Promoting Financial Stewardship: 4 School Accounting Tips

Your school’s top priority is providing high-quality education to its students. Between all of the activities involved in making this happen—from evaluating your curriculum to securing supplies to keeping community members engaged—financial management may end up on the back burner.

However, proper accounting is essential for your school to serve its students well. Carefully tracking how your school receives and allocates revenue allows you to make the best use of your school’s funding to achieve your goals.

In this guide, we’ll walk through four proven tips to elevate your school’s accounting practices. Let’s begin by discussing the most important financial planning document at your school’s disposal: your annual operating budget.

1. Create an Annual Operating Budget

If you’ve ever organized a personal budget before, creating a school operating budget is fairly similar in principle. However, instead of outlining a year’s projected income and expenditures for an individual or household, an annual operating budget predicts revenue and expenses for your entire school.

According to Jitasa’s budgeting guide, the most effective operating budgets include the following characteristics:

• Defined activities. Categorize your school’s revenue by source so you know where all of your funding comes from (more on this later!). Then, list all of the major projects, programs, and initiatives you’ll need to spend money on throughout the year, along with which funds you’ll use to cover the associated expenses. For example, you might secure a grant to fund your afterschool programs or purchase new classroom computers with revenue from a fundraising event.
• Specific time periods. Your operating budget will cover one fiscal year, which for many schools runs from July to June to coordinate with the beginning and ending of classes. However, you should also make note of when you’ll receive revenue and when you plan to spend it.
• Realistic and measurable metrics. Review your revenue and expense numbers from previous years to set specific, attainable goals in this year’s budget. For instance, if last year’s sports fundraisers brought in $12,000 and your school’s athletics program is growing, setting this year’s target at $15,000 is likely a reasonable goal.

Most importantly, when your school’s annual operating budget is finished, your total revenue should exceed your total expenses. This way, you’ll have enough funding to keep your school afloat if you incur unexpected costs or a revenue source falls through. At the end of the year, you can put any unused funding into your school’s emergency savings account to create an even stronger financial safety net.

2. Diversify Your Revenue Streams

Along with budgeting for a revenue surplus, diversifying your school’s funding is one of the best ways to ensure financial stability. Then, if you experience a shortfall in one area, you’ll still have other revenue sources to fund key activities.

Government funding is foundational to public schools’ revenue generation, while private schools typically bring in a large portion of their funding through tuition and student fees. On top of these key revenue sources, consider adding the following streams to your funding model:

• Engaging school fundraisers. Choose fundraising activities that align with your community’s interests and preferences—after all, your success depends on their participation! If you want to host a fundraising event, consider whether they’d prefer a traditional auction or a family-friendly event like a carnival or outdoor movie night. If you add product fundraisers to your calendar, select products (treats, household goods, discount cards, etc.) that community members would like to purchase.
• Corporate philanthropy. According to 360MatchPro, some companies that match their employees’ donations to charitable organizations also provide matching gifts to K-12 schools. You could also ask local businesses to sponsor your fundraising events or coordinate with them to run an internal fundraising campaign for your school.
• Grants. Whether they’re made by government agencies or foundations, grants can provide critical funding for your school’s largest projects and initiatives. Keep in mind that most grants are competitive, so you’ll need to write a standout proposal to secure them. Additionally, most grant funding is restricted to the initiative you specified in your application, so make sure to budget accordingly.

Even if fundraising revenue and corporate contributions don't have tight restrictions on their use, you should allocate this funding as promised. This instills confidence in the individuals and businesses that support your school that you’re putting their contributions toward important initiatives for students, which makes them more likely to keep funding your school’s various revenue streams long-term.

3. Leverage Accounting Software

If your school is on the smaller or newer side, you might have started tracking its income and expenditures in a spreadsheet. While this solution works temporarily, you’ll likely need to switch to a dedicated accounting platform as your school’s financial situation becomes more complex.

Since most reputable accounting solutions are built to align with for-profit businesses’ accounting models, look for one that you can customize for your school’s unique needs. It’s also beneficial if your accounting platform integrates with your school management software, since these integrations streamline data transfer between solutions.

Once you’ve chosen an accounting platform, develop a standardized system for recording and organizing your school’s transactions. Additionally, store your budget and key financial reports in your accounting software for easy reference.

4. Compile Financial Statements

The most important financial reports your school will create each year are a set of three or four financial statements. Both for-profit and nonprofit organizations compile slightly different versions of these reports, which organize and summarize your school’s financial data in actionable ways.

The three financial statements all schools have to compile include the:

• Statement of activities. Known as an income statement in the for-profit world, this report breaks down your school’s annual revenue, expenses, and change in net assets to inform future budgeting decisions.
• Statement of financial position. Also called a balance sheet, this statement provides a snapshot of your school’s financial health and growth potential by outlining its assets, liabilities, and net assets.
• Statement of cash flows. This report shows how cash moves in and out of your school through operating, investing, and financing activities. Many organizations compile cash flow statements monthly as well as annually to keep their spending and revenue generation on track throughout the year.

There is also a fourth financial statement unique to tax-exempt organizations: the statement of functional expenses, which reports expenditures according to whether the money was used for programs, administrative tasks, or fundraising activities. Its goal is to show how your school’s spending contributes to its mission of educating students in your area.

While any school can compile a statement of functional expenses for internal reference, only schools that file an annual tax return via IRS Form 990 are required to report their functional expenses. Public and religiously affiliated schools usually don’t complete these tax returns, while private non-religious schools generally have to file Form 990 to be considered tax-exempt nonprofits. Check the IRS website or consult an accountant to confirm your school’s status.

Implementing the tips above will give your school a solid foundation for effective financial management. However, the best way to ensure your school records and reports its finances correctly is to reach out to an accountant or financial advisor who has experience working with schools and other nonprofits. They’ll understand the complexities of your school’s financial situation and develop tailored solutions to manage its resources as effectively as possible.