End Hunger in AmericaBefore you can begin to raise the funds you need to operate or expand your soup kitchen, there are three main financial management tools you will need to put in place to help you to be good stewards of donations and expenditures and to execute your mission in a fiscally responsible and transparent manner:
- An accounting system that tracks your income and expenses
- A budget that reflects your priorities and projects income and expenses
- Policies and procedures that provide for strong financial controls
As a nonprofit organization, your budget and IRS Tax Form 990 are public documents and will be available to be scrutinized by the public and organizations that rate nonprofits.
Accounting System
You will need to put in place an accounting system that is easy to use and accurately tracks income and expenses. Many startup soup kitchens start with a manual bookkeeping system staffed by a volunteer or a part-time bookkeeper. If your agency has a computer, you should consider using a simple accounting system such as Quick-Books for Nonprofits. Computerizing your bookkeeping function will enable you to quickly generate budgets and internal reports.
The holiday season (beginning with Thanksgiving and running to the end of the year), is when most soup kitchens see the bulk of their individual and corporate contributions. It is important to be ready to handle the increased accounting workload during this period. People like to receive their thank you letters very early in the New Year for tax purposes.
It is imperative that you retain a certified public accountant to perform an independent annual audit of your organization’s finances and to produce the annual financial statement and IRS Form 990. Most funders require an audit as a precondition for awarding grants.
It is crucial that the Board take affirmative action with regard to any audit exceptions or recommendations contained in the audit. These are red flags that funders will look at and want to see resolved prior to providing funds.
Budgeting
Your budget is testimony to the degree to which you are adhering to your mission statement and priorities and should be based on a realistic projection of fundraising.
The development of the first draft of the annual budget is generally the responsibility of soup kitchen administrative staff. If the board has a finance committee, it should review the proposed budget prior to submission to the full board for approval. In that case, the presentation to the board should be made by the chair of the finance committee, who may also be the agency treasurer.
It is easier to work on a fiscal year basis (July to June) as opposed to the calendar year; the latter forces the budget process to proceed at the busy holiday time and before you know how much money you raised in your end-of-year campaign.
Expenditures against each line item in the budget should be monitored on a monthly basis by staff and presented to the board at each board meeting by the agency treasurer. If spending or fundraising projections are not met, corrective actions should be instituted.
Financial Control Policies and Procedures
Adequate financial controls depend on checks and balances by multiple individuals. No single individual should have overlapping responsibilities in the oversight of the agency’s finances. For example, the same person should not be in charge of both making sure that hours are correctly logged and writing payroll checks.
In this regard, you should also establish a policy for handling donations of cash and checks. To ensure adequate controls and oversight, two people should be assigned responsibility for the opening and documenting of all monetary donations.
A policy should be established that sets forth the frequency with which bank deposits should be made. Cash and check donations should not be allowed to sit around.
The board should establish a policy as to the size of the financial reserve; that is, what is the minimum balance the board is willing to permit? While some soup kitchens live month to month, a six month’s reserve is generally considered to be the desired minimum. Having a very large reserve could impact fundraising since funders generally want the bulk of their grants to be used for the delivery of services, not for the building of a large reserve.
You should establish a policy for securing multiple estimates for major purchases. This policy should also include significant service contracts such as HVAC, security, pest control, etc. It is generally the responsibility of the board to approve all major contracts with outside vendors and consultants (see Appendix C for a list of typical soup kitchen vendors).
Check signing policies for invoice payments should be established defining who signs and what the threshold is for requiring two signatures. In this regard, you may need to have more than two people authorized in case one person is not available when needed. In addition, a decision should be made regarding the magnitude of purchases that can be made without board approval. The amount will vary depending on the size of the agency budget. For small agencies with operating budgets less than $50,000, purchase limits of $500 might be appropriate. For larger agencies with budgets of $1,000,000 plus, a much higher limit is appropriate.
As the soup kitchen grows, you will need to determine whether the agency will have a credit card and who will be able to use it. Your policy should provide for adequate controls but not hamstring employees from making necessary or emergency purchases.
The board will want to put in place a conflict-of-interest policy which makes it clear that board membership carries no right to preferential treatment in the placement or handling of investments or business accounts.
As mentioned above, as the soup kitchen grows, one of the committees of the board should be a finance committee. Additional committees in the financial area can be an audit committee and an investment committee. These committees can be composed entirely of board members or a combination of board members and experts from the community at large.
Financial Management Tips
TIP #1 – A particular challenge to financial control in a soup kitchen is that of security. It is very important that financial donations be handled in a secure manner away from the patron population. Exacerbating this problem is the fact that most start-up soup kitchens will probably depend on volunteer labor to process donations.
TIP #2 – You should try to get preferred rates or free (pro bono) services from vendors and suppliers. But you should also realize that free is not always better. You must use judgment as to which services you pay for and which you receive pro bono.
TIP #3 – You should attempt to get in-kind donations such as food, furniture, paint, vehicles, file cabinets, and office supplies from local companies. Similarly, your municipality may be a source of free services such as trash removal and security.
TIP #4 – When appropriate and feasible, joint purchasing arrangements with other nonprofits should be explored. However, the cost of storage and dispersal of common staples needs to be considered in determining the benefits of such arrangements. Administrative costs for managing inventory and distribution can easily become burdensome and costly.
TIP #5 – You should consider establishing a line-of-credit with your bank for major expansion of services, facility renovation or contingencies that may arise.