Friday, August 3, 2012

Choosing Your Nonprofit's Fiscal Year

The words "fiscal year" always seem to make an appearance when reading reports about nonprofit finance or accounting. Contrary to popular belief, a fiscal year doesn't just begin when the new year starts; it begins whenever the nonprofit wants it to.

Well, almost.

As explained by Thomas Wolf in "Managing a Nonprofit Organization," a nonprofit's fiscal year can begin at any point during the year as long as its end date is specified in the documents in which it is mentioned. These dates are usually not chosen at random. Whether it's to honor the organization's anniversary or the birthday of a high level executive, fiscal years can have a lot of meaning. As such, great care should be taken in choosing a date.

What makes a good beginning and end to a fiscal year? Wolf laid out three considerations to keep in mind:

  • It should roughly parallel the organization’s program year. That is, one year’s program activities should not fall into two fiscal years.
  • The fiscal year should end, whenever possible, just before a period of relative inactivity.
  • The fiscal year-end may be chosen to coincide with a primary funder’s fiscal year-end and resulting reporting requirements. For example, if a major portion of an organization’s support is from the state government, the nonprofit may select the same fiscal year-end as the state to simplify reporting on state grants.

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