How to Determine which Accounting Software is the Best Fit for your Nonprofit

Accounting has evolved into an industry that is heavily dependent upon technology. Many nonprofits do not realize how much they might benefit from an upgrade in accounting software. For some organizations, there can be a “if it’s not broke, then don’t fix it,” mentality that exists simply because they do not see the long-term value in spending money on an accounting system. While an upgrade in software might not have a direct impact on your organization’s net assets, it can create efficiencies in transaction processing, which will lead to more meaningful financial reporting, trend analysis, and a timely close process.

Over time, an upgrade can in fact, result in savings due to efficiencies gained. Accounting and other staff may spend less time doing their work, resulting in more timely financial information that allows decision makers to make strategic decisions. These decisions can lead to more creativity and innovation which will ultimately enable your organization to grow.

Once your organization has made the decision to upgrade its accounting software, there are a number of things to consider as you go through the process that will help ensure the software you select is the best fit for your nonprofit.

Put together a team of relevant parties

Embarking on a major accounting software upgrade should not be the responsibility of the accounting department alone. Major decisions of this nature will affect the entire organization. Thus, the team tasked to oversee this process should be represented by individuals from each function across the organization. At the very least, this group should include representation from the management team, as well as members of the accounting, information technology, development, and programs departments. In addition, if your organization outsources any of these functional areas, the consultant should be involved as well to provide the necessary input throughout the process.

Establish how much you are willing to invest

You should establish a threshold for how much the organization can afford to spend on the project before your team gets started investing time in researching software. There are many factors to consider before an actual amount can be determined, such as whether you need to allow for growth, current and future reporting needs, and whether real time access to financial information is needed.

Learn what is out in the market

Oftentimes, decision makers are not fully aware of the different types of software products that are available to nonprofits. In this case, you might consider hiring a consultant that specializes in several software packages to help you evaluate potential solutions. Thinking through your needs before a consultant is hired will help to ensure you locate the best reseller for the accounting product that is best suited for your organization.

You can also find information on accounting software for nonprofits in accounting publications, networking events in the accounting industry, as well as networking with other nonprofits that have a similar mission. Oftentimes, talking to staff at similar nonprofits can be especially helpful because they can provide insight on any pain points to avoid during the implementation process which will help you eliminate potential roadblocks early on. Once you’ve gathered enough information, create a spreadsheet that compares the strengths and weaknesses of each product you researched. The outcome will help validate your decision.

Do an internal analysis of your accounting process

Performing an internal analysis is the next step in the process. This step allows you to identify where your pain points are. As you learn more about software packages that are out there, you’ll learn more about features such as automation which may help you identify more inefficiencies than what you previously thought. To properly identify your organization’s inefficiencies, you’ll need to step back and take an objective look at your accounting processes. You can start by asking questions such as:

Is transaction processing efficient and accurate?

Typically, transaction processing is the greatest source of inefficiency. An example of this would be if an organization has someone recording financial transactions in an association management system or customer relations management system (AMS/CRM) and someone else entering the same information into the accounting system. The action of entering same information in disparate systems is an example of duplicated effort. This type of inefficiency can be remedied by integrating the AMS/CRM system with the accounting software, which will give you the ability to import transactions into the general ledger.

Are we creating our financial statements in Excel?

If you are still creating financial statements in Excel, then you are well aware that it is a very manual and error-prone process. However, the potential for errors in the data can be greatly reduced if the Financial Statements are generated directly from the accounting system. As a result, the time that you would normally spend on creating financial statements in Excel can be spent on analyzing data and providing management with information that will assist in budgeting and strategic decision-making.

Is the accounting system integrated with the AMS/CRM system?

There should always be some sort of integration between the AMS/CRM and the accounting system. Department heads and staff rely heavily on reports from the AMS/CRM system to track performance in membership and programmatic areas. However, problems can arise if the financial statements produced by the accounting system are not consistent with financial data recorded in the AMS/CRM system. These types of discrepancies can lead to conflicts and an erosion of trust between the accounting department and other departments.

What type of information will be most useful to management?

Most nonprofits provide their leadership with a standard statement of financial position (SFP) and a standard statement of activities (SOA); however, is this enough information to make meaningful decisions? Do department heads and project managers have the tools they need to manage their budgets and forecast performance? Are decision makers able to clearly determine whether the organization is following through on its mission upon reviewing the financial reports? Answering these questions first will help you identify your reporting needs, which in turn will give you a better understanding of your software needs.

Do you have sufficient backup and storage capabilities?

Record retention is an important part of this process. Your organization may want to explore a document management system to eliminate filing support generated by your accounting system. Document management systems can be used to store invoices, contracts, and nearly all types of correspondences and support. If you are still paying to send accounting files to offsite storage, then switching to a robust document management system will save your organization on storage fees. A document management system will also eliminate your need to have physical file cabinets to store your accounting support.

If server space is an issue, you may want to consider the benefits of using a cloud-based accounting system. Cloud based systems eliminate the need to have a dedicated server to manage accounting and AMS/CRM data. This is where your information technology professional can provide you with insight and direction. Cloud based systems make data and software accessible online by your staff anywhere, anytime, and from any device.

Narrow down the possibilities and make a decision

At this point, you have researched a number of possible solutions and assessed your own internal needs. Now it’s time to narrow your list to the top contenders. This is where the spreadsheet you created will come in handy. Eliminate any software packages that do not fit your needs. Have two, but no more than three viable options to choose from, and then reach out to a consultant that specializes in accounting software for nonprofits to assist you in the process. Your ultimate decision should incorporate all the factors that were discussed above.

Dante Williams serves as a controller for Tate & Tryon’s outsourced services clients and can be reached at dwilliams@tatetryon.com.