Finding a CPA for your nonprofit

August 13, 2009

I wrote this article for Step by Step Fund Raising titled

A Good CPA is Hard to Find

by Carol Topp, CPA

Your nonprofit needs professional accounting help, but a good CPA can be hard to find. You desire someone who is knowledgeable but understandable, experienced but still affordable, and professional yet interested in your mission.

How to find a CPA to help your nonprofit:

  • Tell your staff, members and volunteers of your need and request that they ask friends and neighbors for referrals.
  • Mention your search for a CPA in your newsletter.
  • Look over your member or donor list for CPAs and  call to see if they are qualified and interested.
  • Join an on line professional network like LinedIn.com, join some groups and post your need.
  • Call your state CPA society for referrals. WebCPA.com lists state CPA societies at.
  • Ask other local nonprofits for their CPA’s contact information.
  • Use an on line matching service such as Accountants for the Public Interest that matches volunteer CPAs to nonprofits at.

Finding a qualified CPA is the just the beginning. You also desire a good working relationship that benefits your nonprofit more than it costs.

When you work with an accountant:

  • Be specific about the task
  • Ask for an estimate of their fee
  • Request an engagement letter that will spell out the specific tasks and estimated cost
  • Inquire if the charges can be reduced.  Some CPAs will offer a discount if you can delay work until after tax season.
  • Discuss how much of the work your staff or volunteers can do to help reduce fees.
  • Ask for lower cost alternatives. For example, a review of your financial statements may suffice instead of a full audit which is much more costly and time consuming.
  • Be prepared to ask questions, read and learn on your own

Seek out an accountant that has the ability advise you about the financial side of your nonprofit. You should feel comfortable with him or her and be free to ask questions. A good accountant is not just a bean counter; they are also a business advisor. They should explain issues and financial statements in a language that is accurate, yet understandable. If you leave a meeting with your accountant feeling confused, you should find another accountant.

Ask a potential CPA these questions:

  • How many nonprofits do you have as clients? Hopefully, the accountant has clients similar in size to your organization. Size is usually measured in staff size, number of clients served or annual revenue.
  • What is your area of specialty? Some CPAs conduct audits while others specialize in preparing the annual IRS Form 990. Select an accountant that matches your needs.
  • With whom will we be working? In medium and large accounting firms there are several layers of management.  The person doing the original interview may not the one doing the work.  Alternatively, in a small or solo firm you will probably work with only one individual.
  • May I see your biography or Curriculum Vitae  (CV)? Look for participation on church or community boards, published articles and professional memberships.
  • Can you explain to me the reporting requirements for my nonprofit? This type of question is really a test to see how well the CPA explains IRS guidelines.  Is their explanation understandable to you or do they lapse into accounting jargon?
  • Do you charge by the project or by the hour?
  • Am I free after this engagement to call you with questions?  Will I be billed for the phone call?

After their first audit, a small, but growing, nonprofit asked their CPA, “ How do we compare to other nonprofits? What can we be doing better?”  The CPA was unable to answer their questions.  He was good at number crunching, but he could not see the bigger picture and seemed unable to offer advice. The director was quite disappointed. They used the techniques mentioned here and found a qualified, helpful CPA with a reputable firm that guided them through many successful years of expansion.

Carol Topp, CPA //


Have we hit the $5,000 mark?

August 10, 2009

I am trying to do some research on the non-profit status for our Homeschool group and cannot find a clear answer. We are trying to see if we have hit the $5000 gross receipts limit.

Would money that individual members write to the group, so that the group can write one check to an organization, for instance a field trip, be considered in the gross receipts?

Nikki E

Nikki,
All money that comes in, even if it goes out almost right away like for a field trip, is considered gross income.

Not difficult to get over that $5,000 limit, is it?501c3_thumbnail.php

To help in your research you might want to read my e-book Tax Exempt 501c3 Status for Homeschool Organizations.

You can find it on my website www.HomeschoolCPA.com/Books.html

Best of success to you,

Carol Topp, CPA


Using Quickbooks for reports

August 2, 2009
Hi Carol,
Our Board of directors for our homeschool group of 100 families just received your 2 books (Money Management for Homeschool Organizations and Tax Exempt 510c3 Status for Homeschool Organizations).  I have read them.  It has reassured me that we are on the right track and that we have instituted many of the things that you mentioned.

We have purchased Quickbooks and our treasurer is working hard to learn  the software.
What financial reports do we need to generate monthly?  We need these reports to be a simple process.The Balance Sheet and P&L (Profit and Loss) statement in Quickbooks looks are overwhelming.

We are not accountants and double entry lines are confusing.We have reconciled our checkbook successfully.  YEAH!
Any advise would be helpful,
Hilary S

Hilary,

I’m glad that my books were helpful.  Your organization sounds as if they are getting things set up well.  I hope you’ll be serving homeschool families for a long time to come.

I think Quickbooks (QB) can be as simple or as complicated as it needs to be. The reports your treasurer generates is dependent on what the board wants to see. When I was treasurer, I gave my board a P&L (Profit and Loss) statement.  They really liked to see the budget in one column and actual P&L in another column.  Then they could see how we were doing compared to our budget. This report can be generated in QB as a Budget Report.
I also created a mini balance sheet at the bottom of the P&L.  I took the amount in the checking account and then listed payments to be made.  This gave the board an idea of how much cash we had on hand and where it was planned to go.

If the P&L statements in QB are too overwhelming, then perhaps you’re not using QB correctly.  I frequently see QB users make their Chart of Accounts too long.  Then the P&L becomes 2-3 pages long.  I recommend that a P&L be condensed into one page or less.

If your treasurer would like my help in setting up QB, I’d be happy to help.  She can e-mail me with what needs to be done and I’ll give you an estimated cost.  I also do QB training over the phone. I keep things as simple as possible.

I hope that helps.  I wish you the best of success! (Congrats on balancing the checkbook!)

Carol Topp, CPA


Returning co-op supplies to parents

July 6, 2009
Carol,
logosI wanted to ask you how your homeschool co-op handles classes where there are nonconsumable items purchased.  We had a class where kits were purchased for a LEGO class.  Students shared kits so we charged a lesser fee.  Now people think they should get half of the kits (kinda silly because there is only one motor) or that future classes in future years should have to pay and they receive a credit each time.  We have never done that with any classes in the past.  It has always just become property of the co-op.  It sounds like it would be a bookkeeping nightmare otherwise.
Thanks for your input.
Becky P in KY

Becky,

You’re right, the logo kits sound like a bookkeeping nightmare.  I like to keep things simple, but as fair as possible.

We had a similar situation in my homeschool co-op with Spanish books.  The teacher bought a curriculum to use and was planning on spreading out the cost of the teacher manuals and CDs over two years of students. It took some guess work to figure out how many students she would have this year as well as future years.  In the end we decided  that this year’s students would end up paying for a portion of the teachers books and CDs.  The rest of the cost was absorbed by the co-op as a whole. The co-op then owned the teacher books and CDs. Future Spanish classes were charged a small supply fee so that the co-op could recoup the cost of the teachers books and CDs.

In summary I think the co-op should own non consumables, not the individual parents. Sounds like that’s how you have done it in the past. Parents pay a supply fee, but are not entitled to the equipment afterward nor a credit from future students.
Carol Topp, CPA



Checking accounts and EINs for homeschool groups

June 4, 2009

Carol,

We have always had a checking account under a parent’s name. We were adding a name to our account this year when (the bank) informed us we can no longer do this and we need to have our own Tax ID number. Will we need to file returns with the IRS if we get a tax ID number?

I strongly discourage using a parent’s name on an organization’s checking account. The organization should have a checking account in its own name and use an Employer Identification Number (EIN), not an individual’s social security number.

Getting an EIN from the IRS does not necessarily mean your organization will have to report income to the IRS. If you are a small nonprofit organization with annual gross revenues under $5,000, there are usually no reporting requirements to the IRS at all.

Nonprofits have to start filing tax forms when they

  • bring in more than $5,000 a year
  • become a 501(c)(3) tax exempt organization
  • do public solicitations (i.e. door-to-door selling or fund raising)
  • pay workers either as employees or independent contractors

Money_thumbnailIf you hire and pay workers, your organization will use the EIN to file either 1099MISC or W-2 forms for each worker.

Read more about hiring and paying workers in my ebook, Money Management for Homeschool Organizations here

Carol Topp, CPA


How Much to Keep in Cash Reserves?

May 23, 2009

Bag of coinsHello,

I am wondering whether you have any guidelines about a good amount of cash to keep in reserve, or what to use as a basis for determining the amount of cash. We have a substantial surplus, growing every year despite our efforts to price classes at a close to break-even rate.

Thank you!
Shaun S in Minnesota

Shaun,

What a wonderful position to be in-cash reserves growing each year! Many for-profit businesses are not doing that well!

It’s a little difficult to be specific without knowing how you operate, such as do you collect all fees at the start of the semester or do you operate month to month.  Can families drop out or join mid semester? Do you offer refunds of fees paid if a family drops out? etc…

Basically, the tighter you run your cash flow (i.e., only collecting a month at a time), the more you need in reserve.

I recommend that you look at your sources of income.  Imagine any one item being eliminated, such as a major fund raiser. How would you run your co-op without that source of income? Sometimes when a nonprofit loses a major source of funding, it needs to fall back on cash reserves for a while.

Here are a few guidelines to help you determine the amount of cash reserves needed:
1. Have at least 10%, maybe 15% of your income in reserve for emergencies, damages or disasters.
2. Have at least one or two month’s rent in reserve in case you need to move locations.
3. If you pay employees, have at least three months of their pay  in reserve.
4. Consider creating a future plan of major purchases (like a computer or software) or programs you’d like to offer. Your surplus could be applied to your “wish list.”
5. Have at least enough in reserve to cover the deductibles on your liability and medical/accident insurance.

Here are a few ideas of what to do with your cash surplus:
1. Offer reduced fees to hurting families. In my homeschool co-op, we have a widow and another family with a disabled father, so they get free access to our co-op classes.
2. Offer reduced fees for significant volunteer efforts. We offer teacher discounts and discounts to our co-op director.
3. Make a contribution to the location you are renting if  it is a church or community organization.
4. Have an end of year party with a catered dinner.
5. Give appreciation gifts to all your volunteers.

I hope that helps!

Carol Topp, CPA


Group using personal Paypal account

April 2, 2009

money_exchange_100Hi Carol,

Our (homeschool group’s) yearbook is looking take in the money thru my personal paypal account, then deposit it into an separate bank account so that our Assoc. does cross over the $5000.00 mark. How is this done so that I don’t have to claim the money as extra income.

Currently the association is trying to do a paypal account not just for yearbook for membership dues, they are hesitant because they set up the a paypal account under non-profit, paypal is wanting proof of this and we don’t have it. I suggested that they explain to paypal that they we are a Unincorporated Non-Profit Assoc. and it should be fine.

Sandy in TX

Sandy,

The ideal way to operate is to set up a Paypal account for the association/homeschool group and not run anything through your personal Paypal account.

I understand from other homeschool leaders, that Paypal expects to see proof from the IRS of tax exempt status. They may also accept a nonprofit incorporation certificate from your state. They told one homeschool group they would accept “certified Articles of Incorporation.”

One homeschool registered with Paypal as “Category: Education, Subcategory: Elementary and secondary schools.” While not as accurate as “Charitable/Nonprofit”, it got the job done!

If your organization is not a nonprofit corporation or doesn’t want to be classified by Paypal as as a school, then tell your board that you are using your personal Paypal account and have them record it in the minutes of a board meeting. (“Sandy agreed to allow use of her personal Paypal account for the yearbook project”) Keep a very clear paper trail just in case you are ever audited by the IRS. Keep paper records of every transaction and especially the transfers in and out of the Paypal account. Make print outs from Paypal and file them away with wherever you keep your tax return information. (Do NOT send them to the IRS with your tax return.)

Anyone had problems setting up a Paypal account for their homeschool organization? Id like to hear your experience.

Carol Topp, CPA