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by Justin Guinn,
Market Research Associate
Last Updated: November 17, 2016


Here's what we'll cover:

What Is Nonprofit Accounting Software?
Common Features of Nonprofit Accounting Software
What Type of Buyer Are You?
Benefits of Accounting Software for Nonprofits
Market Trends to Understand
Recent Events You Should Know About

What Is Nonprofit Accounting Software?

Nonprofit organizations, associationschurches and faith-based ministries face different challenges than their for-profit counterparts. Among these challenges are a nonprofit’s accounting needs. Rather than managing sales and revenue, nonprofits have to manage donor contributions, fundraising events, grants, investment income, membership fees etc. In addition, with limited funds for administrative tasks and strict reporting requirements, such as FAS 116 and 117, nonprofit organizations can save time and money, while reducing the likelihood of reporting errors, by implementing a nonprofit accounting system.

Common Features of Nonprofit Accounting Software

Nonprofit accounting solutions aim to help organizations manage their finances in both an accurate and transparent manner. These solutions should include accounting features that are specific to nonprofits and enable them to:

  • Manage funds and donations: Nonprofits receive funds and donations from numerous sources (individuals, organizations and websites) and locations. They have to meticulously keep track of their earnings and expenses, as they may be subjected to federal audits. Any inconsistencies in their reports can subject them to reputation damage, fines or even legal action.
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  • Integrate online donations with primary fund pool: Donations from different countries via websites or payment portals, such as PayPal, need to be reflected in the nonprofit’s main fund pool and not as a separate account.
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  • Filter reports by varying transaction codes: Different transactions need to be assigned different codes for clarity and efficient fund management. Adding filters to expense and earnings reports will help users easily view these different transactions and provide clarity into how funds are used.
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  • Generate reports in multiple formats: Nonprofits need to be able to create and present reports in a variety of different formats, such as Excel files or PDFs. This is because most volunteers are not proficient in accounting and thus need to view reports in familiar, easy-to-use formats.
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  • Convert donations in multiple currencies: Donations or funds received in different currencies need to be integrated with the nonprofit’s primary account and converted automatically.

What Type of Buyer Are You?

Identifying what type of buyer you are can help you choose the right solution. You should be aware of your unique needs and pay only for the features you deem necessary. Many buyers mistakenly pay for solutions that offer a plethora of features that they rarely use. Common buyers of nonprofit accounting software include:

  • Nonprofit or voluntary organizations: These organizations depend solely on volunteer donations and sometimes receive corporate funding. Their primary expense is implementing social welfare programs and initiatives.
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  • Charities: These can be privately or publically funded organizations that work toward a single cause. These organizations receive donations from many different sources, and thus must establish a single fund for all their expenses.
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  • Churches: Funding is received primarily in the form of weekly collections and member donations. Since accounting is primarily managed by church attendees, churches need a solution that offers a simple, easy to use interface.
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  • Private schools, colleges and universities: These institutions receive state or federal funding, private donations and tuition fees. In addition to managing funds, they need to allocate resources toward staff incomes, administrative costs, maintenance, promotions and/or advertisements and other daily expenses. Most schools have in-house accountants, so their needs are more complex and varied, which means they will likely seek a more robust nonprofit accounting solution.

Benefits of Accounting Software for Nonprofits

Nonprofit accounting solutions provide organizations of all sizes the tools they need to manage income and expenses efficiently. As nonprofits are subject to federal audits, it’s important to accurately record all of an organization’s financial details. Therefore, these systems track an organization’s donations, grants, expenses, assets and transactions. Their focus in on maintaining a healthy balance between receiving donations and spending funds on welfare activities.

Similar to nonprofit accounting software, nonprofit financial software (sometimes called fund accounting software), helps achieve fiscal transparency, ensure federal reporting standards are met, maximizes donor dollars and minimizes unnecessary expenses.

Accounts in Blackbaud Financial Edge

Accounts in Blackbaud Financial Edge

These features work together so a nonprofit organization can make the most of their assets, maintain fiscal visibility, nourish their reputation and acquire lasting trust from supporters.

Market Trends to Understand

At the end of each fiscal year, nonprofit accounting regulations and end-of-year acquisitions and partnerships often become newsworthy topics. There is increased scrutiny around their operations and they are under pressure to ensure transparency, lest their funding be affected due to accounting inaccuracies.

Here are some important trends to know about:

Keep fund ledgers separate. Nonprofits must keep different ledgers for all of their fund sources: direct donations, grant monies, fundraising dollars, pledges etc. Nonprofit accounting software independently tracks fund sources and expense types, simplifying reports and ensuring accuracy.

Prioritize expenditures. Ledger reports provide a holistic overview of an organization’s financial landscape. This allows an organization to strategically prioritize future investments and upcoming expenses.

Document and meet budget goals. Having a holistic picture of an organization’s entire financial portfolio allows board members to create realistic budgets and meet associated goals.

Simplify tax preparation. Many nonprofit accounting solutions include features that prepare the Form 990—a tax form requiring certain federal tax-exempt organizations to file with the IRS.

Reinforce trust in your organization. Transparency in an organization’s financial data shows current and prospective donors how their dollars are utilized.

Prevent fraud or errors. Omissions or errors may occur due to internal deficiencies. Therefore, nonprofits should stick to the legal definitions of what constitutes contributions (revenues, gains, gifts or transfer of assets), donated services and expenses (fundraising and management).

Understanding these trends and taking appropriate steps can help a nonprofit organization maximize their available assets, ensure fiscal transparency, boost its reputation and build trust. The right nonprofit accounting software will address all of an organization’s accounting needs. Daily operations also have to be run efficiently, as the goal of a nonprofit organization is benefit the community in which they operate. For more information on software especially for nonprofit organizations, read our nonprofit buyer's guide

Recent Event You Should Know About

FASB releases new accounting standards for nonprofits. The Financial Accounting Standards Board (FASB) updated the basic financial reporting model of nonprofits in August 2016. These revisions aim to provide better insight into nonprofits’ expenses and liquidity, investments and classification of their net assets. The new rules will give donors, creditors and others a more detailed picture of the operations and financial condition of nonprofits. The guidance will apply to all nonprofits, such as charities, religious institutions and private colleges and universities, which file financial statements based on generally accepted accounting principles.

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