Using Xero for Non-Profits: A Guide

Non-profit organizations likely agree that financial management can be challenging with generic accounting software.

Luckily, Xero offers customizable features tailored to the unique needs of charitable organizations.

In this post, we'll explore how non-profits can leverage Xero's flexibility, from customizing charts of accounts to enhancing donation management through app integrations, to streamline accounting and financial reporting.

Introduction to Non-Profit Financial Management with Xero

Xero is a popular cloud-based accounting software that is gaining traction among non-profit organizations. With features like anywhere access, automation, and customization, Xero makes financial management easier for charities and non-profits.

Exploring Xero for Non-Profits

Xero is an affordable and user-friendly accounting platform designed for small businesses and non-profits. Key features like multi-user access, bank feeds, invoicing, expense claims, and fixed assets management allow charitable organizations to manage their finances and reporting in one place.

Xero offers customized pricing plans for non-profits to fit different budgets. The software also has an App Store with over 1,000 apps that can extend functionality for specific organizational needs.

The Advantages of Xero Accounting Software for Charitable Organizations

There are several reasons why Xero works well for managing non-profit finances:

• Cost-Effective Pricing: Xero offers discounted non-profit pricing plans with basic features covered to reduce software costs.
• Collaboration: With Xero, multiple users can access reports and financial data from any device or location. This facilitates collaboration between remote teams.
• Automated Processes: Features like bank feeds, recurring invoices/bills, and scheduled reporting reduce manual work for non-profit accounting teams.
• Customization: Non-profits can connect Xero to other apps to track data like donations, grants, programs, etc. Custom reports and dashboards provide data visualizations.
• Compliance: Xero enables non-profits to follow accounting best practices and standards for charitable organizations related to transparency, reporting, etc.

With robust features tailored to non-profits, Xero simplifies financial processes for charitable organizations so they can focus on their mission.

Is Xero good for nonprofits?

Xero is an excellent accounting software for nonprofits and charities. It is designed to help these organizations efficiently manage their finances and reporting.

Some key benefits of Xero for nonprofits include:

• Customized dashboards and reports: Xero allows you to create tailored dashboards and financial reports to track metrics important for your nonprofit. This includes reports for tracking grants, donations, expenses by program, etc.
• Integration with other apps: There is a whole Xero App Store where you can connect Xero to other tools nonprofits use like donation, fundraising, payroll apps and more. This simplifies workflows.
• Multi-currency support: Xero enables nonprofits to track global donations and expenses across multiple currencies. This is useful for international nonprofits.
• Automations and workflows: You can set up workflows in Xero to streamline expense approvals, invoice reminders, bill payments and more. This saves time and effort.
• Access controls: Xero has robust controls to restrict access for different users. You can limit access to sensitive financial data.
• Affordable pricing: Xero offers discounted pricing for registered charities and nonprofits. Extra user licenses are also discounted.

Overall, Xero provides an affordable, full-featured platform for managing nonprofit finances and accounting in an efficient, transparent manner. The customization and integration capabilities make it suitable for diverse charitable organizations.

How to set up an accounting system for a nonprofit organization?

Setting up an accounting system for a nonprofit organization involves several key steps:

Choose accounting software that meets your needs

When choosing accounting software, look for a platform designed specifically for nonprofits. Key features to consider include:

• Customizable chart of accounts and financial statements tailored to nonprofit reporting standards
• Integration with donation management and fundraising software
• Budgeting and forecasting tools
• Grant management capabilities

Popular options like QuickBooks and Xero offer nonprofit-specific editions. Alternatively, software like Aplos and Intacct are built solely for nonprofits. Consider free trials to test different software.

Create a chart of accounts

Your chart of accounts is essentially a list of all the accounts you need to track finances. Be sure to include categories for:

• Tracking restricted vs. unrestricted funding
• Separating program expenses from administrative costs
• Recording temporarily restricted assets like grants and donations

Consult standards like FASB to ensure your chart of accounts facilitates accurate nonprofit financial statements.

Choose cash or accrual accounting

Cash basis recognizes revenue and expenses when money changes hands. Accrual accounts for money owed or owing. Accrual is preferred for transparency into long-term financial health.

Learn nonprofit financial statements

Key nonprofit financial reports include the Statement of Financial Position, Statement of Activities, Statement of Cash Flows, and Statement of Functional Expenses. Understanding these statements will help you configure your accounting software and financial processes appropriately from the start.

Following these steps will put the building blocks in place for maintaining updated, accurate financial records critical for nonprofit management and fundraising. Revisit and refine periodically as your organization evolves.

What is the format for accounting for a non profit organization?

Nonprofit accounting relies on using the statement of financial position (balance sheet), statement of activities (income statement), and cash flow statement. The statement of financial position provides a snapshot of the financial health of a nonprofit at a specific point in time by listing its assets, liabilities, and net assets.

The key elements of nonprofit accounting format include:

• Statement of Financial Position: Lists assets, liabilities, and net assets at a point in time. This allows nonprofits to evaluate their financial position.
• Statement of Activities: Shows income and expenses, categorized between unrestricted, temporarily restricted, and permanently restricted. This allows nonprofits to evaluate their performance.
• Statement of Cash Flows: Shows the sources and uses of cash to explain change in cash balances. This allows nonprofits to evaluate their liquidity.
• Statement of Functional Expenses: Breaks down expenses by program and supporting services. This allows nonprofits to evaluate how funds are spent.

Nonprofits follow the accounting framework provided by the Financial Accounting Standards Board (FASB) to ensure consistency and transparency in financial reporting. Proper nonprofit accounting format is essential for stewardship, grant compliance, and decision making.

Using Xero's customization features, nonprofits can tailor their accounting software to track information needed for financial statements and reporting tailored to their mission and programs. This helps streamline accounting and provide stakeholders with relevant financials.

How do I customize profit and loss in Xero?

To customize the Profit and Loss report in Xero, you need to log in to the web version and access the report settings. Here are the key steps:

Access Report Settings

• Log in to Xero and navigate to Reports > Profit and Loss
• Click on Settings at the top right of the report

Customize Report Timeframe

• Use the date range filters to view profit and loss for custom periods like last quarter or last year
• Compare time periods side-by-side

Filter by Tracking Categories

• Apply filters for categories like Customer, Project, or Region to analyze performance
• View breakdowns by different segments of your business

Add and Remove Accounts

• Customize the accounts shown in the report under "Accounts to show"
• Hide accounts not relevant to your analysis

Change Report Basis

• Switch between Accrual and Cash basis accounting
• Accrual basis is generally preferred for profitability analysis

Save Customized Report

• Name and save your customized report to easily access again later
• Set as default to apply settings across your Xero reporting

The key is using the Settings to filter accounts, time periods, and tracking dimensions so you can generate a Profit and Loss report tailored specifically to your business analysis needs. This allows you to visualize performance and profitability from different angles.

Customizing Xero for Charitable Organizations

Xero offers powerful customization options that allow non-profit organizations to tailor the software to their unique needs. By setting up custom accounts, categories, and reports, charities can gain better visibility into their financial data and streamline reporting.

Dashboard Customization for Non-Profits

The Xero dashboard can be customized to highlight the key metrics most relevant for non-profits. Here are some tips:

• Create tracking accounts for donations, grants, programs, events etc. Use tags and descriptions to categorize transactions.
• Add graphs tracking donation amounts over time or program expenses vs budget.
• Build KPI widgets tracking things like fundraising costs percentage or donor retention rate.
• Use favorites to pin frequently accessed reports. Color code accounts for quick assessment.

Focusing the dashboard this way enables staff to quickly monitor financial performance specific to the non-profit's operations.

Setting Up Custom Accounts for Non-Profit Organization Accounting

Non-profits have unique accounting needs around fund and grant tracking. In Xero, you can:

• Set up separate bank accounts to segregate restricted funds.
• Create custom general ledger accounts with clear names like "Donations - Annual Fund" or "Grant - Literacy Program".
• Use account codes effectively to filter in reporting. For example, code all literacy program accounts with "204".

Categorizing transactions this way provides the transparency needed for non-profit financial reporting.

Utilizing Visualization Tools for Charities in Xero

Xero offers several ways for non-profits to visualize their financial data:

• Use reporting tags to label transactions for inclusion in reports. For example, tag all gala transactions across accounts.
• Build reports filtered by accounts, categories or tags to provide snapshot into subsets of transactions.
• Customize the chart of accounts and code transactions in ways that enable better reporting.
• Use tracking accounts and segmenting categorization to track data like capital campaign donations or expenses by program.

By leveraging Xero's customization and reporting features, non-profits can build financial reports tailored to their performance metrics and donor reporting needs.

Adhering to Accounting Standards for Nonprofits

Nonprofit organizations have specific accounting and financial reporting requirements they must adhere to in order to maintain their tax-exempt status. Using accounting software like Xero that is customized for nonprofits can help streamline compliance.

Preparing Financial Statements with Nonprofit Accounting Systems

Xero offers nonprofit-specific features to help charitable organizations generate financial statements tailored to industry standards:

• The statement of financial position provides a snapshot of assets, liabilities, and net assets at a point in time. Xero automatically categorizes balances into unrestricted, temporarily restricted, and permanently restricted classes as needed.
• The statement of activities tracks income and expenses, highlighting any changes in net assets over a period. Revenue and support are shown by source and expenses are categorized by function.
• The statement of cash flows details the inflows and outflows of cash. This helps nonprofits evaluate their liquidity and better manage their cash position.

By leveraging Xero's custom nonprofit reports and visualizations, leadership can monitor performance versus budgets and dig deeper into financial data to guide strategic decisions.

Streamlining Tax Reporting for Nonprofits

As tax-exempt organizations, nonprofits must file annual information returns with the IRS such as the Form 990. Xero simplifies the filing process by:

• Automatically tracking income by source (contributions, grants, program services fees, etc.) and functional expenses based on custom categories.
• Generating reports detailing the necessary information needed to complete IRS filings accurately and avoiding manual data compilation.
• Integrating with external apps to simplify the 990 preparation process without having to export and manipulate data.

With Xero's nonprofit-tailored features, charitable organizations can focus on their mission rather than wrestling with accounting busywork and compliance. The system output adheres to nonprofit accounting standards, facilitating accurate reporting.

Leveraging the Xero App Store for Non-Profit Enhancements

Xero offers a wide range of integrations and add-ons through its App Store that can be invaluable for non-profits looking to enhance their financial management capabilities.

Enhancing Payment Processing for Donations

The Xero App Store provides access to various payment gateways like Stripe, PayPal, and Authorize.Net to help non-profits easily accept online donations. Key benefits include:

• Seamless integration between the payment gateway and Xero to automatically record transactions
• Ability to accept recurring donations for regular giving programs
• Mobile and email-based payment collection through customizable online forms
• Reduced processing fees negotiated by Xero to maximize donation amounts

By leveraging these integrated payment gateways, non-profits can provide supporters with flexible options to donate while streamlining financial reconciliation.

Optimizing Donor Management with Xero Integrations

In addition to payment processing, Xero integrates with many popular CRMs and fundraising systems like Salesforce, Kindful, and DonorPerfect. These solutions help non-profits:

• Maintain comprehensive donor profiles with full giving history
• Send targeted appeals based on past donations and interests
• Track relationships and interactions across engagement channels
• Gain insights to improve donor retention and upgrade giving

Connecting Xero with specialized non-profit software enhances how charitable organizations manage donors, helping them deepen supporter relationships and improve fundraising outcomes.

With the range of available integrations, the Xero App Store enables non-profits to customize their financial platform to best suit their operational needs. Streamlining critical functions like payment processing and donor management saves non-profits time while optimizing organizational efficiency.

Conclusion: Embracing Xero for Non-Profit Success

Recapping the Benefits of Xero Features for Non-Profits

Xero provides many helpful features for non-profits to improve their financial management and reporting. Key benefits covered in this article include:

• Customized dashboards to track KPIs and metrics important to your charity
• Integration with other systems through the Xero App Store
• Robust reporting tools and visualizations to simplify financial reporting
• Standards and best practices built-in based on accounting standards for non-profits
• Automations and workflows to save time on administrative tasks

By embracing these features, non-profits can focus more on their mission instead of financial paperwork.

Actionable Steps for Non-Profit Financial Reporting with Xero

Here are some tips to get started with Xero based on your charity's size and needs:

Small Non-Profits

• Start with the Xero nonprofit starter plan for core accounting features
• Set up custom tracking for 3-5 KPIs important to your organization
• Build executive and board member dashboards for financial insights

Mid-Size and Large Non-Profits

• Leverage Xero's automation tools to eliminate repetitive administrative workflows
• Connect Xero to other systems like CRMs, inventory software, etc. to unify financial data
• Build tailored visualizations and advanced reporting for stakeholders

Regardless of size, the Xero App Store has many affordable tools to customize for your charity's specific requirements. Their implementation specialists can also advise non-profits on selecting the best features and plan for their needs.

By taking advantage of Xero's nonprofit-focused features, charities can transform how they track, report on, and communicate their financial situation to better achieve their mission.

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