Nonprofit Accounting Software: How to Make the Right Choice
Choosing the right nonprofit accounting software is crucial to the success and efficiency of your organization. Consider factors such as budget, accounting needs, user-friendliness, and integrations with other tools. When selecting nonprofit accounting software, compliance should be a top priority. Be sure the software you choose can meet nonprofit requirements such as financial reporting standards, grant tracking, and donor management.
In this guide, we’ll break down the key factors to consider when picking the right nonprofit accounting software package to meet your unique nonprofit needs.
So let’s get started!
What is nonprofit accounting software?
Nonprofit accounting software is specifically designed for the unique needs of nonprofit organizations. It makes it simple for them to do accounting the right way. Unlike general accounting software that focuses on the amount of profit made, this software is designed to handle project-focused accounting, with features such as accepting donations and presenting figures in a transparent way to donors and board members. It also offers nonprofit-specific accounting functionality such as the ability to receive donations, manage restricted funds and file Form 990. This software differs from for-profit accounting software like Quickbooks, as it is tailored for nonprofits, providing them with the needed tools and support to run their organizations in an efficient and organized manner.
Additionally, using nonprofit accounting software can make preparing for audits much easier, so you always know the financial health of your organization. Let’s look at some of the other key benefits of integrating the best nonprofit accounting software into your organization’s IT infrastructure.
With so many options on the market, choosing the right accounting software can be overwhelming.
What are the benefits of using accounting software for nonprofits?
Nonprofit accounting software provides a number of benefits, such as the ability to track revenue and expenses, manage budgets, and generate financial reports. This type of software can help nonprofits to operate more efficiently and effectively.
There are many benefits of using accounting software for nonprofits, including:
- Improved accuracy and efficiency in financial reporting
- The ability to track income and expenses easily
- A better understanding of where funds are being spent
- Greater transparency and accountability to donors and the public
Additionally, nonprofit accounting software can help streamline operations and reduce the amount of time needed to complete financial tasks.
True Fund Accounting Software
True fund accounting software is an accounting system specifically designed for non-profits to track funds, programs, grants, and projects. Fund accounting is different from traditional accounting in that it tracks multiple funds and accounts for the unique needs of charitable organizations. This type of software allows non-profits to separate their finances into distinct funds and accounts in order to accurately track and manage spending.
For non-profits looking for non profit accounting software, make sure it includes a true fund accounting tool. This provides organizations with an efficient and accurate way to track and manage their finances, as well as powerful reporting tools to demonstrate accountability and monitor progress. With features such as automatic backups, crash protection, and audit trails, true fund accounting software provides organizations with a secure and reliable way to manage their finances.
Organized Financial Reporting
Nonprofit accounting software provides an organized approach to bookkeeping and financial reporting that should be familiar to most accountants. This means you can easily access all pertinent information regarding donations, expenses, and other transactions in one place. You also have the ability to create detailed donations reports in order to better understand your organization’s financial position at any given time. This makes it easier to prepare annual reports or respond quickly and accurately during an audit.
Improved Donor Relationships
Another great benefit of nonprofit accounting software is that it makes it easy to build relationships with donors. You can use the software to track donations from individual donors over time and create personalized thank-you letters for them as well as tax receipts for their records. Furthermore, many programs allow you to customize emails and send out updates about projects or upcoming events in order to keep your donors informed about the progress of your organization’s activities.
Streamlined Compliance Requirements
Nonprofit accounting software makes it easier for nonprofits to meet compliance requirements set by government agencies such as the Internal Revenue Service (IRS). With this type of software, you can easily track donations made by individuals or businesses and generate reports that meet IRS standards without having to manually enter data into multiple spreadsheets or systems. This will save you countless hours of work when submitting paperwork for audits or filing taxes each year!
Using nonprofit accounting software can help to streamline the accounting process, save time and money, and enable organizations to focus on their mission. Automated workflows help eliminate time-consuming and repetitive tasks, like data entry, by routing transactions and sign offs digitally. This automation helps to reduce the time spent on manual bookkeeping, freeing up resources to focus on improving financial health.
Finally, nonprofit accounting software makes it easier for nonprofits to meet compliance requirements set by government agencies such as the Internal Revenue Service (IRS). With this type of software, you can easily track donations made by individuals or businesses and generate reports that meet IRS standards without having to manually enter data into multiple spreadsheets or systems. This will save you countless hours of work when submitting paperwork for audits or filing taxes each year!
Enhanced visibility into finances
Using nonprofit accounting software enhances visibility into finances by allowing organizations to track their financial health and compare their budget to their actual accounting. Additionally, these software programs enable users to generate both standard and custom reports to show how contributed funds are being used, as well as track funds, grants, and special programs. The software also provides real-time dashboards to display financial information, making it easier to make data-driven decisions to achieve the organization’s mission. These insights allow nonprofits to more easily monitor their financial performance against their budget, assess program effectiveness, and gain a better understanding of where money is being spent. Ultimately, this enhanced visibility into finances helps nonprofits make more informed decisions and better serve their mission.
Make more informed business decisions
Using nonprofit accounting software can help make more informed business decisions by providing more timely, insightful financial reporting. It can allow for automatic reports to be created and emailed to teams, with dashboards to display important financial information side-by-side with outcomes, helping to demonstrate how well an organization achieves its mission more effectively than traditional financial reports alone. This can give organizations the visibility and control needed to make smart decisions, as well as the ability to slice and dice their financial reporting to see the exact data they need across their funds, departments, projects, and locations.
Manage and track donations
Using nonprofit accounting software helps increase the ability to manage and track donations by providing powerful donor management capabilities, as well as tools for tracking restricted funds. Donation tracking software is also included, allowing users to access donation reports on any device. Furthermore, donations given online are tracked by donor and purpose with minimal effort, and invoices sent to donors for the amount they have pledged show up automatically in the books. Lastly, nonprofit accounting software provides reports which give insights into giving such as pledge tracking, donations by donor, lapsed donors, or other giving reports. As a result, nonprofits can have a complete system for donation tracking, creating a safer and more efficient way to manage donations.
Improved financial and reporting automation
- Build custom financial reports by project, campaign, or department, simply and effectively.
- Create Form 990 Reports, Fixed Asset Tracking, Income and Expense Allocations.
- Create automated, paperless workflows to accelerate routine accounting and report tasks, leaving more time to focus on strategies to fulfill your mission.
- Automate fund, grant, revenue and billing processes.
Improved level of budget and spend tracking capabilities
Using nonprofit accounting software can greatly improve budget and spend tracking capabilities by providing robust budgeting capabilities, unlimited tracking characteristics for in-depth reporting, and the ability to easily track funds, such as grants and special programs, so organizations can be ready for the financial reporting requirements that come with restricted gifts.
With real-time tracking of budgets by programs or funds and donor management, grant management, financial reporting, bank reconciliations, and more, nonprofits can track their financial health by comparing their budget to their actual accounting. By leveraging this software, users can build custom financial reports by project, campaign, or department, tracking funds such as grants and special programs, and compare budgets to actual accounting.
Key Advantages Using Non Profit Accounting Software
1. Automation — Accounting software automates the process of recording, reporting, and analyzing financial activities so you can focus on other priorities within your organization. This automation also ensures accuracy in all the data that is collected and stored. Having up-to-date financial information at hand will make it easier for you to make sound decisions about the future of your organization based on reliable data.
2. Cost Savings — Accounting software saves time and money as it eliminates the need to hire additional staff or outsource services to manage your finances. It also eliminates the need for manual processes such as paper filing systems. This allows you to maximize your budget and put those resources towards other needs within your organization.
3. Increased Efficiency — Using nonprofit accounting software can increase efficiency by streamlining all financial processes into one easy-to-use system. You no longer have to worry about manually entering data into multiple spreadsheets or manually managing accounts receivable/payable documents since the software does it all automatically with minimal effort on your part. Additionally, having accurate financial information at hand will enable you to make informed decisions about how best to use resources within your organization for maximum impact and growth potential over time.
4. Security — Accounting software offers increased security over traditional methods because all data is stored on secure servers that are regularly monitored and updated with the latest security protocols in place to prevent unauthorized access or tampering of data within the system.
What factors should you consider when choosing nonprofit accounting software?
Organized Financial Reporting
Nonprofit accounting software provides an organized approach to bookkeeping and financial reporting that should be familiar to most accountants. This means you can easily access all pertinent information regarding donations, expenses, and other transactions in one place. You also have the ability to create detailed reports in order to better understand your organization’s financial position at any given time. This makes it easier to prepare annual reports or respond quickly and accurately during an audit.
Improved Donor Relationships
Another great benefit of nonprofit accounting software is that it makes it easy to build relationships with donors. You can use the software to track donations from individual donors over time and create personalized thank-you letters for them as well as tax receipts for their records. Furthermore, many programs allow you to customize emails and send out updates about projects or upcoming events in order to keep your donors informed about the progress of your organization’s activities.
Streamlined Compliance Requirements
Finally, nonprofit accounting software makes it easier for nonprofits to meet compliance requirements set by government agencies such as the Internal Revenue Service (IRS). With this type of software, you can easily track donations made by individuals or businesses and generate reports that meet IRS standards without having to manually enter data into multiple spreadsheets or systems. This will save you countless hours of work when submitting paperwork for audits or filing taxes each year!
Key Features in Nonprofit Accounting Software
Accounting Budgeting: Nonprofit organizations need powerful budgeting software to help them track income, expenses, and financial goals. Look for a nonprofit accounting solution that allows easy creation of budgets, forecasts, and reporting. It should also provide real-time reports on your spending activity so you can more easily identify upcoming challenges.
Grant Management: Many nonprofits receive grants from charitable foundations or government agencies to support their programs. A good grant management system will enable your organization to efficiently review grant requests, make payments and track grant activities throughout the life cycle of the grant. It should also offer tight integration with general ledger modules so that data flows seamlessly between systems.
Reporting: A comprehensive reporting system should be a must-have feature when selecting nonprofit accounting software. The ability to generate accurate financial statements on demand is critical in order to stay compliant with regulations, as well as respond quickly if audited by donors or other regulatory agencies. Look for robust reporting capabilities, such as real-time access to all financial transactions within your accounts payable/receivable modules, plus detailed management reports with drill down capabilities that allow you to gain insights into resource utilization and cost metrics over time.
Audit Trail: Choosing the right nonprofit accounting software can be a daunting task. An important feature to consider is an audit trail as it can help streamline the process. An audit trail provides a comprehensive, secure way to track every financial transaction within an organization. This level of detail can help a nonprofit organization gain greater insight into their finances and understand the impact their decisions have on their financial health. With an audit trail, a nonprofit organization can quickly identify any discrepancies and make adjustments accordingly. Additionally, an audit trail can provide an extra layer of security by providing an accurate record of all financial transactions and helping to guard against fraud. For these reasons, an audit trail is an important feature to consider when selecting nonprofit accounting software.
What to look for when comparing nonprofit software systems
Feature Comparison: Araize FastFund Accounting and Aplos Nonprofit Accounting Software
FeaturesFastFund AccountingAplos AccountingFund AccountingYesYesChart of Accounts Segments62Bank ReconciliationYesYesJournal EntriesYesYesReportingYesYesManage Contributions and DonationsYesYesCustomizable Donations PageYesYesRecurring DonationsYesYesGifts SplitsYesYesContribution StatementsYesYesIndirect AllocationsYesNoTax Support (for 1099s and 990s)YesYesBalance Sheets by FundYesNoIncome Statements by FundYesYesForm 990 Reports by Functional AreaYesNoGrant ReportingYesNoInvoices and Payment TrackingYesYesRecurring Transactions and DonationsYesYesFunctional AccountingYesNoPledge TrackingYesYesBudgeting by Functional AreaYesNoFree TrialYesYes
Nonprofit Accounting Software Checklist
- Budget: The first and foremost thing to consider when choosing accounting software is your budget. Nonprofit organizations often have limited resources, so it’s important to find a solution that fits within your budget. While many software options offer a free or low-cost version, they may not include all the features you need. On the other hand, more expensive options may offer more advanced features, but they may not be necessary for your organization.
- Features: Before making a decision, it’s important to evaluate the features of different software options and determine which ones are necessary for your organization. Some features to consider include:
- Accounting and financial reporting: This includes basic accounting functions such as accounts payable and receivable, general ledger, and financial reporting.
- Fund accounting: This feature is particularly important for nonprofits as it allows you to track and report on funds separately, ensuring compliance with regulations.
- Donor management: If your nonprofit relies on donations, look for a software option that includes donor management features such as tracking donations, generating donation receipts, and donor analytics.
- Grant management: If your organization receives grants, look for a software option that includes grant management features such as tracking grant applications and reporting on grant funds.
- Define your core requirements: As a nonprofit, your financial management system must incorporate data from different sources, including donor management, payroll and client management. It is important to define the functional requirements that you will need, especially the new system’s ability to support your organization’s unique chart of accounts and reporting requirements and provide valuable information to management.
- Define your technical requirements: The next step is determining the delivery method for your new system: on-premise, hosted or cloud-based. With an on-premise installation you will be responsible for installing, maintaining and upgrading your system on your computers, along with backing up of your data, which will incur extra expenses for IT consulting. With a hosted solution, you are connected to outside servers that house traditional Windows based applications that typically don’t have access to new data sharing capabilities using APIs. A cloud solution does not require any software to be installed on your computers and all updates, upgrades and backups are all handled by the vendor. Plus, a cloud solution allows you to access your programs and data anywhere, on any device that has an internet connection.
- Ease of use: Another important factor to consider is the ease of use of the software. You’ll want to choose a solution that is user-friendly, easy to navigate, and easy to train staff and volunteers on.
- Integration: Consider if the software you choose can integrate with other tools and systems your organization uses. This can help streamline processes and improve efficiency.
- Support: It’s important to choose a software option that offers robust support, including online resources, training materials, and a dedicated support team. Make sure to research the level of support offered by different software options before making a decision.
- Scalability: Consider the scalability of the software you choose. As your organization grows, you’ll need a software option that can grow with you and adapt to your changing needs.
- Security: Choose a software option that prioritizes security, with features such as data encryption, password protection, and regular software updates to protect your organization’s sensitive information.
Bottom Line
Accounting is an essential element of running a successful nonprofit organization as fiscally responsible nonprofits are more likely to receive donations from individuals, foundations, and government agencies than those that are not well managed financially speaking. Every nonprofit that craves growth and sustainability should diligently record, report, and analyze its financial activities for optimal performance; one great way to do this is by putting in place accounting software that aligns with its needs in order to maximize its budget while ensuring accuracy in all its data collection processes too! With non profit accounting software, nonprofits can enjoy cost savings, increased efficiency, automation capabilities and security features which will help them reach their goals faster than ever before!
In conclusion, choosing the right accounting software for your nonprofit organization is an important decision. By considering your budget, evaluating the features you need, and assessing the ease of use, integration, support, scalability, and security of different options, you can make an informed decision that will serve your organization well for years to come.
When you are ready to make the change to new accounting software, check out Araize’s FastFund Accounting. FastFund is the only cloud-based software as a service that seamlessly integrates nonprofit fund accounting, fundraising CRM and payroll in a single system.
About The Podcast Host
Stephen Halasnik is the host of the popular Nonprofit MBA Podcast. The Nonprofit MBA podcast’s purpose is to help nonprofit leaders and their teams. Stephen is the Co-founder and Managing Partner of Financing Solutions, a leading provider of loans for nonprofits in the form of a Line of Credit. Stephen is a best-selling Amazon author and is considered a leading authority on building great, purpose-driven businesses.
Want to read more? Check out these insightful articles:
- Functional Accounting: Guide to Classifying Expenses
- Advantages of Fund Accounting Software for Nonprofits
- Nonprofit Accounting: Guide to Financial Statements Management
- Nonprofit Grant Management: Best Practices for Reporting Funds
- Tell Tale Signs It’s Time To Switch To Nonprofit Fund Accounting Software
- Nonprofit Accounting Course: Essential Skills Training
- Frequently Asked Questions (FAQs)
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Originally published at https://araize.com/nonprofit-accounting-software/