A surplus is when a nonprofit organisation has extra money and is making a profit. While it’s unlikely, there are certain instances where this occurs. So how does a nonprofit distribute surplus funds?
As nonprofits in the UK are exempt from tax regulations, it’s required that they use all profits made by the organisation for the betterment of the cause or the organisation itself. Profits cannot be used for personal reasons or be distributed among founders and board members.
Fair and ethical distribution of surplus funds is especially important as it’s a legal requirement. It also impacts future funding and contributions, as financial & skill donors, local communities and the public will make donations based on what you do with the current money. Being transparent with your fund distribution will also help to attract and employ efficient individuals looking to find charity work and online volunteer opportunities.
Here are some ways a nonprofit organisation can distribute surplus funds:
Paying Off Debt
Most of the funds received via nonprofit donors and fundraising go towards their mission and cause, with the rest used for overheads and expenses. In the chance that there is money remaining, it can be used to pay down some of the debts and loans your nonprofit may have accrued over the years.
Rewarding Your Employees
While surplus money can’t be distributed to board members, founders, and trustees, it can be used to reward employees and volunteers. Offering incentives to work harder, to earn additional compensation etc. are all ways to ensure that you keep efficient employees onboard while being able to attract new ones who will help your organisation thrive and grow.
Invest in the Mission
There is always room for improvement, so a great way to spend surplus funds is to invest back into your mission. The money can be used to initiate new programs, expand existing ones, reduce your carbon footprint, and improve fundraising efforts along with advertising and marketing.
Create a Financial Reserve
Another sensible way to use surplus funding is to set it aside as a financial reserve. The funds in the reserve can be used in case of an emergency to cover any future deficit or for any unforeseen expenses that may occur.
While it’s rare that a nonprofit makes a profit, finishing the fiscal year with a surplus is beneficial to your organisation. It can be used in several ways to improve the workforce and mission along with the existing campaigns as long as your nonprofit is transparent about its budget, transactions and other financial details to the donors, trustees and the public.