Nonprofits have unique needs and challenges that many for-profit businesses don’t face. But like other small businesses, accounting software can be a game changer. In this article, learn about the unique accounting challenges nonprofits face, how accounting software can help, and how to choose the best accounting software for your nonprofit organization. 

Accounting Challenges of Nonprofits

Here are the main problems that many nonprofit organizations run into regarding their accounting. 

1. You need a better business foundation

Some nonprofits start with a dream and skip over steps involved in establishing the business (this can happen with small businesses in general, too). Financial management is not exactly intuitive, so you may lack systems for:

• Bookkeeping
• Accounting
• Submitting tax forms
• Understanding tax liability
• Insurance
• Maintaining your tax-exempt status

If your nonprofit is already up and running, it’s not too late to get a good foundation underneath it to avoid trouble with the IRS.

2. You need more financial education

The Financial Accounting Standards Board sets strict requirements for nonprofits. Nonprofits often struggle to maintain their financial data and general ledger because they are usually not accounting experts. Like many small businesses, nonprofit leaders are following a passion and often don’t have training in essential tasks like tracking accounts receivable and accounts payable or creating financial statements. There are many free online webinars that can provide basic accounting education for nonprofit organizations.

3. You need more time

Between meeting with Board members, tracking volunteers, and applying for grants, you’re probably low on spare time. This lack of time means you have less energy to focus on accounting and bookkeeping. Using systems for things like time tracking and inventory management can help lessen the constraints on your time.

4. You’re dealing with revenue instability

Relying on donations and grants means funding for nonprofits can vary drastically from month to month. This makes it very difficult to create realistic budgets and longer-term goals if you don’t have the right accounting tools. Customizable software that’s either made for nonprofits or for small businesses in general could be exactly what you need to forecast effectively.

5. Your grant process is too labor intensive

Grant management is one of the biggest challenges that nonprofits face. If you can’t afford to hire a grant manager, there are ways to streamline your grants process. There are even several accounting software options that also provide grant management add-ons to offer an all-in-one solution.

How Nonprofits Can Use Accounting Software to Combat the Effects of Funding Instability

Nonprofit leaders have a lot on their plate — but there’s no need to handle everything on your own. Nonprofits use a different approach to accounting than for-profit companies called fund accounting. The goal of a nonprofit is not to make money but instead to raise money and use it toward a stated purpose, so it makes sense that there would be different requirements for accounting software.

Accounting solutions can make maintaining your nonprofit organization’s finances smoother, more accurate, and more predictable. Online accounting systems provide software solutions that help organizations manage and maintain their bookkeeping and accounting with less questioning and stress at the end of the month. 

By using the best accounting software for nonprofits, you can automate and streamline many aspects of your accounting system, like:

• Being able to track donations
• Managing allocations
• Creating financial reports
• Handling expense tracking
• Using donor management tools
• Managing fundraising efforts
• Maintaining a customer relationship management (CRM) system

With many fund accounting software options, you can also link your bank account to allow for automatic credit card and bank reconciliations. 

How to Choose an Accounting Software for Your Nonprofit

Accounting software, when combined with a little education, can help nonprofits gain control of their finances. There are nonprofit accounting software options that are made specifically for nonprofits, but you may also find that more general accounting solutions would work best for you. The best nonprofit accounting software depends on your organization’s needs.

Consider which integrations are important to your organization, and whether or not you would need an all-in-one software or you’re willing to piece several separate systems together.

You’ll want to look at the accounting features to see if the software matches your accounting needs, as well as pricing and functionality. If you have remote or global staff that would need real-time cloud-based accounting, choosing a cloud-based software is essential. Also, consider whether web-based software is enough or a mobile app is necessary for any employees that are on-the-go. 

Additionally, if you’re a global organization, consider whether you need a multi-currency software to handle currencies from around the world. See Nav’s accounting software resources for more.

Best Accounting Software for New Nonprofits  

When you’re just starting a nonprofit, you may only need your business accounting software to have basic accounting tools. If you need specific features, though, be sure to pick an option that offers them. Here are some of the best options for new nonprofits.

FreshBooks

FreshBooks is one of the most popular accounting software options on the market. Nonprofits can use FreshBooks to help with bookkeeping, invoicing, time tracking, and more. 

Sage

Sage is an affordable accounting option that could work well for nonprofits that are just starting out. If you’re further down the path and have more detailed accounting needs, you can upgrade to Sage Intacct for a more intensive cloud-based software system.

MoneyMinder

The standout feature of MoneyMinder is its ease of use, even with zero bookkeeping knowledge. It’s made for nonprofits run by volunteers, and also lets you manage volunteers with its built-in tool. You can handle budgets, manage bookkeeping, and create financial reports with this software.

Best Accounting Software for Growing Nonprofits  

The size of your organization will likely come into play when you’re choosing between nonprofit accounting software options. Here are some of the best options for growing nonprofits.

Intuit QuickBooks Pro

QuickBooks is one of the most well-known accounting options on the market. Whether you use the basic QuickBooks Online or upgrade to the all-in-one QuickBooks Enterprise Nonprofit, you’ll be in good hands.

Software4Nonprofits ACCOUNTS 

Small nonprofits could benefit most from ACCOUNTS from Software4Nonprofits. It’s easy to use but is limited to basic bookkeeping features and automated fund accounting. As long as your accounting needs aren’t complicated, a software that’s designed for your type of organization could work well.

Blackbaud

Large nonprofits would likely be the most compatible with Blackbaud since it was created for nonprofits and has a large number of services. Blackaud created the popular Raiser’s Edge NXT donor management platform, which you can combine with its Financial Edge NXT accounting software. There’s also an array of other tools like grant management, fundraising, and payment services within the same platform.

Best Overall Accounting Software for Nonprofit

Here are the top options for nonprofits who are looking for more general accounting software that can optimize their bookkeeping and accounting systems.

Bench

Bench gives nonprofits real-time access to professional bookkeepers. Offload your monthly bookkeeping and accounting responsibilities using Bench. Plus, if your nonprofit has failed to keep its books for the past few years, Bench offers catch up bookkeeping services. 

Aplos

Aplos was created for nonprofits. It offers fund accounting software, donor management tools, CRM tools, as well as the ability to accept donations online using credit cards. Having an accounting software that was made specifically for nonprofits using fund accounting could be essential for your nonprofit.

Araize FastFund Accounting

Araize is cloud-based accounting software so it could be great for a global or remote workforce. The company offers accounting, fundraising, and payroll services specific to nonprofits or small governmental agencies. Araize also offers a fund accounting course that you can take to improve your financial knowledge.