Stepping Up to a Permanent Nonprofit Accounting Software Solution

1. Stepping Up to a Permanent Nonprofit Accounting Software Solution Presented by NFP Partners

2. Introductions • About NFP Partners • About you • Organization, • Position • Why are you here?

3. Agenda • Fundamental differences – commercial vs. nonprofit accounting • What is fund accounting? • When is entry-level accounting software an adequate fit? • Reasons for upgrading to specialized nonprofit accounting software • Demo of some expected features in nonprofit software • The main players and purchase – deployment models • Planning for the transition

4. Fundamental Differences– Commercial vs. Nonprofit Accounting • Profit vs. social benefit motive • For profit entities maximize return on owner’s investment (profit) • Nonprofit entities success measured by outcomes and efficiency in delivery (budget performance) • Nonprofits must account for donor interests • Major donors • Grantors (private and public) • Not cut and dried, some degree of hybridization usually present

5. What is Fund Accounting • Widely misunderstood and interpreted • For government a stricter understanding • Self-balancing accounting entities • Required by law or GAAP • For nonprofits a wider definition • Usually in reference to tracking restricted fund sources in net asset (equity) section • Self-balancing not a hard requirement, but sometimes used

6. When Is Entry-level Accounting Software an Adequate Fit for Nonprofit? • Small – low dollar and transaction volume • Limited growth potential • Operate more like a business (program services main revenue source) • Limited funding sources and few restrictions • Bookkeeping competence and oversight

7. Reasons for Upgrading to Specialized Nonprofit Accounting Software • Usually within context of organizational growth and recognition of resulting dysfunction • Major determinates: • Inadequate account capacity • Inadequate budgeting and forecasting tools • Inadequate reporting • Others reasons that make a difference

8. Account Capacity • Entry-level software usually allows no more than three coding objects: • Main account (A,L,NA,R,E) • Sub-account-1 – usually used for program or function (QB class code) • Sub-account-2 – may be used for project or specific fund source (e.g., grant) (QB job code) • Going beyond requires creativity and leads to reporting malaise

9. Account Capacity (cont) • Specialized nonprofit accounting software removes the constraints. • As many accounting code objects as required: • Fund • General Ledger (normal account) • Program or function • Funding source (grants and other sources that require tracking and reporting • Department or responsibility/cost center • Projects (events, campaigns, etc.) • FASB117 (restrictions and designations of net assets) • And more…

10. Budgeting and Forecasting Tools • Entry-level software provides limited capabilities: • Usually a single-year revenue and expense budget • Forecasting off-line • No budget control tools (alerts, encumbrances) • Specialized nonprofit software removes constraints and adds features: • Current/future years operating, cash, and capital budgets • Decentralized budget creation and tracking tools • Cross-FY budgets by fund source (e.g., grants) • Multi-year forecasts • Budget audit trail

11. Reporting & Data Analysis • Entry-level accounting software • Handles the basics within its limited account structure • Nonprofit GAAP-compliant financial statement require workarounds • Excel is the default report writer • Nonprofit specialized software • Expands reporting breadth across full accounting spectrum • Multi-dimensional reporting • Customization features built-in • GAAP requirements for SFP, SA, SCF, and SFE normalized • Amenable to 3rdparty reporting and data-mining tools

12. Some Other Reasons for Upgrading Indirect cost allocation Auditability Access security and internal control features System integration Personal preference

13. Demo • Account structure features • Account distribution • Reporting flexibility • GAAP compliance

14. Nonprofit Accounting Software Main Players and How Sold and Deployed

15. Planning for the Transition • Get realistic; adjust attitude on price; usually dealing with organizational transition • Be prepared to justify the investment to board and get it in the budget: • Staff time spent on extra work outside the system that could be saved and re-deployed • Compliance with GAAP and following best practices • Opportunity cost of missed revenue opportunities • Audit and internal control issues • Risk of fraud or misallocation of assets • Frame in an organizational growth context • Value of better strategic decisions based on accurate, relevant and timely information

16. Planning for the Transition (cont) • Evaluate needs – what are the 3-4 main issues to solve • Consider organization and personnel • Appoint lead person for project • Frame acceptable alternatives (see previous chart) • Hosted on-premises (In-house) • Hosted remotely (the ‘cloud’) • Web-based • Client-server • Find potential providers (Web, peers, published reviews) • Hold preliminary conversations with vendor or VARs • Attend overview demos • Get preliminary pricing

17. Planning for the Transition (cont) • Ask for references of similar organizations • Narrow the field to one or two potential solution sources • Share time and information with providers • Prepare a needs analysis • Have software demonstrated to address main issues • Select provider • Finalize agreement • Develop implementation plan