step Two: Register Your Organization Correctly

In order for the newly created organization to become nonprofit immediately from the date of registration, documents for inclusion in the Register of Nonprofit Organizations. Papers must be certified by the signatures of the head and representative of the organization. They can be provided personally by the crown (representative of the organization), by mail, or in electronic form.

Step three: Accounting in a nonprofit organization

obligatory availability of an estimate (or financial plan). This document should contain a comparison of the income and expenses of the Nonprofit Organizations (sources of income, directions of use of the received revenue concerning the statutory activities).

Target financing accounting. It includes funds (or other assets) acquired by NGOs to finance specific programs and activities, covering their planned costs.

Accounting for income from donated assets. Such funds (other investments and services received free of charge) differ from targeted financing because they are not tied to specific goals and programs.

Step Four: Consider earmarked funding accounting rules

Accounting for targeted funding in a nonprofit organization can be represented as a series of governments by which we grouped typical accounting entries for the receipt and use of targeted funding. It is worth clarifying this with experts who are guided by the local features of the legislation in your country on nonprofit organizations.

Step Five: Keep Nonprofit Accounts Accurately

Nonprofit organizations compose and submit:

  • Report on the use of income (profits) of a nonprofit organization.
  • Financial statements (on a general basis).
  • An income tax return if there was a loss of nonprofit status or if there were payments to non-residents.

Please also note that your country may have certain local regulations regarding nonprofit organizations. Consult with financiers and lawyers before starting work.


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