In the for-profit world, the P&L or Profit and Loss Statement (often referred to in the nonprofit world as the Statement of Activities and Statement of Functional Expenses) is essential fortracking the financial health of your operation. Keeping track of and projecting your revenues and expenditures by type are just as essential in the nonprofit world.
For the purposes of this week’s business tip, I want to highlight the ins and outs on the expense side. Why? Because organizations that don’t have good expense control will often fall victim to the lack of predictability on the revenue side, creating significant risk to their future and the fulfillment of their mission.
In other words, if you have $1 million in the bank, but have expenditures of $1.5 million, you are going to go out of business.
According to “The Profit and Loss Statement: What Does it Mean,” an Ohio State University Fact Sheet:
Each expense category is made up of either variable, fixed, or “discretionary” expenses…. The Selling, General and Administrative (SG&A) category contains fixed, variable, and discretionary expenses and may include:
- Salaried personnel
- Travel and entertainment
The fact sheet goes onto say: “Most often, the expenses listed under SG&A tend to remain fixed over a relevant range of time.”
Nonprofits must also track program expenses from supporting services expenses.
According to the Nonprofit Accounting section of AccountingCoach.com, “A nonprofit’s transactions are recorded in accounting in the general ledger. A listing of the titles of the general ledger accounts is known as a chart of accounts.”
Some very handy Detailed Chart of Accounts samples can be found on StartNonprofitOrganization.com and AccountingCoach.com. There is also a free download of chart of accounts, including QuickBooks files from the National Center for Charitable Statistics.
Remember, not every nonprofit’s financial statements are the same and the granularity required in your organization’s chart of accounts should be dictated by the requirements of your board, the reporting expectations of foundations and grant makers and, above all, your need to manage your organization with predictability.
When setting up a new organization’s financial statement, it is always advisable to consult a nonprofit accountant or a bookkeeper with experience in handling nonprofit organizations.