3 Thing to Do to Start a New Fiscal Year with Tidy Books and a Clear Budget

We’re into April now and if your non-profit is like mine, the annual audit is complete, and you are well on your way into a new fiscal year. It’s easy to get excited about new programs, and in my area, spring [yay, warmer weather]. But don’t forget about the previous year just yet.

Rarely does one financial year come to a screeching halt without a handful of transitional tasks that are best delt with early in the new year. Leaving these tasks until later in the year comes with the risk of being forgotten until audit prep next year, which will skew your budget tracking all year long.

Here are 3 things you can do to start your new financial year with tidy books and clear budget.

#1 – Pre-paid Expenses

Likely your non-profit finished last year with a few items that were paid in the old year but need to be attributed to the new year. These are usually called pre-paid expenses. The most common pre-paid expense is rent. Landlords require rent, usually, on the last day of the previous month or the first day of the new month. Landlords don’t care if you want to wait a week to turn over your books to the new year – they simply want to be paid now. So, many non-profits pay rent for the new year, coding it to pre-paid expense.

Early in your new year is the time to create a journal entry in your accounting software or books, to move all pre-paid expenses into the correct expense code.

#2 – Deferred Revenue

Similar to paying items early, your non-profit might have also received payment for items that haven’t yet been delivered. These are usually called deferred revenue. Membership fees are the most common example of deferred revenue. Memberships typically only last for one year, and there can be any number of reasons why a member would want to renew early. The most common reasons I see are, they forgot last year, and don’t want to forget for next year, or – and this is very common for the time of year in my area–, the spring means farmers will be out seeding, and they won’t have time to focus on anything else.

Early in your new year is the time to create a journal entry in your accounting software or books, to move all deferred revenue into the correct revenue code.

Treat each pre-paid expense and each deferred revenue that gets moved to a new code, as a stand-alone transaction. By that I mean, create a paper trail so next year’s auditor can clearly understand what you were doing.

#3 – Auto Payments

Your non-profit may have a few payments that are made by allowing the vendor to take payment automatically from your bank account. The most common auto-payment is for equipment rental, such as photocopiers and printers. Copier companies almost always require payment to be set-up for auto-withdrawal, to ensure they get paid. 

Early in the new year is the time to create the payment cover pages, and supporting contractual documentation, for each payment that will come out of your account for the year. You don’t need to enter each payment in advance in your accounting software or books but having the paperwork sitting in your ‘Bills to be Paid’ folder will ensure you don’t forget to enter transaction when it happens.

...

Imagine going through an entire operating year thinking your membership numbers were 30% lower than they had ever been for the last decade? The board is going to see that number and make a few guesses what might have caused the problem. The staff is going to see that number and come up with their own guesses what might be causing the problem. Now imagine you discover, 6 weeks before year end, you forgot to move the deferred revenue memberships from last year into the membership revenue code for the current year. Yep, that’s right, the membership numbers were there all along. Save yourself having to answer all the questions about a problem that didn’t even exist in the first place. (OK, it was me. I did exactly this!)

Processing pre-paid expenses and deferred revenue from the previous year, very early in the new year will see those numbers reflected in your budget reports right from the top of the year, ensuring tracking and accuracy.

Why process pre-paid expenses and deferred revenue from the previous year, very early in the new year? You want to see those numbers reflected in your budget reports right from the top of the year, to ensure tracking and accuracy.

You can get started with these tasks in a few easy steps, regardless of being at the start, end, or in the middle of your year.

1. Check to see if you have any expenses sitting in your pre-paid expenses account or any revenues sitting in your deferred revenue account.
2. Determine if those revenues or expenses are from the previous year, and if so, get them moved into the new year.
3. Alternately, if they are in the current year, but pertain to the next year, create a document to remind yourself to move them at the start of the next year.
4. Finally, create payment cover pages, plus supporting documentation, for all charges that will come out of your account automatically during your fiscal year. Print everything and organize chronologically in a special folder for ‘Bills to be Paid.’

Not sure what you have in these accounts? A quick phone call to the auditor will clear things up quickly.

The financial year of a non-profit is complicated. Don’t rely on your memory to do all the start-of-year tasks. Follow the homework steps to stay organized and keep your accounts and budget accurate and up to date.

Thanks for taking the time to read my ideas. My mission is to take the mystery out of running a small non-profit. If you know someone who needs to read this, why not grab the link, and share it with them. Let’s work together to make a new financial year as easy as possible.

-Christie

…

Hi, I'm Christie Saas, former board member, current Executive Director, and non-profit volunteer. I remember well, those early years when I lacked the training, the confidence, and the work-life balance to focus on becoming the best non-profit leader I could be.

Fast-forward past many bumps in the road, lessons learned, and you’ll find me still in the trenches, but a little wiser, a little calmer, and a whole lot happier. I love my work and I want to help you love yours too.

I created ChristieSaas.com to give you tools, tips, and templates to remove the mystery of learning to run a small non-profit. If you’re a brand-new non-profit leader, or a little more seasoned, someone who’s looking to make a meaningful contribution and still have time for a full life away from the job, you’re in the right place.

© Christie Saas 2022 All Rights Reserved

…

Want to learn more?
Start with one of my free resources.

FREE Guides