How to Set Up a Basic Bookkeeping System for Your Small Ferret Shelter
By L. Vanessa Gruden
Have no fear! No one needs to be an accountant or have advanced math skills to keep a set of accounts. Bookkeeping is simple, easy and common sense. With the steps in this article and a little organization skills, you too can produce income and expense numbers that look professional. Understanding where your money comes from and where it goes is the only way to run any business – and you DO realize a nonprofit shelter is a business, right? Don’t pay for an expensive accountant when you can accomplish so much yourself with a little work and a calculator!
So you’re a little, home-based shelter helping ferrets. Most of the money comes out of your own pocket. What’s the point of keeping all these financial records?
Well, maybe a wonderful donor comes along who wants to give you a lot of money. Suddenly, you’re a BIGGER shelter and if you can’t account for that dough, you can run afoul of state or federal charity laws. Or maybe someone is interested in giving you money but, as a sensible giver, wants to know how you spend the money you have already. Maybe someday your shelter will grow. When it does, having a system already established will make growth much easier. And if you DO choose to apply for formal nonprofit status, you’ll need to have financial info for past years for the IRS. Finally, it’s just good stewardship. It means your rescue isn’t run by amateurs and you don’t mix your personal money with that of the animals.
I Don’t Want to Learn Accounting Software!
You don’t HAVE to! While for larger shelters, utilizing software like Quickbooks can really help when it’s time to produce reports, you don’t have to start at that advanced a level. Accounts can be kept in on old-fashioned columnar pads of paper. “Huh?” Go wander the aisles at your local office supply store. You’ll find pads with rows and columns, almost always green-tinted. These are the rotary phone of bookkeeping systems, but if you still have a rotary phone, you know it still has some advantages. Like, when the power goes out, it still works! FACT has an annual budget over $50,000 but I STILL use a column book to record daily transactions. My computer isn’t always on and I forget easily! It’s really fast to note the transaction in my book, then at the end of the month, transfer the monthly totals into my software.
If you’re a little more computer-savvy, you can also use Excel as a base to create your accounts. Excel, at its core, is just a computerized columnar pad. The other item you need is some manila envelopes to keep your receipts and bank statements in – depending on your size, you can store these important backup materials quarterly or monthly.
I Already Have a Separate Checking Account
That’s where you START, but it’s not the end. A checking account can tell you how much money was deposited and who you wrote checks to, but it doesn’t tell anyone WHY you wrote that check. And in accounting, the why is far more important. Nor does it tell anyone where income came from. Did someone donate? Did you earn money from an event? How about if you, like many groups, sell products to raise money? How can you know if you are making any profit on those sales if you don’t know what they cost you to buy or make?
Accounting for expenditures is vital. Lacking that, you’ll never know how much money needed to run the shelter. Providing backup that shows people actual shelter costs can help you raise money. Smart donors appreciate “transparency:” honest, open shelter finances. If all you say is that your checkbook is negative, how do they know money wasn’t spent on a hot tub for YOU?
Keeping track of shelter expenses also helps you manage the shelter’s money. If your vet bills, for instance, are going up & up but you took in LESS ferrets this year, that’s something to investigate. Maybe your vet has raised rates and it’s time to do a little discount negotiating! If cleaning costs are getting high, this might be a time to put out a call for paper towels on your shelter “wish list.”
For the IRS, especially, to obtain nonprofit status you need to document where the income originated. They want to know you are “publicly supported” – in other words, that other people are giving you donations and it’s not just your own money supporting the shelter. If it’s all your own, you can’t earn that all-important 501(c)(3) designation – that’s the one that makes donations eligible for tax deductions and for tax exemptions from sales and corporate taxes.
Even if you doubt you will ever be large enough to become a formal charity, without financial info you cut yourself off from potentially merging or being administered by one. And there can be significant tax advantages to YOU…if you operate under the fiscal sponsorship of another 501(c)(3), you’ll potentially be able to deduct expenses you pay for the shelter. But they will need to have detailed finances in order to satisfy their reporting requirements.
Where to Begin
Start by making a couple lists. One will be all your sources of income. Call it revenue, earnings, whatever, it’s the money coming into the shelter. Here’s a sample:
- Adoption/Surrender fees
- Sales of products
You can always add more categories later on; these are basics. If you are curious to know how much you take in just for surrenders, then keep that category separate. If you do boarding, make a category for that. If you sell used cages and your state has a sales tax, keep that income separate from sales of new items. Some states don’t charge sales tax on used items – ask your local thrift store, if you don’t know. You might have a sponsor program for hospice or special needs ferrets and want to track that money. While it’s still donations, it’s a subset of donations and this system makes it super easy to keep track of them.
Next is your list of costs, or expenses. This list is nearly always longer than the income one! Some examples, in no particular order:
- Veterinary or medicine costs
- Ferret Food
- Cleaning Supplies (litter, paper towels, or detergent)
- Office Supplies (keep these separate from cleaning supplies. These usually aren’t all for the animals, and you may need to tell a donor how much money goes directly to the ferrets)
- Shelter supplies (cages, bedding, or toys)
- Utilities (electric, water, telephone) While you probably don’t have a separate electric bill for the shelter, it could be possible to assign a portion of yours to shelter costs. I consider internet access charges a utility, too.
- Rent, if any
- Salaries or fees paid to professionals such as an accountant
- Inventory or fundraising materials if you buy or make things to resell
- Miscellaneous – for whatever isn’t categorized elsewhere or things that are one-time expenses
Note: You CAN enter goods you buy for resale as a negative number in your Sales income category. However, be aware if you have to complete IRS forms in the future, they ask you keep them separate.
Now, write each of the categories you decide to use across the top of your columns, either in an Excel spreadsheet or on a paper pad. One side will be “Income” and the other will be “Expenses.”
When a donation arrives, you can write the donor’s name in the bigger, description column, then write the amount under the column that says “Donations.” Now you have a record of who gave you money, what for, if you’re using subsets, and how much they gave.
Expenditures are more fun, and here’s where you’ll see the advantage of using this system rather than relying on your checkbook entries. Say you went to WalMart and bought litter, cleanser, some fabric to make hammocks to sell, and a really cute cat condo for the furries to play in. What you spent on the first two go into the Cleaning Supplies column. The fabric goes into Inventory. And the condo goes into Shelter Supplies. (Don’t forget to add in the sales tax on each, if you pay in your state.) Of course, if you added a big stress-relieving candy bar for yourself, that’s YOURS and shouldn’t be charged to the shelter, no matter how tempting! (Note: you don’t have to detail the expense on the description line, I’m just doing that for illustrative purposes. But you SHOULD scribble on the receipt what you bought, if it isn’t obvious.)
Here’s an example:
See how easy? Here you have all the details you will ever need to show exactly where your money comes from and where it goes. Excel will do the math for you, but it’s just basic addition & subtraction.
At the end of the year, add up the totals for each column and you can produce a report like this:
How cool does this look? You can hand this to any donor and they can see where their money goes. A report like this is also acceptable to most foundations. Only larger organizations (the rules depend on your state and income level) need to have a financial statement prepared by an accountant. Take a free library or adult ed course at your high school on Excel and they can teach you how to turn this into visual charts, too. Got a puffy tail yet?
Here’s some final hints & tips:
- No, a nonprofit does NOT have to spend every penny at the end of the year! You technically hold your surplus (positive balance) as “reserve funds.” That means you keep that money for the times – and it’s far more often – when expenses exceed income and your year-end balance is negative.
- Try to have a receipt for EVERYTHING you spend. The IRS loves receipts. Even large nonprofits are fanatic about having backup for each expense. It can be a sales receipt, ebay purchase confirmation, or at least a completed Petty Cash slip. You can find Petty Cash booklets at any office supply store.
- Use those manila envelopes for the receipts and financial information, like bank statements. There’s nothing that makes an accountant’s heart sing like someone walking in with a shoe box stuffed with slips of paper. They will be charging you – by the hour – to organize them!
- You should absolutely be entering the cash you yourself give to the shelter. The IRS wants to know how much you are contributing and if you become a 501(c)(3) nonprofit, those amounts are eligible to be deducted on your personal taxes.
- If you – or anyone else! – purchased a new cage for $100 for the shelter, enter an Income item for a $100 donation, then a $100 expense for Shelter Supplies. Yes, they offset each other and the net is zero. BUT these numbers should be documented AND the donor given a receipt. And if you don’t include that cage in the Expense column, you really don’t have a true picture of the cost of running the shelter, do you?
- Now, the above rule changes if someone gave you a — USED cage. Like giving clothing to a thrift store, a donor is only able to deduct what the IRS calls the “thrift store value” of the items. YOU should not offer the donor an estimate of the value. You ONLY give them a receipt that says they donated a used cage. It’s up to them to determine values. One big hint – Goodwill (www.goodwill.org) has a downloadable list of common resale values on their website, so you can direct people there (look for the link to Taxes & Your Donation). Don’t enter used item gifts into your accounts; again, YOU are not supposed to be speculating on their value. I just enter the amount when they are sold as “used item sales.”
- Can you give someone a receipt for a donation if they adopt a ferret? I tell people they are free to try to deduct the adoption fee if they like, as the IRS has never ruled on what a used ferret is worth. J But I don’t give them an actual donation receipt.
- In the same way that you accounted for that cage in the example above, if you have Foster or Hospice volunteers housing ferrets, they should give you receipts for things they bought for the shelter ferrets or vet costs they paid for. Again, you enter the total as a donation and break down the costs into your Expense categories. The IRS ruled several years ago that expenses put out for the use of a nonprofit charity – the suit was brought by a lady lawyer who fostered for a cat shelter and spent thousands for the kitties – WAS deductible AS LONG AS THE GIVER HAD RECEIPTS FOR ALL EXPENSES AND A RECEIPT FROM THE CHARITY. This can be a great benefit for those helping care for ferrets in their home and is especially important if you don’t have a physical shelter but are a network of caregivers.
- You should add up all shelter funds: checkbook, cash, and savings account at the end of the month and compare them to your ongoing “book” balance. If, like FACT, you have money flying in & out from various activities, you may find it doesn’t balance exactly. I used to go nuts trying to figure it out but it always seemed that we had a little more than we were supposed to. Now I just note the difference each month and at the end of the year, enter the excess as a donation. As long as it’s not a lot of $, just make that adjustment and spare yourself some grief!
In a future article, I plan to describe the process of allocating costs to different programs. It will be easier than you think, especially once you’ve mastered