Balancing the budget for a nonprofit organization can be a difficult task especially since many are under the belief that you can’t have a surplus at the end of the year. The truth is nonprofits can indeed make a profit and many do end the fiscal year with an excess in the budget. This occurs when the revenue earned exceeds the expenses of the year and can be very beneficial to the nonprofit.
How to Use Nonprofit Surplus Cash
The benefits of having nonprofit surplus cash at the end of the year are great as it leaves a number of opportunities for the nonprofit to get ahead for the upcoming year. The surplus also gives the non-profit some breathing room to help plan for times when there might be a drop in donations, unforeseen property damages, repairs, and other expenses that may arise.
When there is a surplus of nonprofit cash it can lead many board members and staff of the organization to question what to do with the extra money. The money will need to be reinvested back into the organization in a number of different ways. Below are a few different areas where a surplus of nonprofit cash can be applied.
Incentives for employees
While the surplus cannot go directly back to the board members or faculty, nonprofits can offer an incentive to their staff. As long as the incentives are not based on profit goals, non-profits are allowed to provide their staff with incentives where they can earn additional compensation.
Paying Down Debt
Non-profits can use their stronger financial positions to pay down some of the debt they may have accrued over the years.
Direct More Money towards the Mission
This will be the first place a nonprofit will want to invest any surplus money. The extra money will allow you to help others even further.
Building a Financial Cushion
Another option for nonprofits is to put the surplus aside as a finical reserve. Nonprofit budgets are not only monitored by their board members but are also closely watched by the Better Business Bureau Wise Giving Alliance who has a checks and balances system that monitors the way charities operate. To be in compliance with the Better Business Bureaus’ Standards for Charity Accountability, a non-profit cannot accrue a reserve totaling more than three times the annual budget.
Finishing the year with a nonprofit cash surplus is great. Ensure your nonprofit is transparent about their budget to donors and board members alike in your annual report.
At Ernst Wintter & Associates LLP, we provide comprehensive audit, review, examination and compilation services as well as tax services that fit your business needs. Our professionals have specific expertise in the financial services industry, nonprofit sector, and employee benefit plan audit requirements. Please contact us today.