Nonprofits have the unique requirement of needing to report on functional expenses, or more specifically, how your spending is split between a management/general/administrative purpose, fundraising needs, and direct benefits to your program/s. One might think you could just run a Statement of Activity (also known as the Income Statement or Profit and Loss in the for-profit world) at the end of the year, take the expense category totals, and split them across some determined percentages. But, that’s not very accurate and you won’t have a good eye on your spending within these functions throughout the year. Luckily, QuickBooks Online has a handy feature for making this kind of tracking easier: classes. So while you’re busy categorizing transactions in your accounting software – a little Postage & Shipping here, some Program Supplies there – you are also assigning a Management & General, Fundraising, or Program class based on the purpose of that expense. And what if your organization has multiple programs? Create subclasses under the parent Program class, so you’ll have good oversight on the spending of individual programs along with all of them combined.
Some expenses are super straightforward – the emcee at your fundraising event clearly falls into the Fundraising class, and the clothes purchased for the people you serve are clearly a Program cost – but what about the rent and utility payments for your organization’s facility? Or your payroll expenses when your employees are sometimes doing administrative work, sometimes applying for grants or planning a fundraiser, and sometimes directly carrying out the nonprofit’s mission? There are a few methods to assign functions to overhead costs (which might be a topic for another day!) and it’s important for your organization to determine how they’ll be split, but the class feature in QuickBooks Online can still work for this. An individual expense can be split across multiple classes!
Accounting software provides so many solutions for the complexities of nonprofit financial tracking, but it can be tricky to figure out how best to use it. Classes aren’t just for schools, they’re for educating (see what I did there?) the key players in your nonprofit on the functional spending of your organization.
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