A step-by-step guide to choosing the right accounting system for your nonprofit

By Geniene Scherer, CPA

Selecting a new accounting system for your nonprofit can easily become an all-consuming endeavor. There are so many options, so many features, and so many solutions. It can be hard to determine “must-haves” for your organization, and comparing systems can cause your head to spin.

Yes, this process can be complicated, and it’s important to get it right.

Why is choosing the right accounting system so important?

Effective financial management is crucial for your nonprofit’s success. The right accounting system can enhance the following aspects of your organization’s financial management:

• Accuracy: Minimizes errors and ensures precise financial reporting.
• Efficiency: Streamlines financial processes, saving time and resources.
• Compliance: Ensures adherence to nonprofit financial regulations.
• Donor confidence: Enhances transparency, building trust with donors.
• Support for growth: Provides the scalability needed to support your organization as it evolves.

To choose the best accounting system for your nonprofit, consider following these steps.

How to choose the right accounting system for your nonprofit (8 steps)

1. Start by assessing your organization’s needs.

Identifying critical needs for your nonprofit’s accounting system can feel like an overwhelming task. However, breaking this process into key steps and involving the right people can help to simplify the process. To get a clear picture of what matters for your nonprofit, consider assessing the following:

• Mission and goals: Ask this question: What do you need from your accounting system to support your organization’s mission and long-term objectives?
• Current challenges: Identify pain points in your current system. Pinpoint issues such as manual data entry, reporting difficulties, and time-consuming reconciliations.
• User requirements: Gather input from all stakeholders, including finance teams, program managers, and board members to understand their needs and encourage buy-in.

2. Look for essential nonprofit accounting features.

The right accounting system for your nonprofit will include features that allow for the following:

• Fund accounting: Ability to segregate and manage funds from different sources.
• Grant management: Track grant applications, awards, and compliance with grantor requirements. Manage and report on grant expenditures.
• Donor management: Integration with donor databases to streamline contributions and reporting.
• Budgeting: Facilitate budget creation and provide monitoring tools for creating, managing, and comparing budgets.
• Compliance: Ensure compliance with nonprofit accounting standards and regulatory requirements.

3. Evaluate your options.

Once you have a solid understanding of your organization’s needs, it’s time to go shopping. To evaluate and narrow down your options, take a close look at the following:

• Market research: Identify leading software solutions tailored for nonprofits.
• Reviews and ratings: Check feedback from other nonprofit organizations on platforms like Capterra and G2 to gauge current customer satisfaction.
• Community resources: Look to user forums, knowledge bases, and user groups for peer support.
• Vendor reputation: Seek out vendors with a strong track record in the nonprofit sector.

4. Check for efficiency and automation capabilities.

A new accounting software can greatly improve your organization’s efficiencies—but only if it has the capability to do so. The right accounting system for your nonprofit will allow for the following:

• Approval workflows for purchasing, accounts payable, journal entries, and vendor creation.
• Shortcuts that allow for process efficiencies such as “populate from last,” “copy to,” “duplicate,” and “recur.”
• Reporting and dashboards that provide the information you and your team need—in real time and at your fingertips.
• Checklists to outline and track the completion of key steps for processes such as the month-end close, setting up a new grant, or creating new vendors.
• Easy communication within the system with the ability to tag transactions and link in or upload files for support—all to streamline your organization’s communications and help lessen the burden of managing your email inbox.

5. Ensure compatibility with existing systems.

The right accounting system will seamlessly integrate with your organization’s existing systems, such as its CRM, payroll, and HR software.

In evaluating a system’s compatibility, be sure to check for integrations already built and tested with other systems as well as customization options that can tailor the software to your organization’s specific needs. You’ll also need to plan for a secure and efficient data migration from your old accounting system to your new one.

6. Pay attention to security, compliance, and control.

Your nonprofit needs an accounting system that will bolster its data security, compliance, and internal controls. For this reason, be sure to consider the following:

• Data security: Ensure the system offers robust data protection measures. Look for features like user access control, and regular security audits. The system should allow for access on a need-to-know basis only.
• Compliance: Verify the system complies with data protection regulations
• Audit trails: Does the system provide comprehensive audit trails to track changes and access to financial data?
• Internal controls: Look for a solution that provides the internal controls you need, including limiting access and segregation of duties.

7. Consider all costs.

To accurately assess a system’s cost, be sure to calculate the following:

• Initial costs: Start by identifying one-time implementation costs, as well as software purchase, or annual subscription fees. Carefully analyze these fees, purchase what you need, and plan to add on later as needed. Make sure you have a detailed listing of the software and services included in an estimate to aid in comparative analyses.
• Total cost of ownership: Evaluate ongoing costs including maintenance, upgrades, and support over the system’s lifespan.
• ROI and payback period: Remember, a new system can more than pay for itself, and the payback period may be shorter than you expect!
• Cost of inaction (COI): Delaying critical decisions about your organization’s accounting system can be costly; understanding the financial impact of inaction is crucial for making informed choices. As such, it’s important to ask: What are the negative financial, economic, and cultural costs your organization could incur if it fails to take action or address a problem or risk? What opportunities could be missed?

8. Seek out a partner.

When it comes to an accounting system, having the right partner—and not just a product—makes all the difference. A partner will provide support throughout the implementation process and beyond, empowering your nonprofit to make the most of its new system.

To ensure you’re getting a true partner, look for a vendor that offers the following:

• A top-notch reputation: Look for vendors with a strong track record in the nonprofit sector and responsive customer support.
• Project management focus: This is key to a successful implementation!
• Training programs: This should include extensive training resources including manuals, webinars, and live staff training.
• Ongoing customer support: Ensure you’ll have access to timely and effective support.

Make a clear choice for your nonprofit.

Choosing the right accounting system for your nonprofit can be a powerful step in furthering its mission. Following these steps can help to bring clarity to your decision, allowing you to confidently make a change for the better.

If you’re unsure of where to start or which accounting system is best for your nonprofit, the Abdo team is here to help. Our advisors can help you assess your organization’s needs and provide system recommendations. We can also guide you through the selection and implementation processes.

To learn more about how we can empower your nonprofit, contact us today.