Choosing Fundraising Software: 7 Things to Consider and a Whack of Great Resources

Sumac Research. February, 2012. 
Co-author: Ye Adam Tian

“After people, data is your most important asset.” This is the first of 10 Nonprofit Technology Commandments outlined by John Kenyon, noted non-profit technology educator and strategist. And it’s true, isn’t it? Data is the key to a non-profits’ success, so you’ve got to take good care of it! But where do you house it? How do you choose the right software? Well this is a good place to start! Here are seven things to consider, along with some fundraising software reviews and resources to help you find the right match for your organization.

7 Things to Consider

Features. Before you even start looking for software, decide what you need the software to do and make a list. What data do you want it to hold? What features do you absolutely need? One of the mistakes in Robert Weiner’s 10 Common Mistakes in Selecting Donor Databases is buying more than you need. Robert Weiner is a popular non-profit technology consultant who has written for every major non-profit technology publication. Some of the other mistakes listed: randomly looking at demos, falling in love with cool features, and prioritizing price above everything else.

Customization. Another thing you may want to consider is how easy the software is to customize. Let’s face it, no two non-profits are alike. You have different programs and different terminology, and you don’t want to build your own database from scratch if you can avoid it, as Robert Weiner explains in Why Building Your Own Database Should Be Your Last Resort. So look for software with easy customization that allows you to tailor the database to your needs.

Usability. Also important to consider is usability. Because this fundraising software is going to be an integral part of your non-profit, you want it to be intuitive and easy to use. To determine just how user-friendly it is, have a look at some demo videos, get a personal demo and ask current users what they think of it.

Cost. Does the software fit into your budget, both now and in the future? In order to determine this, you have to take into account all of the costs associated with owning the software (the “total cost of ownership” or TCO). Direct costs include the software license itself, data conversion, installation, training, and support. Indirect costs include IT staff required to maintain the system, consultants needed, and upgrades to computers needed to run the software.

Security. Since you’re dealing with donor information, security must be a consideration. There are many question that you’ll want to ask. For example: Where is the data stored? Who has direct access and authority? How is the data shared between different people and departments? How is that process managed? Is there any risk of exposure of your data to the online community?

Ability to Get Data In & Out. This one is often overlooked, but it’s so important. You’ll often want to get data into your database – a list of names and addresses for instance. You’ll also want to get data out – for email marketing, accounting or event purposes. So, being able to easily import and export data is very important!

Technical Support. Finally, does the fundraising software come with quality customer support? Really what you want to know is whether you’ll be able to contact someone by phone or email when you really need help, and how quickly they will be able to assist you. You may also be interested in seeing what other kinds of support they offer: frequently asked questions on their website, documentation, training videos, etc.


Don’t know where to start looking for fundraising software? Start here:

Low-Cost Fundraising Software Comparison:

Check out NTEN and Idealware’s Consumers Guide to Low Cost Donor Management Systems for an overview of 29 systems — what they do, recommendations for systems based on particular needs, and comparison charts.

Fundraising Software Listing & Reviews:

  1. GetApp
  2. Capterra
  3. SoftScout


On a tight budget? TechSoup offers donations of fundraising software to registered non-profit organizations all around the world. Here’s a link to available donations in Canada and the United States.

This tip sheet was created by Sumac Research. Sumac is a complete nonprofit software solution that is free for small organizations and includes data conversion and installation for larger organizations. For more information, visit the Sumac website


Top 12 Tips for Setting Prices

Artists and arts organizations need to set prices for tangible goods (e.g. works of art, CDs, publications) and for services (e.g. admissions, registration fees). The considerations for goods vs. services are rather different – as are the circumstances of individuals and organizations.

These tips are offered from a very generic point of view. I have tried to make them applicable in a wide variety of situations. This may make them a challenge to apply specifically! I hope the examples will help to clarify how you might use these ideas to support your personal decision-making.

  1. There’s no recipe. Take heart if you feel uncertain about how you are going about setting your prices. My research turned up no ‘correct’ method, in the art world, the not-for-profit world as a whole, or in commercial business. There are, however, some useful guidelines.
  2. Take your time. Think of this as an iterative or recurring process. You’re going to draft a price list, sleep on it, run it past colleagues and friends, and revise it again before making a final decision.
  3. Three approaches. Here are three approaches that you might find useful. You can choose the one that works best for you, or you can consider all three, and decide after playing with the options

    A. Cost-based: Figure out your costs, and charge more than that.
    Price = your cost + mark-up
    – e.g. If I’m selling admissions to a concert, I could add up all of the costs, subtract grants and donations, and divide the net cost by my estimate of how many people will attend. Thus, if I expect to spend $12,500 and I have $7,500 in grants and donations, I need to raise $5,000 from ticket sales. If I anticipate that 200 people will attend, I need to charge each person $25. That gives me my break-even price. If I wanted to make a profit, I could then tack on a mark-up of so many dollars.

    Price = a multiple of your cost
    – e.g. Book publishers need to pay for editorial expenses, writer royalties, book production and promotion, as well as their own administration. They often base their book prices on the printing cost, by charging 5 or 6 times cost. So, if a certain book cost $8 to print, the publisher would look at a price between $40 and $48. Experience has shown that a multiple of 5 or 6 generally covers all of their expenses.

    B. Market-based: Charge what everyone else charges
    ‘Everyone else’ should include comparable artists/arts organizations as well as the other options your buyers might consider; for instance:

    – A performing arts organization might compare its prices to what its peers are charging – as well as to the cost of a movie ticket, the cover charge for a band, and other ‘night out’ options

    – A visual artist might look at what their buyers are considering. For instance, if the art in question is usually purchased for its decorative value, buyers may be deciding between buying a picture and another decorative object (e.g. fine craft, furniture, area carpet)

    C. Value-based: What’s it worth to you?
    This is how hotels and airlines do it – not to mention gas stations and ticket scalpers. Today’s rate on a hotel room or an airfare depends on how far in advance you’re booking, plus demand, plus any other factors that affect its desirability. The price a scalper can get before the game is vastly different from what he’ll accept half an hour after the puck drops!

  4. Know your limits!
    - Floor = your cost (If you sell below cost, you’re losing money!)
    – Ceiling = what the market will bear (You can’t charge more than what people are willing to pay.)
  5. Consider your environment and how that might affect the prices you can charge.
    - Geography: are you in a large city, a town, a rural community, a remote area?
    – Accessibility/distribution: how easy is it for people to come to you – or for you to get your work to major centres of population?
    – Economy: how’s the local economy doing, how much disposable income do people have?
    – Political framework: what taxes do you have to take into consideration, what public policies affect you (e.g. copyright, availability of government funding)?
    – Local arts community: are there many colleagues/competitors close by, or are you the only game in town?
  6. Consider how the characteristics/qualities of your art – whether it’s a canvas or an exhibition or production – should affect its price.
    - Artistic merit is definitely a factor in pricing – and one of the hardest to confront. It’s also a factor that’s likely to change over the course of your career. You need to consider the significance of your work in relation to other artists, and the market overall.

    – Popular appeal is also important. It’s easy to see that more people want to buy tickets to mega-musicals and Broadway-style shows than to a lot of other performing arts genres. You must consider the size of your market, and hence the volume of demand for your work. This could push the price up or down! A lower price might make you more attractive. On the other hand, aficionados may be less price-sensitive, and thus willing to pay more for something harder to come by.

    – Use price to send a message about quality and value, and where your work fits in the marketplace. Take coffee shops as an example: relative to your competitors, you need to determine if you’re more of a Starbucks or a Tim Horton’s!

  7. Uniqueness is not a factor in setting prices in the arts. You’re unique, just like everyone else. Every artwork is one-of-a-kind: the visual art collector, or the performing arts engager, is choosing amongst a number of unique offerings, each of which has its appeal.
  8. Don’t let the price be an emotional decision! Price your work dispassionately, without reference to your attachment to it.
    – Don’t assume that your personal favourites will fetch a higher price. Your investment of time, effort and angst in the creative process won’t necessarily speak to the buyer or audience. If an artwork is so significant for you that you can’t part with it at your normal price, perhaps it’s not the right time to offer it for sale.

    – By the same token, you may not love a certain piece, and therefore be tempted to underprice it – but don’t assume that others will share your feelings for it.

  9. Establish your base price according to your most typical art. It may be useful to think about how new cars are priced. Often, there’s a ‘base price’ plus the option to purchase ‘extras’ – or to get the car ‘fully loaded’ In the same way, a visual artist, a performer or an arts organization may be able to identify their price baseline, and what their extras might be, and establish a range of prices for different types of work. For instance:

    – An actor taking a lead role may be able to negotiate a better weekly rate than when he or she accepts a supporting part. A musician may be able to charge more for a soloist engagement than for a sideman gig. The difference is related to the perceived value of the service.

    – A visual artist may charge more for larger or more elaborate works. This might be either a cost-based or a value-based approach.

    – A theatre company may charge more per ticket for the musical it’s offering this year than for its one-hander. This would almost certainly be a cost-based approach related to the number of artists involved and the scope of the production values.

  10. Stick to your guns! It’s a good policy to keep your prices consistent no matter who the buyer is. This can be especially important for visual artists selling multiples or working with more than one dealer – and for performers hoping to build a client base of repeat customers.

    – If you’re an experienced artist with a track record, document your sales. When you can see how works have sold over time, it’s easier to be consistent about pricing your new pieces.

    – If you’re still building that record, you can achieve consistency by pricing your art like a realtor would price a home for sale: look at comparables in terms of medium and style, as well as in terms of fellow artists at a similar level of accomplishment

  11. Think carefully before you discount, to make sure the price cut will work for you strategically.

    A. Discounts may be standard in some circumstances, for instance:
    – A commercial gallery may offer a standard 10% discount to arts consultants purchasing on behalf of clients, or to regular customers who purchase a lot of art.
    – Performing arts organizations commonly offer discounts for group purchases, as well as to students and seniors, and for less popular nights.
    – NOTE! Where a range of prices is in effect, you need to be clear on which is The Price. Your regular price is the Saturday night, full price amount . Everything else is a discount.

    B. Discounts may be used to introduce negotiation , so you can close a sale, for instance:
    – You might want to offer an incentive to a good client to buy more
    – You might decide to make it possible for someone to buy the work who loves it but can’t afford the regular price.

    C. You might wish to use discounts to adjust to market conditions, for instance:
    – If tickets are selling poorly, performing arts organizations may consider putting out two-for-one coupons, or offering discounted tickets within the arts community.
    – A gallery in a tourist town might wish to consider special offers in the off-season.

    D. You might be tempted to price lower than your colleagues/competitors to gain an edge. Think seriously about whether this will really work in your favour. For instance:
    – Performing arts patrons definitely react to price points – but not necessarily to relatively small differences. Someone might decide that the current Broadway touring show is too pricey – but if they’ve decided to spend the money to see a local company, they’re more likely to make their choice based on the title, the artists, the reviews, etc., than on a couple of dollars’ difference in price.

    – If all practitioners of a certain discipline charge within the same range, they can create a “going rate” which sets buyer/audience expectations, and helps everyone plan their budgets.

  12. Don’t forget to raise your prices when it’s appropriate!
    - A useful rule of thumb for visual artists is to contemplate an increase when you’re selling at least 50% of last six months’ output.

    – Another benchmark would be to look at an increase when you’ve experienced six to twelve months of consistent success in your work. Once you’ve established steady demand, it’s time to re-examine your pricing.

This tip sheet was created by Heather Young of Young Associates for the workshop ‘How Much Am I Worth? How Much Do I Charge? – The Secrets of Pricing and Negotiating’ which was presented in March 2006 by the Cultural Careers Council of Ontario. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Audit Committees of Not-for-Profit Organizations

KPMG has put together an excellent tip sheet on audit preparation for not-for-profit organizations.

The tips can be found in brief below, but visit the full tip sheet at KPMG’s website to view each “to do” item in detail.

KPMG’s Ten To-Do’s for Audit Committees of Not-for-Profit Organizations

  1. Stay focused on the audit committee’s top priority: financial reporting and related internal control risk.
  2. Stay on top of the first year audited financial statements applying the accounting framework.
  3. Continue to monitor accounting judgments and estimates, and prepare for accounting changes.
  4. Consider whether the audit committee has the right mix of talent.
  5. Consider whether the financial statements and disclosures tell the organization’s story.
  6. Focus risk governance efforts on reviewing reputational risk identification and management efforts.
  7. Consider updating policies. In almost all processes, IT developments are leading to rapid increases in electronic transactions.
  8. Understand how technology change and innovation are transforming the business landscape – and impacting the organization.
  9. Focus on the organization’s plans to grow and innovate.
  10. Reassess the organization’s vulnerability to business interruption, and its crisis readiness

Click here to view the full KPMG tip sheet.


Ten Tips for Reporting Financials to the Board

Ever had a moment of dread when preparing for a board meeting? Board meetings do not always have to be the event we wished we could skip. By establishing expectations for clear communication between board and staff and creating a common base of understanding of the company’s finances, your board of directors can become a foundational resource for your organization.

To uncover some of the best tips for financial reporting to your board, Young Associates interviewed senior managers and collated their views on handling financial reporting to the board of directors. We would like to thank Soundstreams CanadaPrologue to the Performing ArtsToronto Dance TheatreCrow’s TheatrePlaywrights Guild of Canada, and Dance Ontario for their support and assistance in creating these tips for financial reporting to boards of directors.

Now, for some tips on best practices:

  1. Don’t give up; the right Treasurer is out there! Just like dating…you don’t always meet the right one for you first time out. Seek a Treasurer with a strong financial background who can help you prepare and present board reports, address the Annual General Meeting, and support the development of the annual operating budget. It’s often a balancing act between accounting training or business skill, and an understanding of the not for profit world. Having the right credentials is great, but may ultimately be less important than finding a compatible person. So, finding a CA or Bank Manager may not be essential. If you’ve found somebody who has great technical skills, but is new to the sector, it’s up to you to help them deliver their best by cultivating their engagement with your organization and the sector.
  2. Gauge the financial comprehension level of your board. It’s not necessary for everyone on your board to be financially literate, but according to our interviewees, it’s extremely helpful to have multiple board members with at least a basic grasp of financial management. How much they understand the financial stuff will influence how often and how in depth financial reports are presented at each board meeting. With a board comprised solely of artists, you risk a lack of financial comprehension and understanding, making presenting financial data difficult, timely, and at times, ineffective. At the same time, if your board is comprised only of those with strong financial backgrounds but with little understanding of the organization’s mandate, then you risk focusing solely on financial matters and at the expense of other mission related topics that need to be addressed.
  3. Sometimes the ideal is not the realistic. While it would be nice to have a healthy balance of individuals with practical financial management experience and arts people (or people from whichever sector your charity occupies) on a board, most of the time, this is not the case. Ideally, it would be great if all board members read reports prior to the meeting, and attended all the organization’s events accompanied by some of their friends and colleagues. The reality is that some board members will not do that on their own accord. Learning from our interviewees, the best approach is to promote the engagement of all members, creating policies for them that ensure that their participation on the board will benefit the organization and its bottom line. Examples include attending 75% of the performances in a fiscal year, contributing an annual donation to the organization, and recommending colleagues with sought-after attributes. Although you may not reach the ideal, you can still reach a realistic goal with your board that benefits the organization, and communicate how the actions of board members impact the financial reality of the organization.
  4. People are always changing. Be prepared for that moment when your beloved Chair or Treasurer has reached their maximum time as a board member, and you have to go about finding a new one, (one you are worried will not be as compatible!) But that’s okay… and normal! Outlining the qualities and attributes that your previous member had, or ones that are missing from your current board will help narrow your focus in recruiting a new candidate. All of our interviewees have been in that position, and said they were open to recommendations and referrals from other board members, colleagues, and confidants. Remember, the point in the recruitment cycle when you need to pay attention is when the new VP is being sought. Start setting standards and building relationships then; thus, when they arrive as your new President, you have been grooming them for up to two years!
  5. Send out materials ahead of time. Sending out materials (board report, balance sheet, income statement) to your board members prior to the meeting gives them time to prepare questions and concerns in advance. It can save you time at the board meeting because it is anticipated that everyone will have reviewed the material. A board with members who possess strong financial comprehension skills may not need to see copies of the reports prior to the meeting – unless there is a specific issue at hand that needs to be addressed. For most of our interviewees, sending out the material ahead of time allowed some of their directors time to process the information, and save valuable meeting time.
  6. Not all board meetings need a balance sheet and income statement. If an organization has a Treasurer who possesses a background in chartered accounting, then that individual tends to keep such a close eye on the finances that regular viewing of the balance sheet and income statement would become redundant and unnecessary for both the Treasurer and the other members. This is not the case for most of our interviewees, who include a balance sheet and income statement in the board reports that are sent out at least a week in advance to the meeting, allowing them some time to review the month’s finances and keep up to date. Most of our interviewees use the balance sheet and income statement to continue engaging their board on financial matters, allowing for complete transparency of the numbers.
  7. Consider if your board meetings need to include a standard financial agenda. A common principle for financial reporting to the board is to schedule financial reporting at every single board meeting. For our interviewees, this varies based on the level of financial comprehension of their treasurer and board. For organizations with a strong Treasurer, financial matters would only be discussed if absolutely necessary. For other organizations, it becomes necessary to include a financial agenda at every meeting in order for everyone to be on the same page. Creating a standard agenda focusing on addressing any issues with the financial data is one way to encourage board members with limited financial knowledge to ask questions and become more engaged with the financial operations of an organization.
  8. Plan to connect with your treasurer before each board meeting. Most managers do not have a lot of time in a board meeting to talk at great lengths about the financial matters at hand; therefore, preparing beforehand with your treasurer can ensure that both of you are on the same page and more importantly, that they are able to understand your perspective on the finances. If your treasurer has a strong financial background, then he or she can help you determine the reality of your financial position, and work together to map out how to present the information effectively to the rest of the board.
  9. Board meetings do not have to occur every month. While common principles call for board meetings to run every month, most of our interviewees push it to every 6-8 weeks. Timelines can be affected by physical distance between members, and scheduling. While it is good practice to plan out each meeting date at the AGM, in reality many organizations decide on the date at the prior meeting. The most important thing to take away is that board meetings should be consistent and require all members to be present and prepared.
  10. Make sure your board is “on board”. Remember: your board members are the legal representatives of your organization. It is their responsibility to be committed to your organization by reading the board reports, engaging in the organization’s activities, and helping with fundraising initiatives. You shouldn’t have to parent your board members to make sure they do all their readings. Make it clear to the board what is expected of their position, and how beneficial their efforts are to the organization. It doesn’t matter if they come from a business, finance, or arts background: all of them are expected to be engaged with and updated on the events and happenings of the organization, as well as the financials. Make sure your board members are aware of their duties and do not get caught up in using their position as a resume booster, but rather they prioritize the mandate of the organization.

This tip sheet was created by Caroline Bendiner, Centennial College Intern from the Cultural Heritage & Site Management Program. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Tips for Creating Your Organization’s Privacy Policy

When it comes to collecting and using data about your organization’s patrons and donors, it is imperative to have a privacy policy which meets the requirements of federal legislation, PIPEDA (the Personal Information Protection and Electronic Documents Act), and in some cases additional provincial legislation. The Office of the Privacy Commissioner of Canada has some information about the application of PIPEDA to charitable and non-profit organizations here.

Need help wading through the PIPEDA waters? Want to draft a privacy policy but don’t know where to begin?  Charity Central has created a Privacy Policy Checklist, a tipsheet designed to help you better understand your organization’s information-handling practices and why and how you should create a privacy policy.

Click here to view Charity Central’s Privacy Policy Checklist.


Ten Tips for Making Clear Connections Between your Database and Financial Software

What is a database? A database is a means for organizing, storing, managing, and retrieving information. Your fundraising, box office, sales and accounting software are all considered to be types of database software.

Bookkeeping packages (e.g. QuickBooks, Simply Accounting) spreadsheets (e.g. Microsoft Excel) and database software (e.g. Sumac) are electronic tools for delivering a narrative on your operations and programs.  It is essential that you pay attention to the stories they tell;  it is equally important that these different sources communicate effectively with each other in order to deliver a  meaningful tale.

  1. Who’s doing the talking? It is important to be consistent when communicating financial information. Decide which system will do the talking and which will do the listening. Having information flow in one direction will reduce errors, confusion, or missed transactions. Multiple databases in a single organization should be used simultaneously and reconciled to each other on a regular basis. Integrating your databases into your daily routine will help to support sound management.
  2. Speaking the same language. When communicating financial information from one system to another it is important that the allocation is the same in both systems. For example, if you are tracking donations that are associated with a certain project or event in your database software, make sure you make the same allocation in your accounting software. This will help in the future when pulling reports from either system or doing reconciliations.
  3. Doing a little bit at a time. Errors more often happen when you try to condense information. While it might be more efficient to do weekly reports, errors may occur if financial information provided by the database software doesn’t match what is in the bank. For example, if you are doing daily credit card batches, than weekly reports may not catch the information you need. Batch totals and generated reports need to have the same time parameters. Keep things simple and work on a consistent basis. While it might take a little longer initially, it will make it easier to identify errors, saving time in the long run.
  4. Take time for the details. It might be easier to group contact information together when going from one system to another, but it can contribute to errors. Make sure whatever information you are tracking in one system is communicated to the other system. For example, record individual names and donation amounts rather than a batch total.
  5. Keep an eye on things. Try doing regular reconciliations and comparisons between your database software and financial software. Tracking as you go will make doing a year-end reconciliation go smoothly, and will help you know where you are in regards to budget vs. actual.
  6. Remember what you did. You are only as good as your information. (Garbage In/Garbage Out). If your database software gives you the option to record communications, such as emails, memos, or notes, try using the function with regards to financial transactions. If you have special notes relating to a transaction, record it in the communication notes for that contact for easy reference.  Storing important information pertaining to donors or other contacts will contribute to organizational history and make staff transitions easier.
  7. Don’t leave it to the last minute. We are often leaving grant reports and year-end audits until the last minute, when it can be a headache to go back through months of activity to get the information needed for the report. Track as you go in both the database software and financial software. Doing it in both will act as a double check to make sure the numbers are correct, as well as take some of the stress of that last minute report.
  8. It’s okay to anticipate. It is common to anticipate transactions, especially those reflecting revenues (eg. Held tickets, pledges, and confirmed grants). Make sure that if you are entering an anticipated transaction into your database software as a receivable, that you communicate that information to the financial software. Not doing so could result in double counting the revenue when the money does actually arrive. Be sure to compare receivables list from all databases on a regular basis.
  9. Break it down. Most database software packages will allow you to break out details on transactions. Breaking out gross amounts, taxes, and any service fees applicable will help eliminate errors or the need for further calculation when entering data into the financial software. Make sure you have taken full advantage of all the setup features to automate standard charges (eg. service charges and sales taxes).
  10. Where it all belongs. Similar to your financial income statement where revenues are tracked on a yearly basis, it is important to do the same in your database. Most database software doesn’t have the concept of deferred revenue, so you may have to indicate what year funds are allocated to. For example, allocating things like donations, grants, and ticket sales to your 2009-2010 season will make reconciling and reporting easier. It will also help in the budgeting process when you are able to pull up reports with precise data pertaining to certain years.

This tip sheet was created by Samantha Zimmerman of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips on Being a Better Bookkeeper for Smaller Organizations

  1. Plug into the bigger picture. Maintaining the accounting records is a foundational element of financial management, and of the management decision-making process. If you only think about posting entries, then you’re probably not giving the client everything they need. Most small organizations need a bookkeeper who can help them manage their financial statements.
  2. Keep your eyes on the prize. The ultimate goal of bookkeeping is to issue financial statements. Each session should probably end with you giving the client a report of some sort, e.g. year-to-date statements, or at least a progress update describing what was accomplished today. This engages the client in the process, and reinforces your value to management.
  3. Check your own work. The bank reconciliation is a standard verification step. So is checking the invoice detail contained on supplier statements to the invoice detail in the General Ledger. What other steps can you take to prove the accuracy of your work before you issue reports? You may use different techniques in different circumstances, depending on the nature of the transactions.
  4. Read reports before you hand them over. Beyond doing account reconciliations, it’s important for you to read the financial statements before you hand them to the client. This will help you pick up misallocations and other errors that your verification steps may not have caught. It also ensures that you are familiar with the statements as complete documents. This is of much higher value to the client than handling a bunch of individual transactions!
  5. Encourage the client to read their statements. This may be more easily said than done, depending on the client. Clients who don’t read their financials are always bad news. Sooner or later something will go wrong that will require them to respond. If they aren’t familiar with those documents, look out! It’s much harder to explain something “under the gun.” Regular review builds their ability to interpret both good and bad news, and encourages them to understand and trust your work. Reading the statements with them can offer an excellent opportunity for you to share your expertise – and for the client to keep you fully up to date with the organization’s activities as they affect your work.
  6. Be aware of the tax rules. Whether you handle the client’s government reporting, or whether you hand it to an accountant, it’s to your advantage to be aware of the rules. Even the smallest organizations are likely to have some dealings with the Canada Revenue Agency, and perhaps with provincial and municipal tax departments. You’ll almost certainly need to know the basics of payroll and sales taxes. If you’re working for charities or not-for-profits, you need to be aware of the particular filings they may need to make (e.g. T3010BT2 ShortGST/HST rebate claims).
  7. Maintain proper documentation. Ideally, each transaction will be documented by an invoice, contract, receipt, petty cash report, cash register tape, or other third party or internally generated explanation. Decide what you need to retain in the case of direct debits, electronic funds transfers and other online transactions. Know the Canada Revenue Agency records retention rules, which are available on their website at In most cases (but not all), you must maintain full detail for the current fiscal year plus six previous. Financial statements and general ledgers must be maintained back to the start of the organization. Make sure that your electronic records can be read for the full retention period. This may mean updating software and transferring documents off old media (remember floppy discs?) onto something current.
  8. Maintain a good audit trail. The audit trail links the steps in the bookkeeping process, from source documents to financial statements. Your software probably enforces a certain amount of audit trail notation – for instance, by making you enter invoice numbers in the purchases journal, to link the entry back to the paperwork. You can strengthen the process by recording the account number and a posting reference (e.g. journal entry number) on the invoice. If the organization hires a chartered accountant to perform an annual audit, they will appreciate the clarity this adds to the records. A good audit trail will also help you to review your work and respond to client questions.
  9. Keep pace with change: adapt your system and processes. “The way we’ve always done it” can’t last forever – or we’d all still be adjusting our eyeshades as we bent over our quills and inkwells! As new technologies emerge, and as the client’s needs for reporting change over time, think about your software, paper and electronic records, office processes, and the layout of the financial statements (chart of accounts). From time to time, it will probably be to your and the client’s benefit to update. Your ability to take the lead in proposing improvements underscores your value to the organization.
  10. Help the client to help you. Determine what you need from them in the way of documentation and instructions. Work out a clear process for getting the information, and for storing records once they’ve been entered. Establish reasonable deadlines – for them providing the raw materials, and for you providing reports. Discuss what reports are required, in what format, and who will receive them. A good bookkeeper can help to create a structured process that makes accounting clearer and easier for everyone – including you!

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Managing Your Bookkeeper

Your bookkeeper is a key member of your team. To get the best out of them you need to manage the relationship, as you would any staff.

  1. Be involved in the process. You may have hired a bookkeeper to “make it all go away.” But, no matter how wonderful that bookkeeper is, they can’t do a good job without your input. Yes, they should be able to code the phone bill to the telephone expense account – but there will be other transactions where they’ll need your clarification and instructions; and you need to understand the underlying logic as you prepare your management reports.
  2. Bookkeeping feeds into financial management. You are still the manager. You must be in charge even if you hate numbers. Ditto for your board.
  3. Ask questions. Provide feedback. Ask more questions.
  4. Decide how much detail you require for program decision-making, management/board decision-making. Use this to shape the chart of accounts, as well as the nature and frequency of reports you require from the bookkeeper.
  5. Make things simpler where you can. Standardize processes for gathering information.
  6. Provide a space, a desk, a computer, storage for active files (waiting to be processed) and completed work.
  7. Provide advance warning of meetings/other needs for reports – e. g. grant deadlines – to avoid scheduling conflicts.
  8. Know what your government reporting obligations are for payroll, sales tax, charities reporting, etc. Learn what the tax returns look like and how to read them. Put the due dates in your calendar. Check up from time to time.
  9. Know how the work is verified. In particular, learn what a bank reconciliation looks like and read it from time to time.
  10. Read your statements . . . no surprises!

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Analysing Your Organization’s Operating Statements

Understanding your organization’s financial statements is essential to controlling the purse strings. These ten tips are intended to help you better assess and interpret your Statement of Operations – a.k.a. Income Statement, Statement of Revenues and Expenses, Profit and Loss Statement (P&L).

Your operating statement captures revenues and expenses, and the difference between them: a breakeven (revenues = expenses), or a surplus (revenues > expenses), or a deficit (revenues < expenses). This statement mirrors your day to day activities. Understanding it is essential to making sound operational decisions for your charity.

  1. Understand your financial documents. Formal financial statements (including those prepared by professional accountants and those generated by commercial software programs) are designed to be understandable by people who’ve made a reasonable effort to learn how to read them. It’s worth taking the time to become familiar with the layout and terminology. Read your operating results regularly. The more familiar you are with your organization’s reports, the better you’ll become at spotting good news and bad news, and knowing how to address potential problems.
  2. Read with a critical eye. If you’re the manager, and you’re not “hands-on” with the bookkeeping, it’s important for you to be alert for accounting errors. Even the best bookkeepers finger-slip from time to time. Does a certain number look surprisingly high or low? Ask about it! Your constructive feedback supports and encourages excellent staff work.
  3. Relate your revenues and expenses. The operating statement is designed to compare revenues to expenses, and tell you whether you’ve made or lost money. Within that, though, much can be learned by comparing specific revenue and expense items. For instance, what is the difference between Fundraising Revenue and Fundraising Expenses? Are you getting a satisfactory return from your investment in fundraising? Similarly, compare program revenues to program expenses. Do your various activities net to a financial gain or a financial investment? (Either can be fine!) Comparing revenues and expenses by area will help you to evaluate whether you’re maximizing opportunities, and deploying your resources effectively.
  4. Relate this year to your overall financial position. This year’s operating result is Revenues minus Expenses, leading to a surplus, deficit or breakeven. The Balance Sheet shows your organization’s “lifetime” result – the accumulated surplus or deficit – in the Net Assets section. This year’s revenues contribute to the accumulated surplus or deficit, and this year’s expenses reduce it. Reading your operating statement without ever looking at the Balance Sheet can be a dangerous business! Consider: your operating statement might show that you’re in good financial shape this year – but if you have a huge accumulated deficit from the past, you might still be in trouble. You would only know that by reading the Balance Sheet. By the same token, your operating statement might show big financial problems for the current year – but if you’ve got a bigger accumulated surplus from the past, you might still be ok. (NB: see also “Ten Tips for Analysing Your Organization’s Balance Sheet.”)
  5. Variance analysis – don’t look at this year’s results in isolation. A single column of numbers showing this year’s operating results can actually be quite uninformative! Compare your revenue and expense actuals to the budget, to assess whether you’re meeting your goals – and whether you need to change tactics. Create this variance analysis column in your report using the formula (Actuals – Budget = Variance). Similarly, compare this year to the same period from last year, to learn how your results stack up against past accomplishments. This can help you to evaluate how you’re managing within an ever-changing environment. Create this variance analysis column using the formula (This Year – Last Year).
  6. Ratio analysis – percentages highlight the “weight” of numbers. Using spreadsheet software, it is quite straightforward to calculate each revenue item as a percentage of total revenue, and each expense item as a percentage of total expense. Use the formulas Revenue Item / Total Revenues x 100, and Expense Item / Total Expenses x 100. These ratios can be easier to scan than the “hard numbers,” because they’re all on a common base of 100. You can use a separate column to create another set of ratios that will convert your variance analysis to percentages. For instance, in the previous bullet-point you read about creating a budget variance column using the formula Actuals minus Budget. You can convert this to a percentage using the formula (Actuals – Budget) / Budget x 100. It is easy to scan the percentages and tell at a glance where the high and low rates of change are – and to focus your attention on the items that need it most.
  7. Trend analysis – past data has predictive value. Your past accomplishments offer guideposts towards your future. If you know you’ve achieved a certain result before, you can assess whether you’re likely to pull it off again. If you’ve never achieved a certain objective, be careful about counting on it as part of this year’s forecast! You need at least three years of results (ideally more) to identify trends. (A year over year change could be a “blip.”) This can be done easily in a spreadsheet: use Column A to list your revenue and expense categories, and Columns B onward to record past operating results. Each year, add a new column of results to your spreadsheet, to build a picture of your charity’s financial history. Most spreadsheet software will readily convert your table of numbers into helpful graphs, to provide visuals of your financial trends.
  8. Comparative analysis – keeping an eye on the Joneses. It’s very easy to be immersed in your own organization’s day to day challenges, and lose sight of what’s going on in the sector as a whole. Knowing how your charity stacks up against comparable organizations can help to validate your results – or it can galvanize change. Networking with colleagues can be very informative. Some sectors of the charitable world have associations that gather and disseminate comparative data to help you assess your progress.
  9. Use publicly available comparative research data. All registered charities in Canada must file a T3010B Charities Return within six months of their financial year-end. These returns (minus certain confidential information) are publicly available on the Canada Revenue Agency website, at Do you want to know how another charity is doing financially? On this website, you can access a summary version of their financial statements, plus general information on their activities, fundraising practices, staff and board.
  10. Go beyond the numbers. Financial figures only capture so much. You need to understand the organization’s context in order to interpret them accurately. It’s important to supplement financial documents with information on your operating environment. Internal factors might include human resources issues and future obligations (e.g. the operating report shows this year’s rent expense, but doesn’t indicate how long the lease is, or what annual escalations you are expecting). External factors might include economic, taxation and regulatory circumstances.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Summary of a Simple Bookkeeping System

This basic outline captures the key elements and processes of a bookkeeping system for a small organization. Bookkeeping should follow standardized procedures. It should fit into a management system that includes regular financial statement of review, and feedback to the bookkeeper.

Business papers/source documents. These are the “raw materials” of bookkeeping: invoices, receipts, contracts, leases, sales reports, cash register tapes, etc. Each item may trigger a transaction, such as issuing a cheque or making a bank deposit. Ideally, all transactions will be documented. That is, there will be some explanatory paperwork that offers proof that expenses are legitimate, and that the company received all the revenue it was entitled to. The Canada Revenue Agency requires most organizations to retain their business papers for the current year and six previous years for audit purposes.

Withdrawals and deposits. Most transactions take the form of withdrawals from or deposits to the bank. Not that long ago, most business bank transactions were made by cheque, which provided excellent documentation. Nowadays, online banking, electronic funds transfers, preauthorized payments, direct debits and other electronic transactions are becoming more prevalent. Make sure you retain sufficient documentation of all items. This not only meets your CRA requirements – it also ensures that your bookkeeper has enough information to compile accurate records.

Journals. All of your accounting entries are made in journals. Journals capture financial transactions day by day; note the French root “jour.” Most accounting software packages provide an array of journals, organized by type of transaction. For instance:

  • the purchases journal records incoming bills (accounts payable)
  • the payments journal records cheques or other forms of withdrawal, to pay those bills
  • the sales journal records invoices issued to customers for goods/services (accounts receivable)
  • the receipts journal records payments from customers to clear those receivables
  • the payroll journal records employee paycheques, with a detailed breakdown of deductions and employer contributions (e.g. EI, CPP, company health plan)
  • the general journal offers a catch-all for items such as error corrections that may not easily fit elsewhere

If I purchased a newspaper ad for $1000 plus HST, my journal entry might look something like this:

May 30, 2011The Weekly News re: ad buy
Adverstising Expense 1,000.00
GST paid on purchases 130.00
Accounts Payable1,130.00

General ledger. The general ledger reorganizes the data captured in your journals into an account by account format. Note that my advertising payable entry, above, updates three accounts: accounts payable, an expense account, and the GST/HST account. The journal entry captures all of this as one record. In the general ledger, the lines are split up and assigned to the individual accounts:

  • A $1,000.00 debit would appear in the Advertising Expense account
  • A $130.00 debit would appear in the GST/HST Paid on Purchases account
  • A $1,130.00 credit would appear in the Accounts Payable account

The general ledger allows you to review transaction detail by account. For example, the Advertising Expense account would list all my ad buys throughout the year, with a running balance showing the total spent in this category.

Check your work: Bank reconciliation. Most business bank accounts provide monthly statements by mail – although with online access, you can see your statement any time you want. Because cash is the lifeblood of small organizations, it is crucial to prove that your books show the accurate bank balance. The bank reconciliation provides a structured way to compare the bank’s records to yours and identify variances. It is normal for the two balances to be different – but you should be able to explain those differences to the penny. Some need to be corrected – for instance, errors (yours or the bank’s) and bank charges or interest that you hadn’t posted. Other variances are legitimate – for instance, cheques that you issued that have not yet cleared. Legitimate reconciling items such as these should explain the difference between the bank statement and your books.

Check your work: Other reconciliations. Your bookkeeper may have similar methods of verifying other accounts. For instance, some suppliers send monthly statements listing all outstanding transactions. These can be compared to the payables records. The Canada Revenue Agency provides regular payroll statements that can be compared to the source deduction remittances you have made.

Financial statements. The statements summarize the information in your ledger. They take the month-end balances in all of the accounts, and slot them into two statements: the Balance Sheet (a.k.a. Statement of Financial Position or Statement of Fund Balances) and the Income Statement (a.k.a. Profit and Loss Statement, P&L, Statement of Revenues and Expenses, Operating Statement).

Read your statements regularly! Typical moments for reviewing statements are: at month-end, at the end of a project, prior to a board meeting. You should always do so with extra care at the end of the fiscal year. Many not-for-profits engage a chartered accountant to audit their statements. The auditor tests the transactions in your books for accuracy, makes any changes s/he feels are necessary (with your approval!) and presents a formal set of statements for the year.

Check your work: Do the statements look right? Some errors can only be caught through the scrutiny of someone who knows the company's financial activities well. For instance, the bookkeeper could record a purchase in the wrong expense account and the bank reconciliation wouldn’t reveal the mistake. The manager, who knows what purchases have been made, may be able to spot the problem by noticing that one expense account is surprisingly high and another surprisingly low. This is not a very scientific way of checking – but it’s extremely effective in the hands of an astute manager who questions everything that looks unusual, and pursues answers until they’re satisfied that the statements fairly reflect the company’s activities.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Better Financial Planning

If bookkeeping is the bricks and mortar of your financial reporting system, then financial planning is the architecture; effective financial planning can better prepare your organization to respond whatever happens on a daily basis.

  1. Failing to plan is planning to fail. It’s an old saw, but a good one! You wouldn’t start on a long trip without a road map and a destination; by the same token, you shouldn’t launch a new year of activities without a financial plan that lays out some sensible goals – and boundaries. That plan is your annual operating budget – a statement of your programs and activities in dollars and cents. The budget is your financial road map, a key operating document approved by your board as a current-year operating policy, defining and quantifying your targets for spending and raising money.
  2. Put it in writing. Your plans will undoubtedly change as the year unfolds, and you respond to changing circumstances (a budget is an adaptable planning tool to help predict your future; financial statements are historical documents that record where you’ve been). However, keeping a clean copy of that initial budget is important! It serves as a yardstick for measuring your progress in fulfilling your plans – and your success at adapting them to your organization’s evolving situation. A written document provides a solid basis for comparing plans to results. It is also an excellent tool for sharing information amongst your organization’s leadership and staff.
  3. Share responsibilities effectively among your staff, board and volunteers. What’s effective depends on the nature of your organization and the individuals involved. For some charities, financial planning is staff’s hands-on responsibility, with board members in a governance role, approving the results or requiring changes. In other charities, board members – e.g. the President or Treasurer – take an active role in planning. Some have a Finance Committee, where volunteers outside the board contribute to the process. Often, smaller organizations need more volunteer support, and larger ones delegate more responsibility to staff. Consider what will work best for your organization at this moment in its life cycle.
  4. Identify and use all resources. Chances are, you recruited board members based on the skills, connections and support they could bring to your charity. Are your directors fulfilling those roles for your organization? If not, have you talked to them about stepping up to the plate? Consider, too, that your directors may be able to recruit colleagues or friends to provide pro bono support for specific needs. If your organization has an annual financial audit, don’t forget to use your auditor for accounting, planning and tax compliance advice. Your banker, broker, government funding officer and others should be able to contribute planning advice on trends and opportunities for your organization.
  5. Think about how to share financial information. Personal data such as staff compensation must, of course, be treated with care. More broadly, though, it is important to think about who needs to know about your charity’s financial situation, and at what level of detail. You wouldn’t want staff or volunteers to be worrying needlessly.But, if you need their input, you must provide enough information for them to offer an informed opinion. You can share financial data in a controlled way by preparing mini-statements by program or activity, as well as a complete operating statement. You can also prepare both detailed and summary (“high-level”) financial statements, to be disclosed depending on people’s level of engagement with the challenges at hand.
  6. Secure board buy-in to your plans. A charity’s board of directors is legally responsible for the organization. In situations where staff are front and centre in terms of running the show, board members may become complacent – but they are still on the hook! Staff should ensure that board members receive – and read – and understand – budgetscashflow projections, financial statements and other key financial planning documents. It’s important to be clear with your directors where the risks lie in your plans for the year. If those plans go awry, you need them to stand behind you and back you up. The organization’s financial plans must be the board’s plans too.
  7. Secure staff buy-in to your plans. Staff are instrumental in carrying out the plans for the year. The more they feel ownership of the targets set for their position or their department, the more invested they’ll be in achieving those goals. If belt-tightening is in order, you need your staff, especially those in leadership, purchasing and revenue generation roles, to be fully on board with whatever needs to be done. Develop appropriate ways to bring them into the process of brainstorming, generating options, and making decisions.
  8. Follow an annual planning agenda. If an organization is very project-driven, each year may be quite different from last year and next. However, many organizations have a well-understood annual routine. In these cases, financial planning should also follow a well-defined pattern where the tasks associated with creating, reviewing and adjusting plans happen in the same order, within about the same time frame, with the same participants each year. A written annual planning agenda (for instance, setting out key tasks by month) can be used to ensure staff and board understand what will be expected from them. Your planning calendar will also help you identify and meet external reporting deadlines, e.g. funding applications and tax returns.
  9. Create time for planning. Make sure your work schedule allows time to read and analyse financial reports, think about the implications, consider your options and prepare well-researched plans for your programs and overall operations. This is even more important for Board members who meet intermittently; get the financial statements to them before they need to act on them. The worst decisions are often the ones made under pressure in the midst of a crisis. If you’ve invested time in contingency planning – anticipating problems and brainstorming “what-ifs” and possible responses – you will be much better prepared to give a measured response and a sound decision.
  10. Take the long view. “Now” always seems to be the imperative. Staying on top of today’s demands can take all your time. However, this year is just one more milestone in your organization’s life. You need to consider this year’s plans in context with medium- and longer-term objectives. This year’s operating budget carries through from last year’s results, and it should help your charity achieve its plans for the future. Situating each year’s budget within a multi-year strategic plan is an excellent way to anchor your financial planning.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005)a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Drafting Your Annual Budget

Your annual operating budget is a key management and planning document approved by your board as a current-year operating policy. By defining and quantifying your financial targets, it provides a financial road map that can help you successfully navigate your cycle of programs, services, events and other activities. Creating a detailed plan, grounded in reality, is an essential first step to effective financial management.

  1. Format can support you. Treat your budget as part of a broader financial management effort, which embraces your accounting system, external reports (e.g. grants, taxation) and management reporting needs. Your budget categories should align with your accounts, and with the funding and tax forms that you need to complete. This integrates planning with records-keeping, and helps the bookkeeper, managers and board to speak the same financial language. Create a spreadsheet template and use it year over year. Base your financial report spreadsheets on the same template. Consistent formatting makes it easier to share documents and coordinate amongst staff, volunteers and board.
  2. A conservative approach: start from revenues. Here’s a good piece of advice – don’t spend money that you don’t have! If you start your budget process by thinking carefully about how much revenue you are likely to generate, you are less likely to “bluesky” your way through the expense lines and wind up with a deficit on the bottom line. This method is particularly effective for organizations with only a few years of history under their belts. Your past revenue achievements are likely to point to what you can reliably predict for this year, giving you reasonable boundaries for planning your expenditures.
  3. Testing a new idea: start from expenses. What if you’re launching a big new project? In this case, it’s important to consider what investment it would take to make your new activity a success. You may need to work your way through the expense lines first, and then think about how you will cover your costs.
  4. Start from knowns and work towards estimates. On both the revenue and expense sides of your budget, you will know more about some lines than others. For instance, you might have confirmed multi-year funding that you can slot into revenue lines, and leases, union agreements and employment contracts that you can plug into expense lines. At the other end of the scale, the forecasts for some lines may amount to educated guesses, based on past history and current circumstances. If you fill in the knowns first, you create a context that can support the process of estimating other figures.
  5. Start from last year’s actual results. Past accounting data can have strong predictive value. If this year’s operations are going to be similar to last year’s, and your charity’s circumstances haven’t changed significantly, then it can be effective to base your budget on previous actuals and adjust as needed for your evolving situation.
  6. Use reasonability calculations where appropriate. This technique breaks your budget estimate down into its components, and helps you think things through at a higher level of detail. For example, I could ballpark my advertising expense, or I could break it down to X ads times Y price. Similarly, I could break down my part-time staff expense to X individuals, times Y hours per week, times Z rate of pay. Not all budget items lend themselves to this treatment: categories that are catch-alls for numerous items, such as office supplies, may call for a ballpark figure.
  7. Research. Base your budget estimates on research where you can. “Hard” research may take you to catalogues, websites and quotes from suppliers. “Soft” research, such as advice from colleagues, can help you to develop sound options and to learn from others’ experience.
  8. Use building blocks. You can build your operating budget from smaller components by developing separate budgets for each program or activity. These add up to your plan for the year. To them, you will need to add an overhead budget, including administration and any other items that can’t readily be broken by activity (e.g. insurance, fire and security). This technique lends itself to a decentralized approach, where every program manager develops their own budget, and the executive director assembles the building blocks, and negotiates any changes required to make the operating budget work.
  9. Make an environmental scan. Charities can be highly vulnerable to changes in their environment. Donation and grant revenue is sensitive to economic circumstances, personal taxation and local labour market conditions. Political change can bring some issues to the foreground and back-burner others, and affect the availability of government support. Tax and regulatory changes can affect your expense picture. Stay in touch with the news, and consider how the changing environment may impact your budget forecasts. Remember, your bookkeeper should be a source of up to date details.
  10. Don’t idealize. And don’t catastrophize either. It can happen that everything goes your way – or goes against you – but more often things are somewhere in the middle. In particular, don’t get hooked on a wonderful idea and assume that everything will fall in line to support your vision. Develop best-case and worst-case scenarios, then settle on an estimate somewhere in between, based on your assessment of what the contingencies might be.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Ten Tips for Analysing Your Organization’s Balance Sheet

Understanding your organization’s financial statements is essential to controlling the purse strings. These ten tips are intended to help you better assess and interpret your Balance Sheet – a.k.a. Statement of Financial Position, or Statement of Fund Balances.

The balance sheet captures the value of your assets (things you own), liabilities (what you owe) and net assets (difference between assets and liabilities). This statement shows your organization’s financial position at a single moment in time. (The next moment, things may change – every deposit and withdrawal changes the balance sheet.) The balance sheet is often more challenging to interpret than its companion, the statement of operations. However, grasping it is essential to understanding your charity’s finances.

  1. Understand your financial documents. Formal financial statements (including those prepared by professional accountants and those generated by commercial software programs) are designed to be understandable by people who’ve made a reasonable effort to learn how to read them. It’s worth taking the time to become familiar with the layout and terminology. Read your balance sheet regularly. The more familiar you are with your organization’s reports, the better you’ll become at spotting good news and bad news, and knowing how to address potential problems.
  2. Balance sheet accounts are “permanent.” These account balances roll on from year to year. Last year’s closing balances become this year’s opening balances. In contrast, revenue and expense accounts (found on your operating statement) start at zero each fiscal year, accumulate a full year of results, and are “re-set” to zero for the new year. That is, your operating statement shows only current year activity. When you read the balance sheet, you need to be able to interpret what’s current and what’s historical. Transactions stay on the balance sheet until they are settled. Thus, last year’s unpaid bills will sit in Accounts Payable until you use this year’s income to pay them off.
  3. Understand how day to day operations affect the balance sheet. The Balance Sheet shows your organization’s “lifetime” result – the accumulated surplus or deficit – in the Net Assets section. This year’s revenues contribute to an accumulated surplus or deficit, and this year’s expenses reduce it. If this year is going well from a financial viewpoint, then quite likely your operating results are increasing your assets, decreasing your liabilities, and increasing your net assets. The opposite is also true. You need both statements to understand your situation fully. (NB: see also “Ten Tips for Analysing Your Organization’s Operating Statement.”)
  4. Go beyond the cash account. Yes, most of your transactions probably go through the bank as cheques and deposits. It’s tempting to read the operating statement and the bank balance, and feel that you’ve gone as far as you need to go. However, you need to look at all balance sheet accounts to understand your resources and obligations. Some accounts contain transactions in progress, e.g. Accounts Receivable (we’ve sold goods or services but the client has not yet paid) and Accounts Payable (we’ve purchased goods or services but we have not yet paid). Receivables appear in your revenue accounts – but you haven’t yet got your money. Payables appear in your expense accounts – but you haven’t yet paid for them. These items haven’t hit the bank yet – but they will – and you need to know what to expect. These are just a couple of typical examples. Make sure you understand all of your charity’s particular balance sheet categories.
  5. “Current” has an accounting meaning. Anything “current” pertains to items that are cash or will be converted to cash within this fiscal year. (See the next two bullet points for fuller explanations.) Anything not designated “current” has a longer timeline. Thus, long-term liabilities don’t need to be settled this fiscal year (e.g. if you have a mortgage, this year’s payments are a current liability, and the rest is a long-term liability). Capital assets are items of substantial value that are owned for longer than a year.
  6. Current assets = short-term resources. The #1 current asset is cash – in the bank, in short-term investments, in your petty cash box. Other current assets are considered “near-cash” in that they will be realized for cash within the year. You need to know what you’ve got here. If people owe you money (Accounts Receivable) – who, how much, and how quickly can you collect? If you’ve paid for something in advance of receiving it (Prepaid Expense – e.g. a rent deposit for a special event), when will you get the value of it? These are typical current assets. Your charity may have other categories – all of which represent financial resources to you.
  7. Current liabilities = short-term obligations. These are debts that must be paid within the year. If you owe money to others (Accounts Payable) – to whom, how much, when are the obligations due, and how will you meet them? If you have received money in advance (Deferred Revenue – e.g. a grant or sponsorship for next year, received early), will you have enough cash to carry out the obligation when it falls due? These are typical current liabilities. Your charity may have other categories – all of which represent obligations that must be met.
  8. Working capital = current assets minus current liabilities. This figure defines your ability to carry on in the short term. If current assets exceed current liabilities, you’re doing well! You have more than you need to meet short-term obligations – as long as your near-cash items become cash before your debts are due. If your current liabilities are greater, you may be facing financial challenges. Calculating working capital and understanding the details behind your balance sheet figures are key to assessing what kind of shape you’re in.
  9. Capital assets and depreciation (amortization) policy affect your financial position. A capital asset is an item of value that your charity will own for more than a year. Typical examples include buildings, land and equipment. Depreciation (amortization) is an accounting mechanism that allows you to spread the cost of an asset over the estimated years of ownership. (It’s tempting to think that depreciation equals the decline in an asset’s value over time. This might be true – but often it isn’t. For example, many companies depreciate computers over a three-year period. Do you think your $1000 computer would fetch $666 if you tried to sell it after owning it for a year?) Depreciation is an estimate, pure and simple. Choosing a longer depreciation period versus a shorter one affects your financial position – and your operating statement. For instance, if I depreciate my $1000 computer over three years, each year bears $333 of expense. If I depreciated it over two years, each year would bear $500 of expense. If I used a four-year depreciation period, each year would bear $250 of expense. How many years will I get out of the computer? Impossible to know ahead of time. This is a fairly complicated topic – beyond the scope of this tip sheet – and a good one to explore with your chartered accountant.
  10. Compare deferred revenue to current assets. It’s fairly common for charities to have deferred revenue: e.g. grants and sponsorships intended for next year but received early; the unspent portion of a multi-year grant; subscription sales for next season. If you’re in good financial shape, your deferred revenue will be sitting in the bank, or in short-term investments. If your cash balances are less than your deferred revenue, it means that you’ve already spent that money on immediate needs. Comparing deferred revenue to your cash accounts will tell you quickly about your ability to meet this category of obligation.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.