Balancing the Mission Checkbook

In the last two months I have heard too many stories of nonprofits who have installed accounting software that was recommended as the “perfect” system for them by a consultant or their accountant. It then turns out that no other software was even considered, and it just happens to be the accountant’s preferred system, which of course is always “perfect” for any nonprofit. Since many of these nonprofits don’t have expertise or even comfort talking about accounting, they trust the professional and plunge in with the purchase. Unfortunately, in many cases the software is far too complex for the organization, requires extensive accounting knowledge, or is simply a bad fit. The software will probably work for them as long as the experienced accountant is in place to manage it, but I can predict, based on experience, that within two years these organizations will either need to spend some money to fix an unwieldy system or change their accounting software again.

We are upgrading our accounting software next month to a newer version of the program we’ve been using for over eight years. We’d hit he point where reports were less efficient and there’s an ongoing technical glitch that can only be solved with the upgrade. Before we took this step I asked for a review of some other accounting packages to make sure that we’re using the “right” software. That begs the question of what is the “right” software for nonprofit organizations. The answer, of course, depends on what you need. The tough part is how to find that answer for an individual organization. Since Nonprofits Assistance Fund is a nonprofit focused on financial management we are fortunate to have a lot of experience and expertise within our staff to complete our own accounting review. For all the nonprofits that don’t have this expertise and rely on other resources to help, the help that’s available is pretty spotty, unfortunately, and complicated with hidden agendas.

Even without accounting expertise, an executive director or board treasurer can complete a basic assessment of accounting needs and insist that this review be used as a selection guide. Here are the basic questions:

• Start with the end in mind – what kind of reporting will be needed? This includes reports for management and the board, for individual programs and grants, and for audit preparation.
• Do you receive restricted grants or donations? It’s important to be able to maintain separate restricted and unrestricted balances, but you may not need a full “fund accounting” system. Many organizations, even large ones, use Excel spreadsheets for some of this detail.
• Do you need extensive program, project, or grant-based income and expense tracking?
• What other financial functions do you need to include in the system – such as billing for services, accounts payable, payroll, and fixed assets and depreciation?
• Are there any external factors (like a significant government contract) that require you to maintain a specific list of accounts, codes, or report formats?
• Who will make regular accounting entries and what training or experience is needed?
• What reports are standard with the software and how easy is it to create new reports
• Does it take a CPA or equivalent accounting knowledge to produce regular monthly financial reports?
• The last question to ask a consultant – what is the simplest system available that will meet these needs? The most frequent error I see is selecting accounting software that’s much more than the organization needs or knows how to manage. Keep it simple.