5 Reasons Your Nonprofit Needs Fund Accounting Now 

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As a nonprofit, you’re looking to be a good fiscal steward of the funds raised to remain viable and continue working to accomplish your mission. 

Look at your organization’s tech stack. Is it working with your finance team or against it? A fund accounting solution helps your organization show how it responsibly manages funds. The right solution allows your organization to tell its fiscal story, achieve better return on investment, increase efficiency, and secure additional fundraising opportunities, while keeping your organization’s data secure. Here are five reasons why your nonprofit organization needs a fund accounting solution today: 

1. The 5Ws and 1H of Nonprofit Accounting  

When your nonprofit’s finances tell the: who, what, when, where, why, and how, it shows your organization is being both accountable and transparent. 

Your nonprofit’s financial story is how you show your good fiscal stewards of grants and donations. Your revenue and expenses are the basis of a story, and it’s up to your finance team to properly tell it:   

  • Who: Identify all revenue and expenses with an account code corresponding to the funding source or expense 
  • What: Label the transaction type 
  • When: Add the dates associated with the transaction  
  • Where: Include a functional area to make for easy transaction sorting  
  • Why: Determine how the transaction impacted the budget 
  • How: Communicate how the transaction affects mission delivery 

Keeping track of the 5Ws and 1H and any associated restrictions can become an administrative nightmare for nonprofit finance and accounting teams with underequipped solutions, like QuickBooks or Microsoft Excel.  

Properly accounting for the variance and complexity of revenue sources and expenses and intricacies of nonprofit reporting—like grant tracking, fundraising, and scholarships—in these systems becomes nearly impossible and can lead to costly errors.  

Fund accounting solutions simplify telling your story and eliminate the administrative burden underequipped solutions place on staff. A fund accounting solution is designed to track the revenue and expenses for you on an ongoing basis. It allows you to easily monitor and analyze cash flow, capacity, and current/future challenges or long-term growth. Plus, the proper fund accounting solution is designed with nonprofit compliance in mind regarding nonprofit fundraising, tax exemptions, and expenses. 

Telling your nonprofit’s fiscal story is key to showing your organization works towards its mission. Fund accounting solutions have robust reporting options to simplify that storytelling.   

2. Communication is Key  

Because nonprofits have unique needs and goals that require specific financial reporting methods to measure their success and efficiency, creating clear and concise quarterly and annual reports for your board and external shareholders is necessary. 

If you are reporting with only Excel, it can be difficult and time-consuming because your team must build complex reports with charts and graphs from scratch. When your finance team creates reports manually, it’s easy to make mistakes like double entries or accidental deletions. The number of different report types needed to communicate fiscal responsibility and financial health can also be overwhelming. 

The right fund accounting solution includes a repository of report templates that your team can easily customize. Fund accounting solutions should feature advanced dashboards that provide at-a-glance views of critical data and drill-down capabilities when you need to dissect financials without spreadsheets or technical/coding abilities. 

3. Efficiency is Money  

Managing finances and expenses, analyzing fiscal data, and adequately reporting your organization’s finances can be extremely time-consuming. Inefficient solutions cost you money and time. 

According to the 2022 Nonprofit Research Study, 46% of nonprofits use at least six digital tools, while 23% use more than eight tools. Many teams spend at least 25% of their day managing between these systems.  

Navigating multiple systems equates to roughly 10 hours a week or 520 hours a year. An all-in-one fund accounting system helps your organization reclaim those hours. 

4. Fighting Fraud  with Strong Security  

According to the Association of Certified Fraud Examiners’ 2020 Report to the Nations, organizations lose 5% of their total revenue to fraud each year, with a median loss per case of $125,000 and an average loss per case of $1.5 million.  

Fraud can sometimes go unnoticed until an audit or until your team notices variances in the budget. How is your nonprofit fighting fraud, and does it have a plan to deal with cyberattacks? 

Cybercriminals are savvy and use incredibly sophisticated schemes to defraud and steal data from organizations. However, a cloud-based fund accounting solution has end-to-end encryption for your data and backups, and features user access controls to ensure only authorized individuals interact with your data. 

Consider a cloud-based solution to keep your organization’s data secure from natural disasters or even human error. When your organization stores its financial data in the cloud, it’s secure in a cyberattack or a natural disaster. 

5. Better Return on Investment 

Fund accounting solutions  streamline your organization’s tech stack and help your finance team recapture time to focus on your mission. Having a more efficient team lets your organization operate more productively leading to an increased ROI. 

Cloud-based fund accounting solutions also reduce your IT overhead by eliminating the need for your organization to have a fully staffed team to provide tech support and manage hardware, backups, and software updates. 

Finally, fund accounting solutions allow your nonprofit to provide more accurate and detailed financial reports and statements, which is needed to secure grants and raise more funds. 

Your nonprofit’s fiscal health relies on its operational systems. Workflows using Excel, QuickBooks and manual processes can cost you time and money, whereas fund accounting systems increase efficiency and ROI. Make telling your organization’s financial story simpler, and see what MIP Fund Accounting® can do for your organization today. 

Schedule a demo of MIP to see what MIP can do for your organization and take your accounting to the next level. 

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Kassandre Kallen

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