Basic Financial Concepts

I am not an accountant. If you're not trained as an accountant and you need some basic background on accounting principles and terminology, Nonprofit Accounting Basics and Accounting Coach are excellent resources for beginners. Propel Nonprofits offers some useful information on their website. For starters, you might want to check out their list of topics.

A nonprofits operate as a business. You’re “in business” to make some sort of positive impact on the world, and you want to stay in business for as long as you can. So finances are of central concern to your organization’s survival.

The following are what I consider to be essential financial topics for nonprofits.

The Nonprofit Model

Nonprofit finances don’t differ all that much from for-profit finances. The chief difference is that nonprofits don’t distribute any part of profit to shareholders. UpCounsel offers a simple explanation of nonprofits’ treatment of profit here.


In order to spend money to do its work, the nonprofit business must raise money. I expand on this subject at About Revenue.


In order to stay in operation, you need to keep close track of all the money that you spend. This is critical to appropriately matching expense to revenue, and it’s also necessary in order to accurately report your expenses to donors and tax authorities.

Expenses and Revenue have a particularly interesting relationship in the cost-reimbursable grant environment. Begin exploring this in the topic About Expenses.

Operating Reserves

There’s not much I have to say about operating reserves other than that everybody needs them. Propel Nonprofits offers a great review of the topic here.

Cost Accounting

Properly accounting for costs is key to obtaining reimbursement and thus optimizing that revenue stream. I go into some depth on this topic at About Cost Accounting.

If you need background before diving in, PropelNonprofits offers these primers:

  • A very basic but useful video here; and
  • A more detailed introduction to using cost accounting to understand total program costs (which they call “true program costs”) here.
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