Knowing When to Say Goodbye to QuickBooks

10 SIGNS YOUR ORGANIZATION NEEDS A BETTER ACCOUNTING SOLUTION

As a nonprofit, you have unique and complex accounting needs. When you first launched your organization, it might not have been so complicated with mostly individual donors and maybe one grant. Your organization may have started with QuickBooks because it was affordable and worked
well enough. But as your organization’s accounting needs—and diverse revenue streams—have grown, QuickBooks doesn’t always with you. It might even be holding you back.

Here are 10 of the most common accounting software capabilities growing nonprofits need if they want to improve the accuracy and efficiency of their data-entry and reporting processes. When your nonprofit needs these capabilities, it’s time to say goodbye to QuickBooks and hello to purpose-built fund accounting software that helps you reach your impact goals.

1. Compliance with Industry Accounting and Reporting Standards

To maintain nonprofit status, organizations are required to comply with the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board (FASB). These principles include the following key requirements

• Expenses must be reported by function: program, management and general, and fundraising

• Net assets must be presented on the statement of financial position as net assets without donor restrictions (formerly unrestricted net assets) or net assets with donor restrictions (formerly temporarily restricted net assets and permanently restricted net assets)

If you’re finding it increasingly difficult to manage nonprofit reporting requirements, then it’s time to reevaluate your financial system. Fund accounting software is designed so that nonprofit staff can easily meet these standards without time-consuming workarounds and manual processes that open you up to errors and data vulnerabilities.

2. Timely, Accurate Reporting

Due to the nature of your work, charitable organizations need to be transparent so you can build trust with your donors and funders. Fund accounting software allows you to quickly and easily run financial reports for your various supporters and stakeholders, so you can demonstrate responsible stewardship of contributed funds. Many fund accounting systems come with dozens of nonprofit specific reports, plus configurable reporting tools, to help you get the information you need quickly and easily. However, using QuickBooks to track and report on diverse revenue streams can be complicated and tedious—possibly even requiring external spreadsheets especially when managing numerous projects and locations.

3. Ability to Manage Multiple Budgets

Many nonprofits manage budgets at the project or grant level, in addition to the general operating budget. Grant proposals typically require project-level budgets—which may reflect a different fiscal year than the operating fiscal year—to be submitted with the application. With fund accounting software, you can create multiple grant and project budgets, compare numerous budget scenarios, use customizable fiscal periods, and review budget to actual performance.

On the other hand, QuickBooks does not provide for complex budget controls, like the ability to apply preset custom budget distributions. It also doesn’t support scenario-based budgeting, so you can’t merge budgets into a master or mark a budget as final or inactive. There are no notifications to alert you to an expense that would cause you to go over budget, which is crucial for nonprofits with restricted funds.

4. A Flexible Chart of Accounts to Track Data

Nonprofit accounting is complex. Organizations are often juggling multiple projects based in different locations on various timelines. Revenue sources can be numerous—grants, donations, endowments—and when donors place  spending restrictions on contributions, these funds must be tracked and reported separately to ensure that donor intent is met.

The QuickBooks account structure offers customizable “classes,” but they are a poor substitute for nonprofit fund accounting. These classes can become unmanageable as your data becomes more complex. To effectively track data for internal use and external reporting, your software needs to have a flexible chart of accounts—allowing you to easily build the reports you need while also allowing you to drill down to view transactions.

5. Accurate Recording of Encumbered Funds

There may be instances when your organization receives funds designated for a specific purpose but won’t spend them until a future date. Being able to record these funds as encumbered in your software can help improve cash flow forecasting and prevent overspending on a limited budget.

Fund accounting software typically has this functionality built-in, so the process is handled quickly and intuitively. To track encumbrances using QuickBooks, you need to use a complicated workaround that requires several manual steps to accomplish.

6. Effective Management of All Your Grants

It can be complicated to track revenue and expenses from so many sources as your organization grows. This is especially true for nonprofits. They are required to track and report revenue by fund type and ensure that restricted funds were used according to donor intent. Failure to show that spending aligned with donor intent can cause your organization to lose trust and funding.

QuickBooks requires additional steps to accurately track revenue and expenses by source and fund type, which means your staff will spend more time checking to see if donations are designated appropriately. With the right software, nonprofits can simplify this process by creating funds and assigning accounts in the general ledger.

7. Increased Accountability with Internal Controls

Multiple individuals may need access to your nonprofit’s financial information, but they don’t all need the same level of access. Robust fund accounting software gives you the ability to create logins for users and set access restrictions, including view-only rights. This allows your organization to be more transparent without compromising important files. You can get granular with user access, even down to the record level, to support strong internal controls and data security.

While QuickBooks offers some basic user access settings, you must purchase a separate license for each user—and the number of users who may simultaneously access the program is limited. Additionally, it relies on peripheral programs to perform key tasks, creating a security risk and leaving no audit trail for any data outside of the system.

8. Secure Access to Mission-Critical Data Anytime, Anywhere

Cloud fund accounting software makes it possible to securely access your data no matter where you are with:

• 24/7 access from any device

• Enterprise-level security

• Fast, flexible nonprofit reporting

• Nimble budget analysis

• Efficient grant and project management

On the other hand, QuickBooks Online offers limited functionality and usage limits on the number of users, chart of accounts, and custom class and location items. In addition, QuickBooks Online gives restricting options for customizing and creating your essential financial reports, invoices, and statements.

9. Integrations with Other Nonprofit Management Solutions

Your organization almost certainly uses other nonprofit management software, and your accounting solution should work with it seamlessly. QuickBooks offers external application integration, but connecting with third-party programs can be expensive and doesn’t always provide the most user-friendly experience.

It’s ideal to work with a vendor that offers integrated fund accounting, fundraising, and CRM solutions. This way, you can automate processes across platforms that are designed to work together, eliminating duplicative tasks and improving the accuracy of your data

10. A Complete System Designed for Nonprofits

Reliance on external applications can be cumbersome and lead to costly data entry and reporting errors. Without a single source of truth, your employees may find themselves spending an excessive amount of time sifting through spreadsheets for data that should be readily accessible.

With QuickBooks, nonprofits must often rely on spreadsheets for budgeting and reporting—which can make version control and transparency nearly impossible. The more data you have, the more exports you’ll need and the more spreadsheets for you and your team to maintain.

Streamlining processes with a comprehensive fund accounting solution means fewer errors. Find a solution that doesn’t constantly force you to deal with spreadsheets but can work seamlessly with programs like Microsoft® Excel® when you need it to.

QuickBooks may have been acceptable when your organization was getting off the ground. Today, you need a solution that can handle the intricacies of nonprofit financial reporting and compliance while also providing resources and support tailored for organizations like yours.