Seven Signs You Need a Better Fund Accounting System

7 min read

Nonprofit leaders face plenty of challenges and adversity when it comes to accomplishing their missions, attracting and retaining donors, and executing their strategies. With so much difficulty facing nonprofit leaders, struggling to keep up with the bookkeeping and accounting tasks of the back office doesn't need to be added to the list of struggles.

Unfortunately, the unique challenges of fund accounting in a nonprofit organization presents major difficulties for most nonprofits, and these back-office issues can detract your focus from your ever-important mission.

What Is Fund Accounting?

Fund accounting is a specific system of accounting that is used by nonprofits. Fund accounting is used to ensure that money that has been donated, received, or awarded for a specific purpose is used for that purpose.

In fund accounting, nonprofits have separate established funds (or pools of money) that are held to certain rules, restrictions, and limitations for use. Each fund has its own liabilities and assets, expenses and revenues. Additionally, each fund should have its own set of financial reports such as a budget, statement of cash flow, profit and loss statement, and balance sheet.

While fund accounting is more complicated than the basic accounting system used in for-profit businesses, this specialized accounting system helps ensure that nonprofit organizations are operating responsibly, compliantly, and transparently while keeping their mission and programs on track.

Seven Signs You Need to Change Your Fund Accounting Strategy

If you're struggling with any of the following issues in your organization, then it might be time to update and modernize your back-office strategy with fund accounting software.

1. Reporting Takes Too Much Time

Whether you're using outdated accounting tools, like a myriad of Excel spreadsheets, or relying too heavily on manual systems, slow data collection leads to stale financial reports. Nonprofit leaders need up-to-date financial information to understand the health of their organizations. If you're relying on outdated reports (because your reports take too long to generate), then you're not going to have the information you need to make data-driven decisions for your nonprofit. As a result, the right path and choices won't always be clear and your mission will suffer.

2. You're Relying on Manual Processes

Manual processes are not only time-consuming but they also leave lots of room for human error and data entry problems. Whether you're using paper-based ledgers or operating your back office with several disconnected programs that don't share information, manual processes require data to be collected, entered, and copied multiple times. As a result, your financial data won't be accurate, and you'll be spending money on employees who could generate a greater ROI if their time was spent on higher-value tasks instead of repetitive, mandate tasks that can be better accomplished by a computer.

7 Management and Board Reports Executive Directors Should Be Looking At  

The Ultimate Guide to Board & Management Reports For Nonprofits.

 3. You're Struggling to Track Restricted Funds

Nonprofits are faced with the unique challenge of keeping track of several different pools of money with a variety of different restrictions, use limitations, and time constraints. Each of these separate funds should have its own set of books that can be analyzed on their own or easily integrated for you to view the organization's numbers as a whole.

These separate funds result in an awful lot of bookkeeping and accounting work. They must be carefully tracked, documented, and efficiently used to ensure you make the most of the funds available to your organization. In other words, you don't want to spend unrestricted funds on something that you have earmarked restricted funds for. Be sure your free cash is used where it is needed most and that your restricted funds are used effectively, efficiently, and compliantly.

Read More: How Much Do Bookkeeping & Accounting Services for Nonprofits Cost?

4. You're Using Cumbersome Spreadsheets to Analyze Performance

Without a good fund accounting software solution, nonprofit organizations wind up with an unmanageable number of spreadsheets and unique account numbers to track. In some organizations, there could be thousands of accounts to manage. These spreadsheets don't easily integrate or communicate with each other which results in several levels of data errors. Additionally, they're difficult to track and consolidate into a single chart of accounts and general ledger.

5. Your Organization Is Expanding

Your manual or semi-manual processes might have worked just fine for your budding organization. However, as your organization grows and expands, its needs are going to change and the volume of transactions to manage, record, and track will increase.

If you've noticed that your bookkeeping is falling behind or you're struggling to keep up with daily back-office tasks, then you need a better solution. If you find that you've been spending too much time on your back-office tasks or if you're thinking about hiring a new financial professional, you might consider improving your bookkeeping and accounting system first. Better processes save time and improve efficiency. It might turn out that you don't actually need to find room in the budget for another salary and set of employee benefits.

Read More: Bookkeepers vs. Accountants: What Nonprofit Leaders Need to Know

6. Your Reports Are Outdated Because Real-Time Numbers Are Not Available

Even if you found the perfect human who never made an entry error to handle your back-office tasks, manual bookkeeping and accounting processes are slow. Depending on the volume of transactions occurring in your organization and its overall size and complexity, you could be waiting weeks for financial reports. The main problem with this is that, even if your reports are accurate, they will be outdated. Your organization's financial health last month doesn't tell you anything about your organization's financial health today.

Automated systems can enable you to quickly close out your financial transactions to have up-to-date, accurate, real-time financial reports available. With real-time information, you can base the decisions you make for your organization today on its current - not historical - financial health.

7. You Need to Consolidate Data

Whether your organization is operating with multiple programs or departments, multiple locations, or locations around the world, consolidating your financial data across these informational silos can be a major challenge. The difficulty, of course, increases as your nonprofit grows and/or expands into regions with different currencies.

A robust accounting software tool can facilitate and automate the consolidation of global organizational data, including automatic location consolidation and currency calculations.

Read More: What Financial Reports Should My Nonprofit Program Director Look At?

Choosing New Fund Accounting Tools: A Quick Fund Accounting Software Comparison

One solution that can drastically ease the burden of nonprofit back-office problems by facilitating and automating data collection and report generation for fund accounting is fund accounting software. Accounting software for nonprofits can save time, increase efficiency, improve accuracy, and provide real-time data and financial reporting that's available with the click of a button - regardless of your organization's size and complexity.

Some of the most popular accounting software systems include Intuit's QuickBooks (which offers a range of products including QuickBooks Desktop (QBD) and QuickBooks Online (QBO) in addition to Sage which also offers a variety of products designed to meet the needs of businesses and nonprofits at different stages, but their best option for quickly growing and expanding organizations is Sage Intacct.

Both Intuit's and Sage's accounting software tools are designed to integrate with long lists of applications and tools that streamline data collection, reporting, and management with automated processes. The option that is best for you will largely depend on the size of your organization, its back-office needs, and the level of customization that best suits your nonprofit. In terms of customizations, Sage Intacct outpaces QuickBooks, offering a wide array of dynamic, interchangeable customizations that are specifically curated to meet each client's needs.

Outsourced Accounting for Business and Nonprofits

Pairing an updated fund accounting software system with an outsourced back-office team can help you take your organization and its mission to the next level. With outsourced accounting, your nonprofit can tap into the expertise of an entire team of highly experienced nonprofit accounting professionals. Plus, they'll help you learn to leverage a whole system of tools and applications that seamlessly integrate with your fund accounting software to make automated, organization-wide management and reporting a breeze.