What Every Board Member Needs to Know About Nonprofit Accounting

Justifying the price tag on nonprofit accounting software probably isn’t easy for you as a board member. Because financial resources are often tight, your focus might be to spend money on advancing your organization’s mission and not on its accounting needs. Besides, accounting software is often free, so why spend money you don’t have to, right?

While the price might be difficult to overlook, a good accounting software can arm your organization head to toe with better security, reporting, and fund management. Without it, you’re leaving your financials susceptible to error and errors aren’t easily overlooked by those funding your nonprofit.

As a board member, you have an important role guiding your organization, but you might not be aware of the unique problems nonprofits face when it comes to accounting. Setting your nonprofit up for success begins with properly maintaining the finances, so here are a few reasons why nonprofit accounting software is so important.

1) NONPROFIT ACCOUNTING IS DRASTICALLY DIFFERENT FROM FOR-PROFIT ACCOUNTING

The approach to for-profit accounting is simple—don’t spend as much as you bring in. While the same rings true for nonprofits, there’s an added layer you need to be aware of. Nonprofits have restrictions on what they can spend their money on and how they spend it. In order to follow these restrictions, nonprofits need to be able to track their funds and report on them to grantors, government agencies, and even donors. The funds need to be as transparent as possible. Without the proper accounting software, maintaining that transparency becomes difficult, especially as your organization grows and funds become more complex.

2) SPREADSHEETS CAN LEAVE YOUR ORGANIZATION EXPOSED TO SERIOUS THREATS

Younger nonprofits often avoid purchasing nonprofit accounting software by using an inexpensive for-profit software and tracking their funds with spreadsheets. The problem is that when nonprofits grow, the more complex their accounting gets. There are a variety of reasons why spreadsheets can’t handle the complexities of a growing nonprofit but one of the biggest is there isn’t a way to easily check for double entries. Plus, entries can be changed, or misallocated, leaving your organization exposed to fraud. A true fund accounting software separately holds all your funds and tracks them from when you received them to when you’ve exhausted them.

3) STAY ON TOP OF YOUR NONPROFIT WITH TOP-NOTCH REPORTING

Quick, customizable reporting is crucial for an organization to function properly. Nonprofits need to update volunteers, donors, grantors, and even board members on an annual basis if not a monthly basis on their accomplishments and failures. Without a proper system for reporting, the reports are assembled by hand, which can lead to errors, not to mention the time it takes. Being able to report as accurately as possible can gain your organization more trust and provide better clarity on your needs.

4) GRANT MANAGEMENT TOOLS MAKE IT EASIER ON NONPROFITS

For all government agencies, the process of managing both federal and non-federal grants is required to be done with a compliant software. That’s due to how well these systems help manage grants and is a testament to how difficult the process of tracking grants is. Not only are grants hard to obtain but maintaining them is a whole other monster. If you fail to meet the deadlines of the grant or have reporting issues, you’ll face large funding risks. That’s why arming your organization with a software that can simplify your process is imperative.

5) THE RIGHT ACCOUNTING SOFTWARE WILL TAKE THE BURDEN OF ACCOUNTING OFF YOUR SHOULDERS

As a board member, setting your organization up for success should be your first priority. Getting software that correctly maintains your funds is not only more secure, but it lowers the risk of losing your funding. The price you pay now for a software won’t be as much as you’d pay later if you happen to lose funds due to a mistake in your reporting. So be sure to find software that takes the burden of accounting off your nonprofit.