M+M 005: Don't Overlook Your Bookkeeping

When it comes to understanding the financial side of a nonprofit, many leaders jump straight to big-picture questions like:

• Can we afford to hire a Development Director?

• How many months of cash do we have in reserves?

• Where can I cut expenses?

Those are great questions.

But before you can answer them confidently, you need to know that the foundation is clean and reliable.

It’s not flashy, but it is important.

That foundation is your financial operations.

(What does that even mean?)

What Are Financial Operations?

Financial operations are simply the daily and monthly systems that allow you to understand where your money is coming from, where it’s going and gives you confidence in the financial data of your organization.

This includes bookkeeping, categorizing expenses, and organizing your financial data in a way that’s usable.

When done well, it makes everything else smoother - reporting, analysis and even compliance.

When done poorly, it makes every single other aspect of your business more difficult to manage.

Let’s Dive Into Some Practical Areas

📌 Chart of Accounts (COA)

Think of your chart of accounts like a bunch of boxes with labels on it before you move to a new place.

When you move into your new house you’re able to unpack much faster because you organized all of your kitchen boxes together on the UHaul. Even further, you labeled plates, bowls, silverware and pans separately. 

Contrast that if you had kitchen boxes mixed in with office boxes and some bedroom boxes. Oh and maybe some of those boxes were just labeled “Towels”. Are they for the bathroom? Kitchen? Kids bathroom?!

Now…think about having to move every month with the different systems.

Which of those would you prefer?

A messy or overcomplicated COA makes your reports confusing. A clean one helps you understand what’s going on at a glance.

• Can you easily see which funds are program-related vs. admin or fundraising?

• Do line items roll up cleanly into summary categories?

• Does it reflect how you want to tell your financial story?

When your COA is clear, you’re able to look at your financial reports and see the story it’s telling quickly. 

It turns financial reports into a bunch of #’s on a page to a powerful tool that can raise questions about how different aspects of your organization are performing.

Interested in an example of what a clean COA looks like? Check out this LinkedIn post I did a while back!

📌 Monthly Bookkeeping Checks

Most organizations check the box when it comes to bookkeeping.

Did it get completed? Yes ✅ or No ❌

What then happens is in a few months you want to dig into why you’ve been spending so much in software the past six months.

Turns out things have been coded to the wrong lines, descriptions on the transactions are bad and there’s no vendor on the transaction!

Whoever is responsible, bookkeeper or finance lead, should set aside time each month to review your general ledger and financial reports.

Ask questions like:

• Are there uncategorized transactions?

• Are transactions coded to the right line items?

• Are descriptions on the transactions clear and consistent?

• Do any numbers look significantly different in each line item vs. the last two months?

This one habit, when done monthly, will give you the foundation to do a lot of reporting and analysis for your organization.  We’ll get more into that in a few weeks.

📌 Reconciliations

Reconciliations sound boring, right?

Actually the more boring a reconciliation is the better! That means everything is working as intended.

They act as a high level check to make sure your financial operations are operating smoothly and that your financial data is clean at a high level.

Every single month, here are reconciliations that should be done:

• All cash/bank accounts and credit cards to their statements

• Accounts Receivable to outstanding pledges, invoices, etc

• Accounts Payable to open invoices you owe

• Payroll journal entries to your payroll provider reports and cash transactions related to payroll

• Donor CRM to your financial system (ie Quickbooks)

There are others, but these apply to nearly every nonprofit and create immediate clarity.

These will help you catch possible gaps in processes well before they become an issue! If these are done monthly it should give you a much deeper confidence that your financial data is accurate.

📌 Odds + Ends

Here are a few other key areas to be aware of when it comes to the financial operations of your organization:

• Cash vs. Accrual: What type of accounting are you using? There is cash basis and accrual basis. Most states have a revenue threshold that requires a financial review or audit. Typically those are done in accrual basis so a lot of organizations look at switching from cash to accrual as they approach or cross these thresholds. 

• Expense Allocations: Are expenses divided between program, admin, and fundraising? Most organizations will use “classes” in their accounting software to do this. This is required for Form 990s and helps your team and funders understand where resources go.

• Restricted Funds: If donors give for specific purposes, are you tracking those separately? Mismanaging restrictions can damage trust and limit flexibility.

• In-Kind Donations: Are you tracking non-cash gifts like donated goods or services? Even if no money changes hands, they need to be recorded and valued appropriately.

Why It Matters

When your financial operations are strong, your entire system improves:

• Reporting is faster and clearer

• Forecasts are more accurate

• Audits and reviews are less stressful

• You can make decisions without second-guessing your numbers

Good decisions are built on good data. And good data depends on having consistent processes in place.

✅ Do you know if you’re using cash or accrual accounting?

✅ Has your chart of accounts been cleaned up or reviewed recently?

✅ Do you complete a bookkeeping review every month?

✅ Are restricted funds tracked separately?

✅ Do you categorize expenses by program, admin, and fundraising?

✅ Are you logging in-kind donations in a consistent way?

If any of those gave you pause, you’re not alone.

Most organizations are still building their foundation. You don’t need to have this perfect overnight. And depending on the size of your organization some of these sound nice, but might feel hard to reach.

My general recommendation is that if your organization is approaching $1m or more, most of these should be in place.

When the data is right, your board reporting becomes clearer, and board conversations shift from confusion to strategic alignment.

What’s Next

Next week, we’ll dig into internal controls. These are simple systems that protect your organization, reduce risk, and build trust even with a small team.

For now, focus on getting your foundation strong.

A few well-placed tweaks in your financial operations can reduce stress, improve clarity, and help you lead with confidence.

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