Nonprofit accounting software — six points to consider
Is it time to invest in new accounting software? Asking the right questions up front will help you make the best choice for your organization. Also, take a look at the Fits For Small Business list of what they consider the best accounting software for small businesses, including small nonprofits.
What's driving the purchase?
You don't necessarily need to follow an extensive formal process, but take time to identify the primary drivers behind your purchase decision. For example:
- Do you need accounting software for a new organization or are you replacing existing software that no longer meets your organization's needs?
- If you're replacing existing software, are you looking to streamline operations? Support regulatory compliance? Increase controls?
- Do you anticipate growth or other changes in the next few years that would affect your accounting software needs?
If your organization is small or you're just starting out, consideration of these drivers might be quick. If you have complicated accounting needs or you anticipate significant effort converting from an older system, it might take weeks or longer.
How will the software fit into your business processes?
Consider your organization's business processes, as well as the importance of division of duties and accounting controls. For example:
- Who will use the accounting software?
- How will it be used?
- Will new software require changes to current business processes?
What are the most important features?
Next, identify and prioritize desired functionality for your accounting software, such as:
- Controls and division of duties
- Functional expense allocation
- Restricted asset management (revenue, expense and net assets)
- Fund accounting
- Grant, contract or project accounting
- Reporting (including budget to actual comparison, fund management, restricted funds and cost accounting)
- Quote or estimate creation
- Tax preparation or support
- Payroll processing
- Specialized accounting needs (such as churches or schools)
Also consider related issues, such as:
- Accessibility (such as cloud-based vs. desktop)
- Ease or speed of use
- Availability and quality of system documentation
- Length and cost of technical support and training
- Backup and recovery
- Technical configuration (including number of users and need for simultaneous access or access restrictions)
- Ease of conversion or portability (including any transitional period or interruption while data is transferred into the new system)
- Integration with other software or programs
- Scalability (ability to meet current and future needs)
- Maturity of the solution and company
What's the budget?
Confirm your software budget to help narrow your choices. Remember to account for both initial and ongoing expenses — such as upfront and annual license fees and staff time for implementation, conversion and maintenance.
What are the available solutions?
Armed with your drivers, needs and budget, you're ready to research potential vendors and product solutions.
An inexpensive or free cloud-based accounting solution may be ideal if you have a small organization and simple accounting needs — and anticipate staying that way for at least a few years. Inexpensive or free solutions generally have limited features and are not suited for larger or more complex organizations.
With cost an obvious selling point, potential downsides for the least expensive solutions may include lack of compatibility, possible expense of converting off the system at some stage and other hidden costs. If you opt for a free or inexpensive start-up cloud-based solution based solely on the upfront cost, you may discover too late that the software is missing critical features, is cumbersome to use, or has other drawbacks or limitations.
An enterprise-level application may be appropriate if you have a larger or more complex organization or you require specialized accounting features, such as industry-specific functionality. These applications are the most expensive both upfront and ongoing and they require specialized knowledge to administer — but they offer the most features.
What are the most common pitfalls?
Pitfalls often surround:
- Requirements. It may be tempting to skimp on gathering requirements or to simply go with the first recommendation, but this can lead to the wrong software choice for your organization — and a difficult decision down the road on a costly conversion to another solution. On the other hand, spending too much time on requirements may waste precious resources and delay the purchase and implementation of your new software.
- Timelines. It's easy to underestimate the amount of time it'll take for a new system to be operational.
- Training. You'll need qualified staff or consultants to help you design the new system and its transition, as well as provide adequate training for staff and ongoing tech support.
- Expectations. An accounting system on a budget won't give you all the answers. Without creating too many data collection levels, be clear about your accounting priorities — and be willing to explore other ways to get the information you can't get directly from your new accounting system.
Narrow the decision to your top two or three solutions. Then:
- Compare the capabilities of each solution against your requirements and priorities
- Use a matrix or scorecard to weigh the key advantages and disadvantages of each (including support and maintenance needs)
- Consider the trade-offs you're willing to make as you prioritize between the variables of cost, features and time
- Review your results with the key stakeholders and decision-makers
- Develop as much consensus as possible — and make the call on your new accounting software
Affinity NFP: A nonprofit's guide to choosing an accounting system (2010)
Cargas: Choosing the best web-based nonprofit accounting software (2015)
npENGAGE: The 7 steps to choosing nonprofit accounting software by Melissa McCormack (2016)
Capterra: The top 8 free accounting software for nonprofits by Nick Morpus (2016)
The Nonprofit Times: Nonprofit accounting software: avoiding an installation epic fail by Ted Needleman (2013)