Last updated: September 4, 2019.
For part 3 of this series, we’ll be discussing one of the most important tools you’ll need to update your organization’s Nonprofit Profile on GuideStar—a level (to balance your nonprofit’s checkbook).
Whether you’re a brand-new nonprofit or 50 years in the making, you should always make sure you’re accounting for your revenue and expenses correctly, and most importantly, efficiently. That’s why GuideStar’s Silver Seal of Transparency asks you for basic financial information.
Before we dive into the Silver Seal and what’s required, here’s a very brief recap of Parts 1 and 2 of this series and the tools we added already to your toolbox:
Part 1: we hammered out the basics—what is a GuideStar Nonprofit Profile and who should be updating your profile—and gained a measuring tape to measure your skills, resources, and available information before getting started with your profile.
Part 2: we started building the foundation for your profile—how to gain access to your profile—and gathered some nails (nuggets of information) that will help you earn a Bronze Seal of Transparency and get your nonprofit’s story in front of millions of eyes.
The Silver Seal of Transparency
Although providing donors and funders with contact information and programmatic information for your nonprofit is important, displaying your finances is the best way to build trust. When people can see how you run your organization from a financial standpoint, they’ll have greater confidence in your overall mission.
Enter: the Silver Seal of Transparency. GuideStar asks for basic financial information, such as your total revenue, total expenses, and assets and liabilities, so that the millions of folks visiting www.guidestar.org will know you’re a financially responsible organization.
How long does it take to earn a Silver Seal? About 15 minutes (or less).
What’s required? You’ve got options! You can EITHER upload an audited financial statement from within the past two years OR manually input your basic finances. If you choose the latter and file a Form 990 or 990-EZ, just grab your most recent return and look at the bottom of page 1 and the top of page 2, and you’ll find all the information you’ll need. If you file a 990-N, don’t panic: you can find the list of required and optional fields for the Silver level on page 2 of the GuideStar Profile Standard. (Remember, this is an EITHER/OR section. If you don’t have an audit, don’t stress! Just manually enter your finances.)
Ready to get started? Click this nifty link to be transported straight to GuideStar.
That’s great, but what if I’m a new nonprofit? Or I don’t submit a Form 990 to the IRS? Well, then you’re in luck! Keep reading ...
A Best Practices for New Nonprofits and Those That Don’t Submit a Form 990
I get asked the same questions about the Silver Seal, time and time again. “What are some best practices for recording our finances?” “How do I distinguish between program and administration costs?” and “We have a shoe-string budget, are there any free accounting resources for us out there?”
These are all fantastic questions, and although I am a profile coach, I’m not an accountant. So, I turned to two nonprofit accounting experts to help with the answers. The advice below was contributed by Sarah Avery (CPA, director at Friedman LLP) and Christine Manor (CPA, MBA, author of QuickBooks for Not-For-Profit Organizations). Here’s what they had to say:
Do NOT use Excel to record your finances.
If your organization is small to medium-sized
Both Sarah Avery and Christine Manor recommend using QuickBooks to keep track of your revenue and expenses. Each said that QuickBooks beats out the other accounting software nonprofits might use. Plus, QuickBooks keeps three key fields (expenditures, grant revenue, and program revenue) entirely separate, so it’s easy to slice and dice your financials when the end of the month rolls around.
Disclaimer: QuickBooks isn’t free. A qualified nonprofit can, however, get a discounted copy through TechSoup.
Why not Excel? It breaks too easily. One mistake and your entire chart is ruined.
Will using QuickBooks help me fill out a Form 990? Yes, it will! The only items that will be different from what you’ll find in the Form 990 are all explained in Schedule D, Parts 11 and 12, of the Form 990 itself. Never mind the fact that it’s talking about audits. You can still use these instructions to reconcile your differences, regardless.
If your organization is a complex, large-scale nonprofit
Sarah Avery recommends checking out BlackBaud. Christine Manor suggests looking at third-party evaluations of accounting software, such as this one from Software Advice.”
What’s the difference between program and administration costs?
You may see this on your Form 990 and you’ll definitely see it on GuideStar. There is a distinction between what you spend on your programs and on administration costs. Here’s a trick on how to keep these separate:
You’ll want to ask yourself:
- Is this a fundraising cost (yes or no?) (Are you soliciting gifts or gaining volunteers?)
- Is this a program cost (yes or no?) (Does it directly relate to your mission?)
- If you answered “no” to both questions, then it’s an administration cost.
Here’s an example of each:
- Fundraising cost: paying for a fundraising consultant
- Program cost: supplies used to run your program
- Administrative cost: costs associated with preparing payroll or audit costs
What about costs that apply to all three categories? Such as rent, equipment, and payroll for my employees? These are called common costs.
Here’s a cheat for figuring it out: % of all salaries = % of common costs
Analyze how your staff manages their time by using time sheets. What percent goes to fundraising? Programs? Admin? Then, take an average of how your staff portions their time and apply it to your common costs. For example, if your CEO spends 20 percent of his or her time on fundraising, 50 percent of his or her time on running your outreach program, and 30 percent on administrative duties, then that’s how you’ll break up the costs for that case of copier paper you bought for the office.
FREE resources for getting your finances in order
To help get you on your way, Sarah Avery and Christine Manor recommend checking out these free resources:
- Get help with QuickBooks by reading QuickBooks for Not-For-Profit Organizations
- Ask for time sheets from your payroll provider or try out TSheets
- Join a local chapter of a state organization, such as National Council of Nonprofits (look for webinars, trainings, etc.)
- Read some newsletters: Independent Sector and Council on Foundation’s Washington Snapshot are a couple good ones to start.
If you’ve made it to the end of this blog post, then you’ve most certainly earned yourself a level for your toolbox. You now know how to balance your finances and report them consistently and efficiently. This will boost the trust levels with your supporters and other potential funders and donors! But that’s not all you should be providing them. Next up, we’ll discuss how to showcase your long-term goals and strategies, plus tips and tricks for earning a Gold Seal of Transparency.
If you have specific topics you'd like to discuss, questions, or are just plain curious about GuideStar’s Seals of Transparency, please leave a comment below.
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Notes: (1) The recommendations in this post are those of the persons interviewed and are not endorsements by GuideStar. (2) The content of this post is provided for information only and is not intended to serve as accounting advice. If you have questions about recording and reporting your organization’s finances, contact a nonprofit accounting professional.
Madeline Kardos is GuideStar’s marketing and communications associate. She creates all kinds of content and leads outreach for GuideStar’s Profile Update Program. Before joining the nonprofit world, Madeline started in content marketing, writing for contact center software companies in San Francisco, CA. She holds a Bachelor’s degree in Economics and Film & Media Studies from the University of California, Santa Barbara.