Discover the Best Bill Book Format for NPOs to Streamline Your Finances

Best bill book format for NPOs

[Music] cost allocations and why is it important for nonprofit organizations as a nonprofit all of your expenses need to be categorized into three main areas they're called functional areas there's management in general or Administration fundraising and program which is your mission so the functional areas for your nonprofit are broken down into two categories there's support service which is management in general which are the day-to-day activities for running your organization executive director salary bookkeeper salary and other expenses related to Administration and management in general then there's fundraising which is the second component of Support Services those are the expenses incurred raising funds for your organization the cost of a fundraising event a mailing devel development director salary then there's the mission those are the services for the purpose of your organization and those are your program services so all the expenses incurred for your program and your mission so functional expenses are really important for your organization because the readers of your financial statements need to understand the relationship between what it takes to run your organization which are the support services management in general and fundraising and what it takes for your mission your program services so here's a perfect example of why functional expense and direct cost allocations is so important for a nonprofit organization you get a telephone bill for $1,000 if you are a regular business it goes into line item expense for telephone cost of doing business but as a nonprofit if you analyze that bill it turns out that there are two cell phones in the administration department one for the executive director and one for the fiscal director there are two phones in the development office one for the developmentor director and one for his associate turns out there are six phones for program Services six phones for your daycare facility and those expenses need to be incurred in daycare so when you book your telephone expense it's $1,000 for telephone but 200 is management in general 200 is fundraising and 600 is program services for daycare so that's why when you take a look at your financial statements you will not only see a $1,000 phone bill you'll see how that phone bill was used for your mission and for management in general and fundraising expenses so when you're ready to implement a cost allocation plan for your nonprofit you need to make sure that you document the plan that you're using making sure that you're using accepted methodologies for allocating such as number of cell phones being used in all of your departments or the square footage of your building to Al at to various departments you can't use something like your favorite baseball player's batting average divided by the number of home runs he's hit you need to identify the expenses that are direct expenses for program and those expenses that are being allocated such as rent for your building and allocate that based on square footage if your employees work at different departments you need to document using time sheets which departments they're working in so you can properly allocate their salaries their payroll taxes and their fringe benefits on a periodic basis you need to review your allocation plan to make sure that there are no changes in your organization that will affect your plan you need to be consistent in using your allocations and when it comes time to reporting your allocation in various expense categories you need an accounting system that's going to allow you to segregate expenses by various Cate categories