Although it may surprise some people to hear, the nonprofit accounting software world is a vast space. There are so many different providers with different specializations that it can make your head whirl. So, how do you know you’re getting the best software solution for your organization?
Nonprofits must adhere to different guidelines for their accounting needs, so they need a system that supports this uniqueness.
It’s essential that nonprofits, especially growing nonprofits, use a fund accounting system to manage their accounting needs.
When your nonprofit is looking for a software solution that will adhere to all of your organization’s needs, don’t just jump for the first software you find. You need to ask some key questions first. Make sure to ask:
- Why do we need nonprofit accounting software?
- What accounting software features does our nonprofit require?
- Does our accounting software align with our nonprofit’s long-term goals?
- How flexible is our nonprofit’s budget for accounting software?
- How do we find potential nonprofit accounting software vendors?
Asking the right questions will help your nonprofit prioritize your needs, make a plan to invest, and ultimately purchase the right software solution. Let’s dive in to get started!
1. Why do we need nonprofit accounting software?
Analyze the basics first. Why do you think your organization needs nonprofit accounting software? What was your reasoning for opening up this article? Maybe you’re looking to invest right now. Or maybe you’re preparing for your organization’s future.
Just to make sure everyone is on the same page, we’re going to answer one more important question:
What is nonprofit accounting software?
Nonprofit accounting software is a software solution designed to help nonprofits organize, budget, and track funds to make better financial decisions over time.
It takes into consideration some important differences between nonprofit accounting and regular business accounting:
- The mission of the funds. Private sector organizations have the primary goal of making a profit for their company. However, nonprofit organizations are not focused on this at all (hence the name “nonprofit”). They’re more focused on using acquired funds to support their overarching mission.
- Various fund restrictions. While private companies sell a product or service to their customers in return for their income, nonprofits rely primarily on donations from supporters to fund their mission. Donors can sometimes be (understandably) picky about how their donation is used, so they put restrictions on the funds.
Nonprofit accounting software providers take these considerations into account and ensure the software solution is specially designed to handle them.
What about your nonprofit?
Who needs nonprofit accounting software? Our answer: every nonprofit.
No matter the size of your nonprofit, it will behoove you to invest in nonprofit accounting software. Most nonprofits plan to grow within the next year and have big plans for the next five years. Prepare for that growth by getting started with a software solution now.
Nothing is more annoying than having to transfer data from one software solution to another. If you’re currently using QuickBooks, spreadsheets, or another software solution that’s not designed specifically for nonprofits, you will quickly outgrow it.
So, why do you need nonprofit accounting software? To prepare for the future of your nonprofit. You’ll ultimately save yourself time and energy by investing in an effective software solution that will grow with your organization to adhere to your short-term and long-term needs.
2. What accounting software features does our nonprofit require?
Before getting started, it’s always a good idea to make a list of features you want to see in your organization’s ideal solution. Get started making this list by asking yourself what accounting problem you’re trying to solve within your organization.
It can be easy to get distracted by all the bells and whistles offered by different software providers. Your features list will keep you on track and help you choose a solution most suitable for your organization.
To help get you started, here are some functions of your nonprofit that your nonprofit accounting software should help facilitate for your organization through essential features.
Make Informed Decisions
Look for a nonprofit accounting software solution that offers a customized ledger to track various funds.
Having the ability to customize your nonprofit’s ledger will ensure you have a place to store the information most important to your organization.
The customized ledger should make it easy for you to track your nonprofit’s funds, from your restricted to unrestricted to specialized fund groupings. From this information, you can easily decide on the next best steps for your organization to take regarding different investments and fundraising campaigns.
Budget According to Your Specific Needs
Plan your budgets ahead of time through your nonprofit accounting software. Be sure you create separate fund allocation plans for your annual budget and for each budget designed for a specific project. Then, create a calendar to help you stick with these budgets.
Your accounting software should offer customized budgeting capabilities to create and monitor a plan for financing campaigns and projects from the very beginning.
Take Care of Internal Operations
Your nonprofit accounting software should help your nonprofit take care of the internal funding needs of your organization.
For instance, this solution should help with things such as employee payroll, timesheets, and human resources records.
It’s easy to get caught up with planning for fundraising campaigns and big projects related to your nonprofit’s mission. That’s not a bad thing! You should be excited about financing these things. However, you shouldn’t ever forget about the everyday tasks that keep your nonprofit running.
Be Prepared for the Future
Look for a software solution that will help you create custom reports to maintain comprehensive records. Also, be sure these reports have FASB (financial accounting standards board) and GASB (governmental accounting standards board) reporting standards built in for easy auditing.
These standards directly built into the reporting of your nonprofit accounting software will make it easy for your nonprofit to prepare for the future through accurate records and financial management.
According to our 2018 study, 79 percent of nonprofits plan to grow over the next 12 to 18 months. But, one of the biggest challenges to growth is budget planning, so ensuring proper preparation is key.
3. Does our accounting software align with our nonprofit’s long-term goals?
As we mentioned briefly in the last section, the majority of nonprofits have plans to grow within the next couple of years. However, it can be difficult to know exactly where your nonprofit will be further down the line.
Your nonprofit accounting software solution should help you feel prepared to take on the future, no matter what’s in store for your organization.
Searching for the new software solution, training to use it, and transferring information wastes time, energy, and resources that could have been put to better use working towards the nonprofit’s mission. Therefore, you should limit the number of times your nonprofit must switch solutions by finding a nonprofit accounting software that readies you for the future.
Choose a 501(c)3 accounting software solution that aligns with your nonprofit’s long-term goals. Look for a solution that is:
- Flexible. Choose an accounting software that will let you pick and choose the modules you need to best accomplish your organization’s mission. From the beginning, your nonprofit should be able to customize the functions of the software solution to fit the organization’s specific needs.
- Scalable. As your nonprofit grows, you should have the freedom and flexibility to add on new modules and functions that will help your organization succeed. With this function, you can choose the functions you need in the beginning, but add more later as your nonprofit grows and needs a more inclusive solution.
- Constantly improving. Check out the updates that have been made to the nonprofit accounting software solutions you’re considering. Look for frequent and useful updates so you know they’ll continue to improve upon their product with ever-changing tech advancements.
Preparing for the future is incredibly important in any software solution you choose. But it’s especially important for your nonprofit’s accounting software. You shouldn’t trust just any software provider with your organization’s financial information. Choosing a software solution that grows with your nonprofit will help maintain a sense of security by limiting the number of times your organization switches solutions.
When many nonprofits are buying software solutions, they tend to take into consideration the features they need at that particular moment. However, many times, they end up outgrowing these solutions quickly. Then, these nonprofits face the challenge of transferring all their relevant information from one software solution to another, which puts their financial information at a greater security risk. Don’t be one of those nonprofits!
Choosing the right nonprofit accounting software solution from the beginning can save time and energy as the organization grows. Plus, it helps you to maintain the security of your nonprofit’s financial information.
4. How flexible is our nonprofit’s budget for accounting software?
When your nonprofit purchases nonprofit accounting software, you obviously want to get the most bang for your buck. Don’t be shy about talking to software providers about prices. Organizations that struggle to discuss the financial implications of their purchases often end up overpaying for something they don’t necessarily need.
Remember that list of necessary features you made back in section two? Make sure you know which of these features are included in the upfront costs of the software solution. Add-ons are great, but they’re just that: additional. You’ll need a complete view of the software’s cost, including each and every feature needed for your nonprofit’s mission.
Without having a clear view of the cost of a nonprofit accounting software solution, you might end up stuck in a situation where:
- Your nonprofit doesn’t have access to the necessary features needed, due to budget constraints.
- Your organization doesn’t have room to grow in the future.
Avoid these situations by asking for a complete list of features or modules offered by the software provider. You can always look more in-depth at the features you’re interested in during a webinar or product demo.
Know what you’re paying for up front, but also be sure to run hypotheticals for the future. Can you see your nonprofit needing one of the add-on modules later on? Ask about the price and make note of it. This will ensure your nonprofit not only has the room to grow, but also that you’re confident about having the budget to obtain the tools to support this growth in the future.
5. How do we find potential nonprofit accounting software vendors?
Going about making an initial list of software vendors can seem like a challenging task. Where do you even start?
There are a number of resources you can use to get started on your search for a good nonprofit accounting software vendor. Some of these resources include:
- A referral from another trusted nonprofit software vendor. The nonprofit software world tends to be very communicative and aware of the other products in the space. So start your research list by looking at the referrals that other providers consider to be the best.
- Recommendations from other local nonprofits. Ask other nonprofit leaders what accounting software solutions they find to be the most helpful to accomplish their mission. Be sure to ask nonprofit leaders of a similar size and mission to your nonprofit.
Using these two methods is a great approach to making an initial list of vendors. However, don’t stop there! Another trap nonprofits tend to fall into is immediately taking a recommendation to heart without conducting their own research. This is only your initial list of providers; you’ll need to narrow that list down considerably.
The first step to narrowing this search is conducting research and reading online reviews about the software on the list. Capterra is a great site to start with. However, you should always read the reviews from a number of different sources to get the most comprehensive view.
Once you have the list of 501(c)3 accounting software narrowed down to under five, you’ll want to reach out to those companies for a demo or webinar about the product. Bring your list of important features and have a list of questions to ask the sales representatives. Stay focused on the important features and be sure to get all of your questions answered.
From there, not only will you be an expert, you’ll also be that much closer to making a final decision about which nonprofit accounting software is right for your organization.
Buying nonprofit accounting software is a long process, but feeling secure in your organization’s finances is absolutely worth it. With this guide in hand, you’re ready to start your nonprofit’s journey to more manageable finances!
Check out the resources below for more information about nonprofit software and your organization’s accounting needs:
- 10 Reasons Why Nonprofits Need True Fund Accounting. Check out this whitepaper by Community Brands to learn more about what true fund accounting can do for your organization.
- Finding the Right Tech Partner Can Be Like Speed Dating. Learn more about how to find the right tech solution for your organization with tips in this article.
- The Basics of Fund Accounting | Key Concepts for Nonprofits. Refresh your knowledge about fund accounting basics with this comprehensive article.