Stepping Up to New Accounting Software – How It Really Works
NFP Partners has been working with nonprofit organizations for over seven years, providing accounting software tools and added-value services. Our initial focus was on nonprofits that had outgrown their entry-level accounting software, such as QuickBooks or Sage 50 (formerly Peachtree), or were using commercial software that was not suited to handle nonprofit accounting differences. Coming from the private sector, adapting to the nonprofit world was a steeper slope than we had first imagined. Similar to private businesses, a nonprofit software purchase is usually a “have to” and seldom a “want to" decision. However, for nonprofits, the process is much slower. Often, budgeting and funding for back office software is not a high priority and plans are subject to derailment as higher perceived needs arise. So, there’s a tendency to get by as long as possible with the existing software until it’s simply an unsustainable situation. It’s not unusual that organizational change accompanies these types of decisions.
This article addresses why nonprofits eventually migrate to a more robust accounting system. On April 24th, I will present our revised webinar on this topic that will include a suggested strategy and practical steps in implementing new accounting software. It’s not too late to register and it will be schedule for future dates. The webinar will be informative, truthful and helpful for nonprofit financial managers who want to help their organization succeed.
To dispel one impression, QuickBooks is not a pejorative for us. In fact, we endorse it and other entry-level software as satisfactory tools for small- to mid-size nonprofits. We use the QuickBooks Enterprise edition hosted by our private cloud service for many of our outsourced accounting clients. QuickBooks has become the default software for small businesses and nonprofits since it is user-friendly and has some feature-sets that other more advanced accounting software may not have (e.g., integrated credit card processing). It can serve as a permanent tool for organizations with stagnant growth, along with those that operate more like private businesses with revenues derived from selling goods or services. We have seen nonprofit accountants and bookkeepers, who know how to use QuickBooks, perform some pretty magical things, pushing it beyond its intended limits. There’s a natural human resistance to change, and unfortunately, their good intentions can become a disservice to the organization.
Abila, the software vendor for MIP Fund Accounting, published a white paper, “Ten Reasons Nonprofits Need Fund Accounting.” The 10 reasons can be boiled down to three or four main ones. The term, "fund accounting," causes some confusion. The traditional definition stems from government where funds are self-balancing accounting entities within a government organization that are statutorily prescribed for a government organization. Think general fund, utility fund, etc. However, the term is less precise when it is applied to nonprofit organizations. Nonprofits can have self-balancing accounting entities that generate both revenue and expenditure reports and a balance sheet that are established by the Board of Directors (e.g., capital campaign fund, federal or state grant fund, etc.). More typically, it’s used in reference to accounting for revenue sources that are restricted for certain purposes or have a time expiration. Usually these are grants, large donor contributions and endowments. The balance of assets over the life of the funding is shown in the Net Asset section of the Statement of Financial position, but is not a self-balancing accounting entity. Some accountants refer to this as net asset accounting rather than fund accounting.
Nonprofit organizations outgrow their accounting software for 3 main reasons:
- Too many accounting objects to track
- More robust and flexible budgeting and forecasting
- More comprehensive and flexible reporting and data analysis
Please feel free to contact me at 303-367-1058 with any comments or questions.