may2021 - 7

FEATURE
Nonprofits Face
Unique Accounting Needs
By Mary Girsch-Bock
IT'S NO SECRET that nonprofit organizations face challenges
not found in the for-profit world. Along with the need for
solid accounting and financial management, nonprofits
are charged with raising money to fund their organization,
which can include unrestricted donations, grants,
and restricted donations. They must also keep track of
administrative or overhead costs separately from program
related expenses, provide their donors with a detailed
breakdown of how their funds were used, and report all
of this to both constituents and board members accurately.
To complicate matters, nonprofits
that offer memberships are
also tasked with tracking member
status, invoicing members when
their membership expires, while also
maintaining an accurate list of all
members, both current and expired.
And programs, a necessity for nonprofits,
do not only help to raise funds,
they also cost money, with nonprofits
requiring a way to adequately track
both income streams that fund the
program such as grants or sponsorships,
as well as any related expenses
for the program, such as venue rentals,
food, and instructor fees.
According to the National Center
for Charitable Statistics (NCSS), as
of January 2021, there are 1.3 million
nonprofits operating in the U.S.
alone, with more than 10 million
worldwide. And while their missions
and their scope certainly vary, the
one thing that all nonprofits have in
common is the need to accurately
record both income (in the form of
donations, grants, and sponsorships)
and expenses, whether they are overhead
expenses or program or mission
related. And just like for-profit
businesses, nonprofits also need to
process journal entries, pay vendors,
record payments, send out invoices,
pay employees, and reconcile bank
statements.
While smaller nonprofits can certainly
get by with standard accounting
software in its early stages, a
growing organization will need
access to the features and functions
only found in nonprofit accounting
software.
But why is nonprofit specific
software important for nonprofits?
According to Liesa Malik, COO of
Tangicloud, an accounting software
publisher focused on the needs of
nonprofits and government entities,
there's a long list of reasons why this
type of software is so important to
nonprofits.
" While the basis of all businesses
relies on Generally Accepted Accounting
Principles or GAAP, nonprofits
have additional areas of focus, " says
Malik. " Being mission-focused instead
of profit-based, nonprofits need to
demonstrate impact on their mission
and their communities in order
to generate the excitement that wins
them grants and donations in years
to come. "
According to Malik, some of those
needs include the following:
Fund Accounting - True fund
accounting is required throughout
the software system your nonprofit
customers use. Nonprofits have public
fiduciary responsibilities to manage
their organizations as efficiently and
effectively as possible. This means
the organization's software should
be able to automatically segregate
income sources by fund and generate
inter-fund balancing entries for all
transactions.
Budgeting - While colleagues
in the for-profit industry watch and
plan for appropriate investments
and spending, if dollars run short,
they have the option of creating
more sales with creative marketing
efforts. Often nonprofits have to have
a spending plan that encompasses
expenses a year or more in advance
without necessarily the flexibility to
increase or decrease based on market
fluctuations. With a good budgeting
and business rules tool in their software
to enforce controls, the nonprofit
sector has stepped up and survived
increased demands for services even
with the reduction in financial support
many have had this year past.
Reporting - The thing that
keeps nonprofit CFOs up at night is
the worry over accuracy in their
financial reports. For these dedicated
professionals a software that can run
reports in real time, be structured
with the right financial report format,
and be counted on for its accuracy is
very important.
If you are in the market for
nonprofit software, there are some
features you should be looking for:
* An application that can grow with your
organization
* Solid reporting options that include
all of the necessary nonprofit report
* A flexible general ledger that offers
multiple segments for easier fund
management
* Good integration options
* The ability to manage both restricted
and nonrestricted funds
Finding the right nonprofit software
can be challenging, since the
requirements of each organization
can vary widely. If you need remote
access, look for an application built
on the cloud. If your organization
is primarily funded by grants, look
for an application that offers a grant
management module. And of course,
your organizational budget can play a
significant role in what application you
ultimately end up purchasing. Luckily,
there are numerous options available
for any organization with any budget.
Today, there are more nonprofit
software applications available than
ever before. So, stop trying to make
that popular accounting software
application work for your nonprofit
and start looking for an application
designed specifically for your needs. ■
MAY 2021 ■ www.CPAPracticeAdvisor.com
7
http://www.CPAPracticeAdvisor.com
may2021

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