We often get asked, by growing nonprofit organizations, whether they have outgrown their accounting software – most notably QuickBooks. Let’s preface this by saying when we get asked, the honest answer is—it depends.
It depends on sizeof your nonprofit and how quickly it is growing as well and other factors, such as complexity of your funding sources. We know migrating to new accounting software can be overwhelming, which is why we’ve written Stepping Up to New Accounting Software – How It Really Works. Note: NFP Partners are experts in QuickBooks and we service plenty of clients on this platform. But, it does have its limitations.
How to know if your nonprofit has outgrown QuickBooks:
1. You are constantly having to use other programs (most often Excel) to build reports and subsidiary records.
This is probably the number one indicator that a nonprofit realize has outgrown QuickBooks or other entry-level accounting software. Intuit works at providing better reporting options in its online and desktop products, but still falls short in meeting more complex financial reporting requirements. If you are on the edge about this one, consider reading Accounting Software Questions for Your Nonprofit to Ask.
2. Your nonprofit has multiple funding sources.
QuickBooks has serious structural limitations in its capability to handle a growing organization with multiple funding sources that may include Federal, state and local government, private donations and foundation grants. Minimally, nonprofits must classify accounting entries by natural account (asset, liability, revenue, expense) and expenditures by function (program, fund raising, and administration). As the QuickBooks account structure is limited to “account” and “class”, there is no clean way to add tracking by funding source. This limitation becomes a major factor in your organization’s ability to timely bill and report to funders, and maintaining transparency to compete for grants.
3. You’re worried your internal controls may not be up to par.
Quickbooks’ internal controls are weak, especially when there are multiple users and is not constructed to enforce a separation of duties. The more costly Enterprise edition has improved upon this, but still does not address the account structural limitation referred to in #2 above.
4. Everything takes longer than it should
You may have outgrown your accounting software if the following takes longer than it should:
- Entering transactions
- Creating bills
- Pulling reports
- Month-end closing
- Audit preparation
If you are finding everything you do, related to your books, takes a significant chunk out of your day, it’s probably time to move to a more robust system.
5. You are unable to cross fiscal years for reporting needs.
All organizations do not have the same fiscal year as their funders. Grant reporting becomes especially burdensome when unable to report the correct expenses and revenue for the grantor’s mandated period of performance. Combining two fiscal years to make one consolidated grant report becomes overly manual and time-consuming, not to mention, frustrating.
In addition, it increases the risk of not capturing all of the expenses related to the grant. Thus, your grant billing will be understated and your agency might not be reimbursed for all of the allowable expenses related to the program.
Many nonprofits have outgrown their entry-level accounting software and have turned to a specialized accounting software system to support the next growth phase. Rip off the Band-Aids and implement a solution that will help you achieve your financial goals.
If you are asking these questions already, it’s likely your organization has outgrown your current software. We invite you to contact us to learn more about our solutions for small- and mid-sized businesses and receive a free accounting software assessment. It’s easier and more affordable than you might think. You can also visit our Ultimate Guide to Outsourced Nonprofit Accounting to learn more.