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?
Since nonprofits must adhere to different guidelines for accounting, they need a software solution that supports this uniqueness.
It’s essential that nonprofits, especially growing organizations, use a nonprofit fund accounting system to manage their needs.
When your nonprofit is looking for a software solution, don’t just jump for the first software you find. You need to ask some key questions first, including:
- 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, as well as reviewing nonprofit accounting software reviews, will help your organization prioritize its needs, make a plan to invest, and ultimately purchase the right software solution. Let’s dive in to get started!
Accounting Software Basics
1. Why Do We Need Nonprofit Accounting Software?
Analyze the basics first. Why do you think your organization needs nonprofit accounting software? Maybe you’re looking to invest right now. Or maybe you’re preparing for your organization’s future.
Keep your answer in mind. Meanwhile. 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, including:
- The mission of the funds. Private sector organizations have the primary goal of making a profit for their company. However, nonprofit organizations are more focused on using acquired funds to support their missions.
- Various fund restrictions. While private companies sell products or services to their customers in return for income, nonprofits rely primarily on donations from supporters to fund their missions. However, donors can sometimes be (understandably) picky about how their donations are used and they put restrictions on the funds.
The best nonprofit accounting software providers take these considerations into account when developing fund accounting software for nonprofits.
What about your nonprofit?
Who needs nonprofit budget software? The answer is every nonprofit.
No matter the size of your organization, investing in fund accounting software will prove beneficial. Most nonprofits expect to grow within the next year and have big plans for the next five years. You can prepare for that growth at your organization by finding an accounting software solution now.
Nothing is more annoying than having to transfer data from one accounting software to another. But if you’re currently using QuickBooks, spreadsheets, or another software that’s not designed for nonprofits, you will quickly outgrow it.
So why do you need nonprofit fund accounting software? The answer is to prepare for the future. You’ll ultimately save yourself time and energy by investing in an effective software solution that will grow with your organization and meet both your short- and long-term needs.
2. What Accounting Software Features Does Our Nonprofit Require?
Before getting started, it’s always a good idea to ask yourself what accounting problem you’re trying to solve within your organization.
It can be easy to get distracted by the bells and whistles offered by different software providers. Refer to your features list to keep on track and choose a solution most suitable for your organization.
To help get you started, here are some functions that your nonprofit budget software should help facilitate for your organization through its essential features.
Make Informed Decisions
Look for a nonprofit budget software 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 restricted or unrestricted to specialized fund groupings. From this information, you can then decide on the next steps to take regarding different investments and fundraising campaigns.
Budget According to Your Specific Needs
Plan your budgets ahead of time through your fund accounting software. Be sure you create separate fund allocation plans for your annual budget and each 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 beginning.
Take Care of Internal Operations
Fund accounting software for nonprofits should help organizations take care of their internal funding needs, 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 mission — that’s not a bad thing! In fact, you should be excited about financing these endeavors. However, you shouldn’t forget about the day-to-day tasks that keep your organization 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 Financial Accounting Standards Board (FASB) and The Governmental Accounting Standards Board (GASB)reporting standards built-in for easy auditing.
With these standards directly built into the reporting of your nonprofit budget software, it’ll be easier for your organization to prepare for the future through accurate recordkeeping and financial management.
According to our nonprofit finance study, 79 percent of nonprofits plan to grow over the next 12 to 18 months. One of the biggest challenges to growth is budget planning, so ensuring proper preparation is key.
3. Does Our Nonprofit Accounting Software Align with Our Long-term Goals?
As we mentioned in the last section, most nonprofits plan to grow within the next couple of years. However, it can be difficult to know exactly where your nonprofit will be down the line.
Your fund accounting software should help you prepare to take on the future, no matter what’s in store for your organization.
Searching for a new software solution, training on it, and transferring over information wastes time, energy, and resources that could be put to better use working towards your nonprofit’s mission. Therefore, you should limit the number of times your organization switches solutions by finding an accounting software that works in the present and readies you for the future.
To choose a 501(c)3 accounting solution that aligns with your nonprofit’s long-term goals, look for a software that is:
- Flexible. Choose 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 fund 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 need.
Remember the list of necessary features you created back in section two? Make sure you know which of these are included in the upfront costs of the software solution. Add-ons are great, but they’re just that: additional charges. You’ll need a complete view of the software’s cost, including each feature needed for your nonprofit’s mission.
Without having a clear view of the cost of your accounting software, you might end up 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 list of fund accounting software 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 upfront, 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.
Accounting Software Vendors
5. How Do We Find Potential Nonprofit Accounting Software Vendors?
Going about making an initial list of fund accounting software vendors can seem like a challenging task. Where do you even start?
There are a number of resources you can use on your search for a nonprofit budget software vendor, including:
- A referral from another trusted 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 they find to be the most helpful to accomplish their mission. Be sure to ask nonprofit leaders whose organizations are 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! A trap some nonprofits 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 it down considerably.
The first step to refining this search is conducting research and reading nonprofit accounting software reviews and comparisons. Capterra is a great site to start with. However, you should always read the reviews from several different sources to get the most comprehensive view.
Once you have the list of 501(c)3 fund accounting software providers narrowed down to less than 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 set of questions to ask the sales representatives.
From there, not only will you be an expert, but you’ll also be that much closer to making a final decision about which nonprofit budget software is right for your organization.
Buying nonprofit fund accounting software is a long process, but feeling secure in your organization’s finances is absolutely worth it. With this guide in hand, your nonprofit is ready to start a journey to more manageable finances!