Just about everyone recognizes the challenges and difficulties running a for-profit business, but running a not-for-profit can be just as challenging, if not more so. Many individuals have come to rely – in some way, shape, or form – on non-profits and the endless benefits they provide to the communities they serve.

Managing a not-for-profit, regardless of size, is very difficult. Accurate financial reporting and record keeping are necessities with not-for-profits. However, managers often are ineffective and inefficient at these tasks. While it’s challenging to stay current with constantly changing compliance requirements for not-for-profits, and the increasingly complex accounting standards, the reporting requirements are slightly relaxed compared to for-profit entities. The Financial Accounting Standards Board (FASB) has an Accounting Standards Codification (ASC) with requirements and guidance specific to not-for-profit financial statement presentation. Incidentally, FASB is the designated organization for establishing standards of financial accounting that governs the preparation of financial reports by nongovernmental organizations.

This is not to say the relaxed regulation will free up endless hours. There is still an incredible amount of reporting required by not-for-profits. Given this, how can not-for-profits provide the information required while simultaneously keeping them easily understood and brief?

When audited financial statements are presented to a not-for-profit’s Board, there frequently is confusion. Why would a Board, made up of a variety of industry professionals, feel confused reviewing the organization’s financial statements? This is because audited financial statements usually are presented under U.S. Generally Accepted Accounting Principles (GAAP), while internal numbers are recorded using other methods. All year, internal results are presented to the Board with certain expectations, which are contradicted at year end when accrual, depreciation, and other GAAP adjustments are made to the books. To avoid this confusion – and avoid keeping up with two sets of financial records – maintain uniformity with both accounting and reporting documents.

As a result of the economic recession and a number of scandals that surfaced, transparency quickly became the top priority for many non-profits. In an effort to be transparent, non-profits end up disclosing too much information in the financial statements. A sixty page financial package, redundant disclosures, and pages of numbers ten columns wide, which require a magnifying glass to read, are just too much. While transparency continues to be important for organizations, make it a goal for 2016 to remove items that are simply not needed.

Below are a few suggestions that will simplify financial statements:

1. Go through financial statement line items and consolidate immaterial items.

Generally, if it’s less than one percent of the total, combine all items into one miscellaneous category.

2. Look at what is being disclosed.

If not required, is there significance to the users of the statements? Include information donors and lenders want and remove irrelevant information, particularly if it isn’t applicable to the current reporting period. Also remember to avoid the use of jargon – which can confuse donors – and remove any duplicate information from the financial statements.

3. Compare financial statements to similar organizations.

Find a not-for-profit with similar operations and see if their presentation is in a better format or more concise.

While reporting requirements are not as extensive for not-for-profits, they are still complex and transparency still remains a priority. Further, the FASB is working on various not-for-profit financial statement projects to further improve reporting clarity. Not-for-profits are encouraged to consult their CPA, the FASB ASC, or the AICPA Audit and Accounting Guide for Not-for-Profit Entities to ensure they are in line with the requirements and start the new year off on the right foot.

The new not-for-profit mantra: Keep It Simple!