Not all accounting systems are made equal. While fund accounting software and commercial accounting software (like QuickBooks) both measure incoming and outgoing monies – the similarities end there.
Your nonprofit organization faces different challenges and accounting requirements than that of a for-profit company, which is why running your nonprofit on a commercial accounting system can be inefficient – and even risky – for your organization.
Here are a few reasons why commercial accounting software doesn’t work for nonprofits.
1. Requirements Beyond the Balance Sheet
By design, commercial accounting software measures company performance in terms of gains and losses in profit – tracking income against expenses. However, nonprofits have unique legal and social responsibilities that require an accounting system to go far beyond the balance sheet and income statement.
Because many nonprofit organizations rely on grants or donations, they are required to track and report how each separate sum moves through the organization and various programs.
These funds have to be treated as separate entities – complete with their own income statements, balance sheet, reports, and tracking. Only fund accounting software, such as Abila MIP Fund Accounting, can maintain this type of separation while still reporting totals for the organization as a whole.
2. Tracking Restricted Funds
It’s not uncommon for a major grant or donation to be given with a certain set of requirements or earmarked for specific purpose. These “restricted” funds must be carefully tracked in order to show that the grant or donation was used properly.
Failure to track these restricted funds separately can result in a tarnished reputation, the loss of funding, the termination of executives, or even the loss of tax-exempt status.
Commercial accounting software simply isn’t designed to separate, track, and report on restricted funds. As a result, many nonprofit organizations that are using commercial accounting software end up tracking restricted funds using spreadsheets and word documents.
If that sounds like your organization, then you already recognize that tracking funds outside of the accounting system using spreadsheets is inefficient, tremendously time-consuming, and error-prone, and very risky.
Fund accounting software like MIP Fund Accounting, on the other hand, tracks fund individually and at every level in the process – this built-in efficiency frees up resources so that your staff spends more time furthering your cause and less time buried in spreadsheets and manual reconciliation.
3. Flexible Fiscal Period Reporting
Unlike commercial businesses, nonprofits don’t report on clear cut quarters or fiscal years. That’s why nonprofit organizations need accounting software that provides flexibility in reporting periods.
Nonprofits have to report to several different audiences, each with different information requirements and reporting timelines. While one organization may want a traditional yearly report from January 1 to December 31, another may request reporting from June to July, while yet another needs bi-annual reports.
The ability to track and report across different time periods is critical for nonprofits and is a key attribute of solid fund accounting software.
4. Reports for Governmental Accounting Standards
The reporting needs of nonprofits are very unique. Nonprofit organizations must produce reports that comply with both the Financial and Governmental Accounting Boards (FASB and GASB), as well as each private and public granting agency – many of which require detailed reports in their own unique formats.
Commercial accounting software like QuickBooks simply isn’t designed to provide these reports easily. It often requires extensive (and expensive) custom report development and ongoing maintenance and support.
Simply put, nonprofits are often required to generate a wider range of sophisticated and governmental-compliant reports than a typical commercial business. And a good fund accounting software application provides most of these as standard reporting options right out of the box.
Do You Need to Upgrade Your Accounting Software?
Accounting systems are a vital part of any business, nonprofit or commercial.
- Are you spending too much time juggling spreadsheets, entering duplicate data, and managing budgets outside your accounting system?
- Do you need more efficient way to track restricted funds?
- Do you want to improve fundraising efforts and donor retention?
Whether you’ve grown, downsized, or need better functionality, the team at Sygnvs Integrated Solutions can help you decide which fund accounting or fundraising software system is best for your nonprofit organization.
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