Nonprofit Accounting Software
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Nonprofits rely heavily on donations, grants and contributions, making it crucial to accurately track the flow of money within the organization. Just like accounting software can help for-profit small business owners make sense of their financials, nonprofits can also benefit from online programs. If you’re in the market for accounting software for your nonprofit, we’ll help you better understand the nuances of nonprofit accounting and point you toward a few programs that could work for your organization.
Nonprofit vs. for-profit accounting: What’s the difference?
Accounting allows nonprofit and for-profit organizations to keep track of how much money is coming into the organization and how much is being spent. Accounting is used to forecast cash flow, which informs decisions to raise money for projects or hire staff. Good accounting practices are also necessary for nonprofits to write accurate grant applications when requesting funding.
Like for-profit entities, nonprofits must follow the Generally Accepted Accounting Principles, which are set by the Financial Accounting Standards Board and the American Institute of Certified Public Accountants. However, there are specific guidelines for nonprofits.
The Financial Accounting Standard 117 from the FASB regulates which financial statements nonprofits must prepare to remain compliant. FASB 117 requires nonprofits to produce the following statements:
- Statement of Financial Position, such as a balance sheet
- Statement of Activities, such as an income statement or profit and loss statement
- Statement of Cash Flows
- Statement of Functional Expenses – Required for voluntary health and welfare organizations only
Nonprofit organizations that must follow the rules set by the FASB include charities, foundations, colleges and universities, health care providers and religious organizations. The purpose of the regulations is to make sure nonprofits provide clear information to donors, grantmakers and creditors who have a stake in the organization.
How to choose the best nonprofit accounting software
Whether you use accounting software within your nonprofit depends on your personal preference. You would still have to rely on your own knowledge of accounting and bookkeeping, as the software performance is only as good as the information you put into it.
When choosing accounting software for your nonprofit, there are a few aspects you may want to consider before making a purchase, according to npEngage, which is sponsored by Blackbaud accounting software.
Determine which accounting features are most important to you. This includes ease of use, custom reporting options or the ability to integrate other software programs. You may want to solicit feedback from your organization’s stakeholders to find out their expectations.
If your organization’s tech equipment is outdated, you may have to make upgrades before integrating new accounting software. Be sure to check with your IT team on the limitations of servers, computers or internet access.
Many software programs require you to buy a subscription and make recurring payments, but you may face additional costs depending on the product you purchase. You may incur costs associated with staff training and support, maintenance or tech upgrades. Setting a software budget before shopping would help you decide what program your organization can afford.
Reading online product reviews would give you a better understanding of how the software functions and how other customers interact with the product. You may be able to request a free consultation from the software company, or you could hire a technology consultant to help you make an informed decision.
Potential benefits and drawbacks
Based on your product research, you could anticipate potential benefits and drawbacks of using the software. Possible benefits could include accurate financial reporting and simplified tax preparation, while drawbacks could be additional costs to train staff to use the software and decreased productivity while they learn new systems.
5 nonprofit business accounting software options
Aplos nonprofit management online software tracks designated funds, such as grants, as well as tax-deductible gifts. Aplos can monitor donation activity and financials, and automatically create and send donation statements. Users can also generate reports, such as balance sheets and income statements, and manage a budget.
- Pro: Each subscription tier comes with the same suite of features.
- Con: The maximum number of users that can have access to the account is 10.
- Price: Annual plans start at $49 per month. Users also must pay for donation and payment processing, which starts at 3% plus 30 cents per card transaction and 2% plus 30 cents per ACH transaction.
A popular software pick among for-profit business owners, QuickBooks online software offers a customizable accounting program for nonprofits, allowing users to accept and track donations and generate reports. QuickBooks can produce a range of reports, including your Statement of Financial Position and Statement of Financial Activities, and customize the reports for board members or donors.
- Pro: You can integrate TSheets by QuickBooks to track employee hours.
- Con: You may need to purchase QuickBooks Online Plus to have full access to accounting features.
- Price: QuickBooks Online plans start at $10 per month after a 30-day free trial for the Essentials program and $6 per month for the bare-bones Simple Start program.
3. Blackbaud Financial Edge NXT
Blackbaud Financial Edge NXT cloud-based software assists nonprofits with financial reporting, program tracking and fundraising efforts. Users can document each transaction by segment, such as project, department or grant. You can also instantly make changes to financial statements to meet new donor requirements.
- Pro: Blackbaud also offers a separate nonprofit consulting program to help with fundraising campaigns and database management.
- Con: Price not listed online.
- Price: Pricing varies based on the features you choose to add to your subscription. You’ll have to contact the company for pricing details.
4. Xero + Infoodle
This cloud-based program combines Xero’s accounting software with Infoodle’s nonprofit management systems. You can track donations and other transactions plus maintain real-time cash flow data. You can send invoices and receipts, pay bills and generate reports with the software. You can also segment your data by a range of criteria.
- Pro: You can manually enter transactions into Infoodle if you do not want Xero to automatically track your financials.
- Con: Infoodle is based in New Zealand and the time difference may make it difficult to contact customer support.
- Price: A subscription for financial services starts at $18 per month.
5. Zoho Books
Zoho Books online accounting software provides add-ons for nonprofits, such as donor management, a volunteer portal and invoicing. Zoho Books lets users create financial statements such as profit and loss statements and balance sheets to monitor financial performance. You can also manage your contacts through the platform and give multiple users access to your account.
- Pro: All add-ons for nonprofits are free.
- Con: Zoho Books is not specifically designed for nonprofits.
- Price: Zoho Books subscriptions start at $9 per month.
The bottom line
Like for-profit businesses, nonprofit organizations should follow good accounting practices to maintain a smooth operation. However, nonprofits have the added pressure of meeting national accounting standards and providing the necessary financial statements to donors, grantmakers and creditors. Accounting software can help with bookkeeping tasks and streamline processes within the organization.
While some programs are designed specifically for nonprofits, others offer generic accounting services with additional features created for nonprofit organizations. Accounting software is available for nonprofits at a range of price points, so you can find a program that meets your organization’s needs and fits into the budget.