Managing the financial aspects of a nonprofit corporation is crucial for its success and sustainability. One important decision you’ll need to make as a nonprofit organization is selecting a fiscal year. While the calendar year is the default option, nonprofits have the flexibility to choose a different fiscal year that aligns better with their operations and reporting needs. In this blog post, we will guide you through the considerations and steps involved in selecting the most suitable fiscal year for your nonprofit.
Considerations and Steps in Selecting the Fiscal Year for Your Nonprofit
1. Understand the Basics.
A fiscal year is a 12-month period used for financial reporting and budgeting purposes. Unlike the calendar year that starts on January 1st and ends on December 31st, a nonprofit’s fiscal year can begin on any date. It’s essential to comprehend the implications and advantages associated with selecting a specific fiscal year.
2. Evaluate Your Operations.
Assess your organization’s activities and determine if they follow a particular pattern or seasonality. For instance, if your nonprofit is focused on education, you might want to align your fiscal year with the academic calendar. Understanding your operational cycle will help you identify a fiscal year that mirrors your organization’s natural flow of activities.
3. Consider Grant Cycles and Funding Sources.
Nonprofits often rely on grants and funding from various sources. Research the grant cycles and reporting requirements of your potential funding sources. Choosing a fiscal year that aligns with these grant cycles can streamline your financial reporting and increase your chances of securing funding. For example, many nonprofits that receiving significant funding from the government choose to align their fiscal year with the government’s fiscal year.Â
Related Read: Funding Regulations
4. Review Reporting and Compliance Requirements.
Understand the reporting and compliance obligations associated with different fiscal year options. Nonprofits must submit annual reports, tax filings, and audited financial statements, which may vary based on the fiscal year chosen. Ensure that your selected fiscal year aligns with these requirements to avoid unnecessary complications.
5. Seek Professional Advice.
Consult with an accountant or financial advisor who specializes in nonprofit organizations. They can provide guidance tailored to your specific circumstances, ensuring compliance with accounting standards and legal regulations. Their expertise will help you navigate the decision-making process and select a fiscal year that maximizes your organization’s financial efficiency.
Choosing the right fiscal year for your nonprofit corporation is a strategic decision that impacts your financial operations and reporting. By evaluating your organization’s activities, considering grant cycles, compliance deadlines, and seeking professional advice, you can make an informed choice. A thoughtfully selected fiscal year will contribute to the efficiency, financial stability, and long-term success of your nonprofit.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.Â