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Commercial or Fund Accounting Software: Which is Best Suited for Your Nonprofit?

It’s the ultimate in convenience, or so it seems at first.  Buying commercial accounting software can seem like the perfect solution since it is used by so many for profit organizations.

However, numerous nonprofits find themselves in need of features that commercial software cannot offer.  Because nonprofits can have extremely specific accounting and reporting needs they oftentimes move beyond their ability to efficiently use commercial products.  When that happens, a move to a fund accounting software solution is necessary.

How do you know when to make the switch?  If you use commercial software when should you upgrade to fund accounting software?  Should you buy fund accounting software right from the start?  Let’s look at three aspects of software: differences, function and training.  This comparison should give you a clear idea of what to use and why.

Differences

The primary difference between commercial software and fund accounting software are the types of tracking and reporting they offer.  Nonprofits are responsible for more types of reporting than commercial businesses are.  Therefore features such as tracking of restricted funds and their use, or separating and tracking funds for grants are not offered in commercial software packages.

Additionally, you may need the ability to track incoming monies across different time periods, easily produce reports that comply with both the Financial and Governmental Accounting Boards (FASB), and generate additional reports that verify the application and use of restricted contributions and grants.

Attempting to use a commercial program to separate, track and report on donations, grants and other contributions is like forcing a square peg into a round hole.

Function

The biggest question to consider is “Will this software perform the tasks we need it to perform?”  Look for tell-tale signs to decide if your commercial product is lacking in features.  For instance:

  • Is your staff repeatedly spending excessive amounts of time to produce reports or financial statements?
  • Is it difficult to maintain budgets, track restrictions for contributions or reconcile balances?
  • Is lack of security an issue?
  • Do you have grants for which you need to track and reports expenses?
  • Do you need to track and account for your fundraising activities?
  • Do you or your staff members constantly make the statement “I wish this software would…?”

If so, chances are you have outgrown the functionality of commercial products.

Training

Other than an integrated user’s manual and help index, some accounting products don’t offer training tailored to your organization’s needs.  Most nonprofits would find it beneficial to receive customized training in order to use the accounting package to its fullest potential.

Before making a decision, verify that your fund accounting software vendor offers multiple options like in-person, web-based and classroom training, for example.  It is also important to ask what types of support are available for the software as well as the cost (if any) for updates.

Other things to consider?

Confirm that whichever product you choose is FASB compliant.  You’ll also want to ensure your accountant is comfortable with your decision and that she or he is capable of operating within the software you plan to use.

Before making any decision, consider what accounting functions you go through in a typical day.  Outline any special needs you will have in the future due to downsizing, expansion, grants, etc.  Write down you questions and training requirements then compare the commercial and fund accounting products you’re evaluating to find the one that is best suited for your needs.

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