Opening a bank account is one of the first steps in setting up your nonprofit organization. The process may seem overwhelming, but it doesn't need to be. In this article, we will discuss some things you should know before opening an account at a bank. We'll also cover some financial control recommendations for small nonprofits.
Organizations, whether they are for-profit or not-for-profit, need to register with the state and receive an EIN (Employer Identification Number) from the Internal Revenue Service (IRS). An EIN is similar to a social security number, but it's for businesses and nonprofit organizations rather than individuals. A nonprofit organization provides this EIN and the state tax ID number to its bank. Then they can open a bank account the same way any other business does.
Once you've completed the steps to open a bank account, your nonprofit organization can deposit funds from its other accounts or on an ongoing basis by scheduling recurring transfers from its checking account or using electronic banking services.
It is also important to be aware of any transaction fees that will apply to your banking service. You may want to consider these before choosing which type of arrangement best suits your nonprofit organization before you open an account.
It's crucial to have appropriate controls to restrict who has access to your nonprofit organization's bank account.
Even if your organization only hires a few staff members, it's beneficial to have a reliable treasurer to oversee your accounts. The treasurer of your nonprofit is generally on your board of directors and oversees the organization's finances.
You should make it a point to audit your bank account on an annual basis. This will help you determine if there are any discrepancies or mistakes that need to be addressed immediately.
If you use accounting software for your bookkeeping, make sure the bank account is linked. This will allow you to easily track the funds that go in and out of your nonprofit's account.
The nonprofit must also create a fiscal year budget that includes income from all sources, including expenses for goods and services. This can be done manually or with an accounting system like Aplos.
Though opening a bank account can be an exciting step in the journey of founding your nonprofit, it's important to do significant research before making a decision. You want to make sure your goals align well with those of the bank and that it has excellent customer service.
When you open an account, you'll want to be sure that it's at a bank that can handle all aspects of banking needs without costing too much money or requiring extra fees. You also want one with great customer service and well-trained staff members who know how nonprofits work.
Smaller banks and credit unions, such as regional ones with a local customer base, can be ideal banks for nonprofit organizations that want to continue giving back to their community in ways that go beyond their primary cause.
Large banks have many advantages as well. They are often more likely to offer services that your nonprofit needs, so don't rule them out just because they may seem impersonal or distant.
This article is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.