How To Record Your Transactions To Track Your Nonprofit’s Expenses
Working at a nonprofit organization means continuously juggling tasks — there will always be multiple balls in the air. One of these essential tasks is tracking your nonprofit’s list of expenses.
Recording your transactions requires a little training, but if you know how to properly identify and classify them, it does not have to be so hard. In this guide, we show you how to make proper tracking a reality for your nonprofit!
- What Are Expenses?
- Best Practices for Expense Tracking
- How To Track Expenses in Excel
- Software: The Best Way To Monitor Expenses
- Final Thoughts
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What Are Expenses?
Before we get into how to record expenses, let’s first define what expenses are. There are two expense categories: reimbursements for employee out-of-pocket payments and payments to product or service providers. In the next section, we provide an overview of each.
Reimbursements for Employee Out-of-Pocket Payments
This first category reimburses employees who use their own bank accounts to pay business-related expenses. Some examples of these types of expenses include:
Hotels, rental cars, and meals for business trips
Office supplies for remote employees
Cell phone use
Parking, tolls, gas, and mileage for in-person employees
Certifications and classes for professional development
David is ready to learn all about tracking nonprofit expenses!
Payments to Product or Service Providers
These expenses are payments that you make to providers who offer products or services to your nonprofit. This category includes:
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Best Practices for Expense Tracking
Do not just go through the motions of tracking expenses. With these best practices in mind, you can do it properly.
Monitor Overhead Ratio
Having an eye on your nonprofit’s overhead ratio is the key to maintaining success. To calculate this percentage, divide your overhead by your income; then, multiply the result by 100. This number tells you how much you are spending on maintaining your programs. Generally speaking, anything over 40% is cause for pause.
We want to be careful about how we frame overhead ratio, though. High overhead ratios get a bad rap because they mean that you are spending a lot of funding. However, you have to spend money to see results. You cannot make an impact if you are not spending money to take steps toward a brighter future. Therefore, instead of focusing on just the percentage, consider the whole picture by looking at what funding is going where.
Timely reimbursement means that you pay your employees within a week after they submit their expense reports. Some employees do not have the personal funds to wait months for you to reimburse them. By reimbursing them immediately, you create goodwill within your team. It also ensures that you report your expenditures as they occur, which can prevent unexpected charges from hitting your account months after you incur them.
Have an Expense Management Policy
With a reimbursement policy, you can control spending by ensuring that all of your employees are on the same page about what and how much is reimbursable. Your expense policy should outline the reimbursement process from start to finish.
What out-of-pocket expenses do you cover? Do you have an expense reimbursement form or invoice for employees to fill out? How long does the review and approval process take? Does the reimbursement come with the next payroll deposit? Answer all of these questions — and more — in a written document that all employees have access to.
Accurate reporting demonstrates transparency to your stakeholders. Your donors in particular expect to know how you spend their money. Or else, they may choose to donate to a different nonprofit with a similar mission in the future.
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How To Track Expenses in Excel
One of the simplest ways to keep track of your expenses is to set up a spreadsheet in Excel. Here is how to do this.
Matt is pulling up Excel right now to follow along!
In Excel, create headers that epitomize the information that you want to capture in your expense reporting. Here are some examples:
When you incurred the expense
Who is requesting payment
What they are requesting payment for
How much they are requesting payment for
Who approved the transaction
What account the payment is coming from
What type of payment it is
Here is a screenshot of a blank template:
Here is the template with example transactions:
Update this sheet with each new expense.
Each month, import the transactions from your banking institution. Banks can usually export this information for you into an Excel spreadsheet. Compare this with the manual sheet that you create in step 1 to ensure that you do not miss any expenses.
Sort the data to see which individuals or departments have the most expenses. For example, in the screenshot below, you can see that Jon Doe has both the most and largest expenses.
Dig deeper to see why that is. Are these expenses necessary? Will they continue regularly for the foreseeable future? If these expenses are unavoidable, that is totally fine. But prompting this kind of thinking ensures that you are spending your funding wisely.
Pro Tip: You do not have to create this Excel spreadsheet from scratch. There are plenty of free nonprofit expense report templates that allow for customization to fit your needs.
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Software: The Best Way To Monitor Expenses
Excel is not too complicated to use once you know how it works. However, with an accounting platform, such as Springly or Intuit QuickBooks, you can create an efficient, automated process. For example, you can sync it to your bank account to automatically pull transaction details. Or, you can use expense data to create tables, charts, and other visuals automatically. These tools and others help you track your financial health with greater accuracy in less time.
Pro Tip: Springly has a nonprofit accounting suite built into its membership management software. This gives you a multipurpose tool to track your financial statements, accounts payable and receivable, staff members, members, volunteers, donors, and more. It even does communication. For example, you can send important membership program updates to your members using the emails that you have in the platform.
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Accountability and transparency are buzz words in the nonprofit space. There is a reason for that — with proper recordkeeping, your donors know how you are spending their donations, and your finance team members can budget your funds properly.
Nancy is feeling strong about tracking her nonprofit expenses!
Small organizations with a tight budget can get by with Excel spreadsheets. Many mid-sized and large organizations, however, opt for the greater accuracy and efficiency of accounting software. Whichever route your organization chooses, remember that expense tracking plays a role in financial health.
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💡How do I track my nonprofit’s finances?
You can track your nonprofit’s finances with an Excel spreadsheet. Our recommended method, though, especially for larger organizations, is an accounting software, such as Springly. Find out more.
🔑 What are reimbursable expenses?
Reimbursable expenses are business-related expenses that your employees pay for initially and request reimbursement for later. These expenses can include gas to and from the office, classes for professional development, and more. Find out more.
📝 What is a good overhead ratio for nonprofits?
We generally do not promote a certain overhead ratio for nonprofits because nonprofits have to spend money to make an impact. However, your overhead ratio will start to turn heads as it gets into the 30s and 40s. Find out more.