Let’s not sugarcoat it: we’ve all seen those headlines about an NGO mishandling funds or, worse, being accused of outright fraud. You’ve probably thought, “That could never be us,” but here’s the thing: missteps with money — even innocent ones — can happen fast. 

Anytime finances come into play, there’s a spotlight. And when you’re running an NGO, that spotlight can feel more like a magnifying glass, with everyone from donors to the public (and yes, the media) watching your every move.

And the stakes are always higher in your case because it’s not your money. It belongs to people who believed in your cause enough to trust you with their hard-earned cash. 

And we all know trust can be fragile. One wrong move, and suddenly, all that goodwill turns into suspicion.

Even if you’re 100% ethical, poor bookkeeping can make you look shady. The little things, like missed receipts or unbalanced ledgers, can snowball into much bigger problems if left unchecked. And you do not want to be in a situation where someone is questioning your integrity because of a spreadsheet error.

At doola, we work with small businesses and NGOs all the time, and if there’s one thing we know, it’s that keeping your financial house in order is non-negotiable. 

Streamlined, foolproof bookkeeping isn’t just about staying compliant; it’s about protecting the trust your donors place in you.

This guide will walk you through the must-take steps to get your books in order and keep them that way. Let’s dive in and make sure your finances are as buttoned-up as your mission.

6 Steps to Keep Your Nonprofit’s Books in Check

With these few simple steps, you can take control of your nonprofit’s books and make sure everything runs smoothly — without adding stress to your already full plate. 

Step 1. Understand the Fundamentals of Nonprofit Accounting

Before jumping into any bookkeeping system, it’s essential to understand the unique framework nonprofits operate within. Unlike for-profit businesses, where the focus is on generating profits, nonprofits prioritize accountability — making sure every dollar is used as intended by the donors to support your mission.

At the heart of nonprofit accounting is fund accounting, which means tracking exactly where your money comes from and how it’s spent. Two essential financial statements guide this process:

👉 Statement of Financial Position (similar to a balance sheet), which tracks your assets and liabilities.

👉 Statement of Activities, which breaks down your income, expenses, and net assets — showing what’s left after all costs are accounted for.

These statements are the backbone of your nonprofit’s financial health and play a key role in maintaining transparency with your donors and stakeholders.

Always keep this in mind: Understanding these basics is crucial because everything else builds on this foundation. If you’re unclear on these key reports or how fund accounting works, the rest of the bookkeeping process can become a tangled mess. So, first things first: get familiar with how nonprofit financials are organized and reported.

Step 2. Pick the Right Bookkeeping Software

Now that you have a solid grasp of nonprofit accounting, the next step is choosing the right tools to help you manage your books effectively. Choosing the right software is essential for maintaining accuracy, transparency, and compliance. Without a robust system in place, you’re likely to encounter data inaccuracies that can lead to misreporting, poor financial decisions, and even legal troubles. 

The software you choose serves as the foundation for everything else — without the right tool, managing the rest of your nonprofit’s financial activities becomes much more difficult.

The best nonprofit accounting software should do more than just track income and expenses. It needs to be capable of handling the unique challenges nonprofits face, like managing restricted funds and tracking donations. Here’s what to look for:

✅️ Fund Accounting: Since nonprofits rely on multiple income streams—like donations, grants, and membership dues—you need software that can track these separately. Fund accounting ensures that money designated for specific programs or purposes is used as intended.

✅️ Grant and Donation Tracking: Many nonprofits receive restricted donations (funds earmarked for specific projects) and unrestricted donations (funds that can be used for general operations). Your software should allow you to easily track and report on both types, ensuring donor funds are used appropriately.

✅️ Reporting: Look for software that generates the financial reports required by nonprofit regulations. This includes statements of financial position, activities, and cash flow. These reports help maintain transparency with your board and donors, ensuring everyone knows how funds are being used.

✅️ Compliance: Nonprofit accounting comes with its own set of rules and regulations. The right software will help ensure compliance with IRS requirements (like Form 990) and other reporting standards, reducing the risk of penalties or audits.

✅️ Ease of Use and Scalability: The software should be user-friendly for your team and volunteers, and it should scale as your nonprofit grows. You might start small, but as donations and programs increase, your software needs to handle more complex financial operations.

Popular options like QuickBooks for Nonprofits, Aplos, Gusto and Xero are specifically designed to cater to the needs of charitable organizations. These platforms allow you to manage donations, generate nonprofit-specific reports, and track grants effortlessly.

Step 3. Find the Right Bookkeeping Advisors or Consultants

Picking the right bookkeeping advisor is just as important as choosing the right bookkeeping software. While the software helps automate and organize your finances, an experienced bookkeeper or consultant provides the guidance needed to manage your nonprofit’s unique financial landscape. With the right expert by your side, you’ll ensure compliance, transparency, and accuracy — without overstretching your budget.

Hiring a bookkeeping advisor or consultant helps take the burden off your internal team, allowing you to focus on your nonprofit’s mission. But since most nonprofits work with tight budgets, it’s important to find someone who’s experienced, reliable, and affordable.

Here’s what to consider when choosing a bookkeeping advisor or consultant:

👉 Experience with Nonprofits: Not all bookkeepers are equipped to handle the specific requirements of nonprofit accounting. You’ll want to hire someone who understands fund accounting, restricted vs. unrestricted donations, and nonprofit reporting requirements. 

Their experience in the nonprofit sector ensures that your financial statements and reports meet the necessary standards, and they can guide you through any challenges unique to your organization.

👉 Cost and Budget Flexibility: Working within a nonprofit budget means finding a bookkeeper or consultant who offers flexible, affordable services. Some professionals offer discounted rates for nonprofits or may work on a part-time or project basis. When interviewing advisors, clearly outline your budget to find someone who can tailor their services without compromising quality.

👉 Availability and Scalability: As your nonprofit grows, your financial needs may evolve. Make sure the advisor you choose has the availability to meet your current needs and can scale their services as your organization expands. Whether it’s moving from monthly bookkeeping to managing a full audit, they should be able to adjust to your organization’s growth.

👉 References and Trustworthiness: Your bookkeeper will have access to sensitive financial information, so it’s vital to hire someone trustworthy. Ask for references from other your sector to get a sense of how they’ve managed similar organizations. Reliable advisors will offer transparency in how they’ve helped nonprofits manage their books and stay compliant.

👉 Proficiency with Nonprofit Software: Your consultant should be well-versed in the software you’ve chosen. This will ensure smooth integration and save time and money on additional training. If you’re still deciding on software, an experienced advisor can help recommend the best solution based on your specific needs.

Step 4. Set Up and Organize Your Chart of Accounts (COA)

Now that you have chosen the right bookkeeping software, it’s time to organize your finances through a Chart of Accounts (COA). Your COA is like the blueprint that structures all your nonprofit’s financial activity. It serves as the foundation for accurate tracking and reporting, ensuring that every transaction — whether it’s a donation, grant, or program expense — is categorized correctly.

Think of your COA as a roadmap that categorizes your nonprofit’s:

Income: Grants, donations, membership dues, and other revenue streams.

Expenses: Program costs, salaries, administrative fees, and fundraising expenses.

Assets and Liabilities: What your nonprofit owns (like cash or equipment) and what it owes (such as loans or unpaid bills).

A well-organized COA ensures that all transactions are easy to follow, and it’s particularly crucial when managing restricted funds. Restricted donations — funds earmarked for specific purposes — must be tracked separately from unrestricted funds. Properly categorizing these transactions prevents mismanagement and ensures compliance with donor requirements.

Step 5. Develop a System for Tracking Donations

Donations are the lifeblood of most nonprofits, and tracking them accurately is critical for maintaining trust with donors and compliance with tax laws. You need to ensure that donations — whether cash, in-kind, or grants — are properly recorded, especially when there are restrictions on how the funds can be used.

Key aspects of donation tracking include:

Donor records: Who gave what, when, and how.

Donation types: Cash vs. in-kind, and tax-deductibility.

Tax receipts: Ensuring your donors receive proper documentation for their contributions.

Why this matters: Failing to track donations properly can lead to mistrust from donors, audit issues, and legal problems. Since donations make up a significant portion of nonprofit income, setting up a reliable system early ensures you avoid any financial mismanagement.

Step 6. Create a Budget and Regularly Compare it to Your Actual Finances

Once donations are rolling in and expenses are being tracked, your next major task is budgeting. Budgets allow you to plan for the future and make sure your spending aligns with your nonprofit’s mission.

Your budget should break down into two main categories:

Expected income: This includes donations, grants, fundraising, and membership fees. Be realistic here — base your projections on past performance and any new opportunities you’re expecting.

Planned expenses: These cover everything from program costs to administrative fees (like office supplies, rent, and utilities), and salaries for your team.

But here’s the catch: your budget isn’t a “set it and forget it” kind of thing. As the year progresses, compare your actual numbers to what you planned. This helps you identify where you’re overspending or underspending, giving you the chance to make adjustments.

Also, make sure you’re considering fixed expenses (like rent or salaries, which stay the same) and variable expenses (like event costs, which can fluctuate). Understanding these will help you identify areas where you can cut back or allocate more when needed.

doola’s Pro Tip: Make it a habit to review your budget monthly or quarterly, rather than waiting until the end of the year. This keeps you proactive and avoids any last-minute financial scrambles. You can also involve your board in the process — getting their input can provide new perspectives on where to allocate resources.

Streamline Your Bookkeeping With doola

Bookkeeping for nonprofits can be more nuanced than it is for traditional businesses, especially when managing restricted funds or tracking grants. 

But worry, we are here to help.

doola offers specialized bookkeeping services designed for nonprofits, ensuring that your organization complies with all necessary regulations while keeping your financial records accurate and up-to-date. 

By handing off the number-crunching to us, you will be able to free up time to focus on your nonprofit’s mission and impact, knowing that your finances are in good hands.

If you ever find yourself feeling bogged down by the bookkeeping and tax filing process, doola can provide the expertise and support to navigate these complexities with ease. 

With our experts’ help, you can ensure your books are managed effectively, leaving you free to make a positive impact in your community.

Book a free consultation with us today, and let’s figure out the best way to handle your taxes, books, or even your business bank accounts.