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Financial management is vital to a group’s survival for several reasons: to have a clear idea of income and costs, to plan ahead, to prepare accurate financial reports, and for accounting and/or legal purposes.
The information below is intended as an overview; see CommunityNet Aotearoa for an in-depth guide to financial management and contact the IRD about your group’s tax obligations. Accountants are also very good people to get advice from and worthwhile having as part of your group.
Nominate a treasurer
Nominate someone in your group to act as treasurer, ideally a person who has experience with managing money. They will be responsible for overseeing bank accounts, managing financial records, sending invoices, paying bills, preparing tax returns, preparing monthly and/or annual reports (including the annual budget), and recommending ways to cut costs.
Financial planning and transparent accounting
Financial planning is an important part of money management. Your group needs to agree on how you will – and won’t – spend money during the year, and also anticipate any dips in your bank balance. It involves taking a realistic look at your current situation and creating goals for where you’d like to be.
Financial planning is an ongoing process, from creating your initial budget (e.g. for funding applications), to refining the budget once funding is granted, and then managing the budget once the project is underway.
Transparent accounting is about keeping track of money (see below). It is absolutely essential for a project to have community credibility and for projects where funding is being sourced externally through sponsorship or other sources. A good system can be the difference between a project surviving long-term or not.
How to prepare a budget
The treasurer prepares the budget (usually in a spreadsheet) after consulting with other board members. The budget should cover the next 12 months with the group’s projected income and expenses. It should be clear and easy for others to follow. The budget then needs to be approved by the committee/board.
- Look at income and expenses from the previous 1-2 years (new groups will have to estimate the figures)
- Anticipate your projected income (e.g. from donations, sponsorships, fundraising events, member payments) for the next 12 months
- Make sure your budget is realistic. The clearer and more reasonable it is, the more likely that your funding applications will be approved.
What is cash flow?
Cash flow (money coming in and going out each month) is also an important part of budgeting. Small expenses add up – refreshments, stationery, etc. – and need to be considered as part of the overall budget.
Cash flow forecasting involves breaking down your budget month by month, looking at your group’s bank balance, and estimating outgoing payments such as bills. This will help you plan and prepare for upcoming expenses so you don’t get caught out.
How to keep track of money
- Have a filing system. This will ensure you always have accurate records and will make it much easier to prepare financial reports. Have a system that is consistent, easy to follow and secure. It might include folders, spreadsheets and documents.
- Set up a bank account for your group, with just one or two people as authorised signatories.
- Bank any cash received immediately.
- Write receipts for money received. Receipts should include the date, the payer’s name, the amount and its purpose (e.g. donation). Donations of $5 or more to registered/incorporated trusts or societies can be claimed as tax credits.
- Record any in-kind donations (non-cash donations such as equipment, transportation, volunteer hours, etc.).
- Have a system for petty cash (used for small, miscellaneous items such as milk and biscuits). Keep it in a box or tin, with a book alongside to record any cash taken. Keep all receipts.
- Reconcile funds: follow up on money that’s owed (e.g. membership fees) and pay invoices promptly.
- Keep a record of all payments (hold onto receipts – photograph the paper ones).
- Back up all digital records using cloud-based software (see below). Hard drives can break down!
Tax obligations for charities and not-for-profits
If your group is receiving money you may have to pay income tax. However, there are different rules for registered charities and not-for-profits and you may qualify for an exemption – check with the IRD to find out more.
DOC has an overview of common group structures depending on the size and nature of your group, and Community Toolkit has advice on applying to become a charity. CommnunityNet Aotearoa has advice on formalising your group structure. You can also read our information on governance.
Spreadsheets or accounting software?
If you have a lot of transactions to manage and your spreadsheets are becoming complicated, you may want to subscribe to online accounting software (such as Xero or MYOB). Cloud-based software allows you to electronically send and pay invoices, categorise your assets and liabilities, store receipts and reconcile funds. There is a monthly fee to subscribe.
Xero offers registered non-profit charities, trusts or societies a 25% discount on Xero subscriptions.