As a nonprofit professional, you’ve probably seen firsthand how important it is to accurately track your organization’s finances. To further your nonprofit’s mission, you not only need to fundraise effectively but also understand where your money comes from and where it’s going, which is where accounting comes in.When getting started with accounting, many nonprofits track their spending and revenue generation in a spreadsheet. While this method can work in the short term, investing in dedicated accounting software is more sustainable over the long run. These platforms can handle the more complex financial needs your organization will likely have as it grows and make data storage, planning, and reporting easier for your team.
If you’re new to accounting software and don’t know where to start, you’ve come to the right place! Here are three tips to help you choose the right nonprofit accounting solution for your organization.
1. Understand Nonprofit-Specific Accounting Needs
Not every accounting solution that businesses use will suit your nonprofit because many of your organization’s financial needs differ significantly from theirs. The solution you choose should be equipped to handle the unique challenges of nonprofit financial management, which include:
- Resource allocation. While the purpose of for-profit financial management is to help the organization turn a profit, your nonprofit can’t have this goal by definition and instead has to invest all of its resources back into itself to further its mission. So, your software setup should align with this purpose.
- Non-cash contributions. Businesses bring in nearly all of their revenue in monetary form, but nonprofits frequently accept gifts of goods, services, and immaterial assets like stocks and real estate, along with financial contributions. You should be able to track these kinds of gifts separately from money in your accounting system, so you always know how much cash your organization has on hand.
- Grant management. Grants are also a critical nonprofit-specific revenue source which requires special accounting attention. Ensure your software allows you to manage grants or integrates with external grant management systems so you can record and report these funds properly.
- Restricted funds. Some nonprofit contributions, like corporate sponsorships and most major and planned gifts, come with donor-imposed restrictions to ensure your organization uses them for specific initiatives. Jitasa’s nonprofit revenue recognition guide recommends creating a separate section in your accounting software for restricted funds so it’s easier to track their designations, so check that your platform enables this feature.
- Financial statements. Many accounting solutions allow users to automatically compile financial statements within the software. However, you may want to change some of the names (e.g., income statement to statement of activities and balance sheet to statement of financial position) to align with common nonprofit accounting terminology. Plus, nonprofits have to create a statement of functional expenses, which for-profit organizations don’t.
Depending on the platform you choose, you might need to configure it to accommodate these activities, or they may be built into the existing interface. Both possibilities can be equally effective, though—don’t dismiss reputable solutions that will meet your nonprofit’s long-term needs just because they’ll require some additional setup!
2. Brainstorm Must-Have and Nice-to-Have Functionalities
Being able to perform the essential nonprofit accounting functions above should be just one factor in your software purchasing decision. As you consider your organization’s needs comprehensively, create two lists of accounting platform features: one of must-haves and one of functionalities that would be nice to have but aren’t top priorities.
Here are a few ideas for what you might look for in an accounting solution to help you fill out those two lists:
- Data security measures like encryption and two-factor authentication to protect sensitive financial information.
- User permissions—many platforms limit the number of accounts you can create depending on your chosen plan.
- Automated workflows to streamline time-consuming processes, especially accounts payable activities like invoicing and procurement.
- Analytics dashboards for easy data review and report creation.
- Integrations with your existing software, such as your organization’s donor database or online donation tools.
- Comprehensive resources and customer support to help you resolve any issues that may arise and make the most of the platform.
Additionally, make sure your solution has a user-friendly interface and can scale with your organization’s financial needs. Even if you need to change pricing plans as your nonprofit grows, you shouldn’t need to migrate all of your data to a brand-new platform every few years to gain access to the functionality you need.
3. Follow a Systematic Buying Process
According to Double the Donation, the first step in buying any new nonprofit software is to establish your initial purchasing criteria. This involves making the lists of must-have and nice-to-have features mentioned above, finalizing your organization’s budget for an accounting solution, and considering the overarching goals of investing in this type of platform.
From there, break your buying process down into the following steps:
- Create a list of potential vendors. Begin your research by searching online for nonprofit accounting platforms. Explore their features and review their pricing options, then prioritize your initial list based on which platforms will give you the most functionalities you’re looking for at the best price.
- Compare reviews and recommendations. Sites like G2 and Capterra compile software reviews from real users that you can compare side by side. Plus, you’ll often find reviews of individual platforms on Google or their websites. You might also reach out to other nonprofits in your network to see what accounting solutions they use and how they feel about them to narrow down your list.
- Schedule demos of your top choices. Attending live demos lets you see how different platforms work in practice and ask questions of their customer support professionals that are relevant to your organization’s specific needs.
- Make your final decision. Once you’ve selected your platform and pricing plan, customize your software to your nonprofit’s needs. Remember to migrate your data from your old accounting spreadsheet or system into the new solution and upload any documents you want to keep on file.
Lastly, train your team on using the new platform. While your nonprofit’s financial professionals (treasurer, bookkeeper, accountant, etc.) need to know the system inside and out, some team members from leadership, fundraising, development, and other departments may also benefit from familiarity with its setup and functionality as they apply accounting data to their work.
With the right accounting software, your nonprofit will be equipped to manage its financial data and reports in one place. This way, you can ensure compliance with legal requirements for tax-exempt organizations and make more informed decisions about how to effectively use your funding to further your mission.
