Accounting for churches and nonprofits is a whole different ballgame than commercial accounting. The accounting profession is a product of the business world, and businesses are in it to make money. On the other hand, nonprofits and churches exist to serve individuals and society.
Nonprofit organizations have one primary responsibility: to spend as little money as possible while still fulfilling their mission. This can sound like common sense, but it’s easy for an organization to take too much risk if they’re not careful! In contrast, churches want to maximize donations while still providing excellent service so that they may invest more in ministries than missions. Here are the differences between nonprofits and churches:
1. Hiring procedures
Hiring the most qualified person in a for-profit business is often a priority. Since nonprofits and churches don’t have to make money, they have the freedom of hiring based on character more than skill. So even if a church knows it’s going to be challenging to train someone for the job, they’re still going to consider whether or not that person is honest and dependable.
This impacts how an accountant may view the employees on payroll. It’s best practice to look at an employee’s cost and their revenue. In sales for instance, it may be what their salary is and how much product they move. In a nonprofit like a church however, an accountant needs to measure the employee’s salary against their impact.
It might seem like nonprofits and churches would spend very little on expenses – after all, how much does it cost to buy shared goods or an electric bill? However, many nonprofits are required by law to spend a certain amount of money on administrative costs, such as legal advice, accounting fees, and insurance. In general, churches spend more than nonprofits in this area because they need to keep the lights on and pay for staff.
In a for-profit business, money can be invested where it will produce the most return. In nonprofits and churches, the investment of funds is carefully considered. It’s essential to consider the returns since it’s not always about making a profit.
The priority of most nonprofits is to put money into their missions rather than invest in a trade or other enterprise that might not have a long-term value. In an ideal world, a nonprofit would invest in something that produces income and benefits its mission. For example, a church might invest in a retirement system that increases the value of its assets while providing security for its congregation.
4. Incentives for donations
In nonprofits and churches, incentives for donating are usually spiritual or social rather than financial. Many people want to contribute to helping the world be a better place, even if they aren’t expecting anything in return. To encourage donations, churches and nonprofits often offer complimentary coffee or parking or even provide services for no charge. Incentives can also be social. For example, a church might want to host a unique program if it can raise a certain amount of money.
Even though nonprofits and churches are technically in the same business, they’re legal entities and have very different responsibilities. Nonprofits and churches need to work with accounting professionals. Accountants can help nonprofit organizations and churches manage their money well, even if they don’t need to worry about making a profit.