Can Your Accounting Software Meet the Needs of Your Nonprofit?

nonprofit accountingNonprofit organizations operate for public benefit without a profit motive. They exist to promote cultural, educational, religious, or social initiatives such as medical research, humanitarian aid, health services, or member-oriented services (e.g., credit unions, industry associations, or co-ops). Because these organizations do not exist to make a profit, their accounting procedures vary from those used by a for-profit business.  These differences require additional software capabilities beyond those normally included in off-the-shelf accounting software packages.

How great are the differences? Let’s take a look at some of the operational variations that nonprofit accounting software must be able to manage as compared to for-profit businesses:

  • Multiple Entities—When multiple organizations partner together for a common cause or when restructuring occurs, the accounting software being used must be able to manage information for each entity involved.

  • Fund Management—Nonprofit accounting software must be able to invoice funders, allocate costs, track funds, manage the request and renewal of grants, and generate reports specific to the nonprofit. Income reports and budgeting look significantly different for a nonprofit than they do for traditional businesses, and the accounting software used to manage funds must be able to handle those differences efficiently.

  • Reporting—Among others, nonprofits must create functional expense reports, restricted contribution reports, a Statement of Financial Position, and a Statement of Activities rather than balance sheets and income statements. Nonprofit accounting software tracks appropriate gains, losses, and activities in order to generate the necessary reports.

  • FASB Requirements—The Financial Accounting Standards Board (FASB) requires nonprofits to report revenue in the form of contributions and to track the value of donated services. Nonprofit accounting software must be able to incorporate and manage these items in addition to traditional income.

  • Budgeting based on mission—Because nonprofits exist for a specific purpose, their budgets must help accomplish the specific mission of the organization. Budget modifications and overlapping categories occur frequently in nonprofit accounting, and the software used must be able to handle these challenges.

Nonprofits must be able to demonstrate to their donors and supporters that incoming contributions and funds are being used to accomplish the stated purpose of the nonprofit. In order to do that, they need accounting software that can competently handle the unique needs and requirements of the organization.

Off-the-shelf software often lacks the functionalities necessary to generate needed reports, manage funds coming from numerous sources, and maintain accurate records. In some cases, it may be possible to supplement existing software with additional modules designed to perform specific functions. For others, however, it is more cost effective over the long term to purchase industry specific, comprehensive software that can be maintained and upgraded by one vendor.

No matter which route you choose to pursue, our unique software selection tool can help you find the right software for your organization.