Quickbooks for Nonprofits: Why Put Your Nonprofit at Risk?

Are you a nonprofit relying on QuickBooks? While it might seem like a convenient choice, its limitations could put your compliance at risk. In this post, we’ll explore a better alternative tailored specifically for nonprofit fund accounting. Discover expert insights and practical tips to ensure your organization stays on track with the right software.

Guidelines for Non-For-Profit Accounting

Nonprofit accounting is fundamentally distinct from for-profit accounting in several key ways. For example, nonprofit accounting must generate unique reports that serve both internal and external purposes. Above all, they must demonstrate accountability to funding sources. These features are not required for the for-profit sector.

Commercial accounting package, like QuickBooks, can jeopardize the fiscal well-being of a nonprofit organization. Attempting to force-fit a generic accounting solution for nonprofit accounting can cause serious problems.

What are the challenges of fund accounting?

Organizations face unique challenges when it comes to accounting. Unlike for-profit businesses, nonprofits must follow strict accounting standards designed to guarantee that donors’ funds serve their intended purpose. Here are some of the key challenges of nonprofit fund accounting:

1. Transparency: Nonprofits must be transparent in their accounting practices to maintain the trust of their donors and stakeholders. This includes accurately tracking and reporting how donor funds are spent.
2. Compliance: Nonprofits must comply with laws and regulations that govern nonprofit accounting. Failure to comply can result in legal and financial consequences.
3. Fund accounting: Nonprofits typically have multiple funding sources, such as grants and donations, which must be accounted for separately. This can be complicated and time-consuming.
4. Reporting: Nonprofits must provide detailed financial reports to donors, stakeholders, and regulatory bodies. These reports must be accurate and comply with accounting standards.

Overall, fund accounting is a complex and highly regulated field that requires specialized knowledge and expertise. Nonprofits that fail to properly manage their accounting processes can face serious consequences.

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The Importance of Fund Accounting for Not-For-Profit Organizations

Fund accounting is a critical concept for not-for-profit organizations, and proper accounting software tools are essential for ensuring accountability and stewardship of funds. In this section, we’ll explore why fund accounting is unique to not-for-profit organizations and why specialized alternative to Quickbooks for nonprofits is necessary.

Fund accounting segregates amounts into categories based on the restrictions funding sources set and the designations the governing board makes. Net assets are broken down into two categories: net assets with restrictions and net assets without restrictions. In reporting, using fund accounting presents separate financial statements for each fund. This provides detailed records demonstrating accountability to funding sources.

Fund Accounting vs. Small Business Accounting

Some for-profit businesses separate their accounting records by departments, branches, and product lines. The separation required for fund accounting is not the same as this. Most software packages designed for for-profit businesses do not have fund accounting capabilities.

The Need for Proper Fund Accounting Software

Given the unique requirements of fund accounting, not-for-profit organizations need specialized software tools to manage their accounting processes effectively. Without such tools, organizations can struggle to properly track and report on their funds, which can lead to compliance risks and financial challenges. Fund accounting software is essential for ensuring effective proper stewardship of donor funds and maintaining the trust of stakeholders.

Nonprofits Must Demonstrate Compliance

Not-for-profit organizations commonly use fund accounting to ensure compliance with legal restrictions and report on their stewardship of finances entrusted by funding sources.

Even though the concept of separate funds is straightforward, applying this principle can be difficult using accounting software not designed for fund separation. Despite this, many organizations will continue to find fund accounting appropriate for internal reporting purposes and for creating financial statements for public reporting.

It’s important to understand the distinction between internal accounting and external financial reporting. Accounting standards issued by the accounting profession only address external financial reporting, not how internal books are kept. Organizations are free to use any method of record keeping they prefer, as long as the resulting financial statements seen by the public are in the correct format.

Free eBook Download: Why Quickbooks Online Does Not Work for Nonprofit Accounting

Quickbooks Classes: Limitations for Non Profit Organizations

While Intuit recommends using Classes in Quickbooks to generate a Balance Sheet by fund, there are limitations in the software’s design that inhibit this capability. Specifically, the Balance Sheet by Class report is only accessible in QuickBooks Premier, a sunset version, and Enterprise Solutions.

The Intuit Support Site Says:

Potential Problems in Nonprofit Accounting

• Net incomes differ between the Balance Sheet by Class and Profit & Loss by Class reports.
• The Balance Sheet by Class report makes calculations to balance a transaction’s classes. In some cases, this causes the net income for a class on the Profit & Loss by Class report to differ from the net income for that same class on the Balance Sheet by Class report.

Why is this important?

• The two primary financial statements in QuickBooks are the balance sheet and the profit & loss statement.
• Net Income appears as a line item on both reports.
• It’s the bottom line on the Profit & Loss Standard report.
• It’s a component of Equity on the Standard Balance Sheet report.

Why is my balance sheet by class out of balance?

• The balance sheet uses the standard accounting equation: Assets = Liabilities + Equity.
• The balance sheet in total (across all classes) follows the equation and always balances. However, it’s possible that the balance sheet doesn’t balance for an individual class. When this happens, the report shows “Unbalanced Classes.”

The following is an excerpt from a book titled Running Quickbooks in Nonprofits by Kathy Ivens. This book provides information about using QuickBooks to track financial data in nonprofit organizations.

Many nonprofits end up spending extra money to have accounting professionals create reports from its data. The purpose of this book is to help you understand how to set up nonprofit QuickBooks accounting, create transactions properly, and reduce accounting fees.

Unfortunately, QuickBooks Online is not a complete solution. The software does not fulfill all the requirements of nonprofit accounting. Having worked with and examined hundreds of nonprofit Quickbooks installations, I’ve seen many workarounds attempted (including add-on software) to make QuickBooks products function correctly. However, most of these workarounds are inefficient and complex, even for experienced QuickBooks users, and some do not work well at all. Rather than trying to fit a circle in a square, there is a better alternative for nonprofits using Quickbooks Online.

Risks Using Classes in Quickbooks

Consultants usually recommend using classes in Quickbooks Online for nonprofits to segregate financial activity. This is important as it helps nonprofits track funds, functional areas, and funding sources. Unfortunately, it only provides two data elements for coding, which are Account and Class, and this creates a significant limitation for reporting.

While a third data element, Jobs, is available, it is not universally accessible in the QuickBooks report structure. This means that if a nonprofit requires reporting on more than two dimensions, QuickBooks Online is simply unable to handle it. As a result, a significant portion of financial reporting must be done outside the system, typically in spreadsheets. This can create internal control deficiencies which can negatively impact the nonprofit.

Quickbooks Sunset: Best Alternative for Not-for-Profit Organizations

Traditional accounting software, such as QuickBooks, has been a staple for many organizations. However, with the sunset versions of QuickBooks Desktop and QuickBooks Premier, nonprofits face finding a better alternative.

FastFund Accounting is tailored for the unique needs of nonprofit organizations. It provides features such as custom chart of accounts, true fund accounting, and donor management. Furthermore, FastFund also includes features such as FASB compliant financial statements and IRS 990 form preparation, as well as payroll and cost allocation features.

Quickbooks vs FastFund: Feature Comparison

When comparing FastFund Accounting as a Quickbooks Online alternative for Nonprofits, it is clear that they have a number of differences. In contrast, QuickBooks is a traditional commercial accounting system that is popular for its general ledger and accounts payable features. However, it is not specifically designed for non-profits, and does not include features such as fund allocation and cost center tracking that meet the needs of non-profits. FastFund Online is an alternative to Quickbooks for nonprofits.

Use Case Scenario: QuickBooks Alternative for Nonprofits

Background

Imagine a mid-sized nonprofit organization, “Community Forward,” specializing in community development and educational programs. The Executive Director, Susan, alongside her financial team, faces challenges with the current QuickBooks Premier system, which is no longer supported. They need a robust, user-friendly alternative that aligns more closely with the specific financial tracking and reporting requirements of the nonprofit sector.

Challenges with QuickBooks

• Inadequate Fund Accounting: Community Forward struggles with co-mingling of funds. QuickBooks Premier did not offer the robust fund accounting features needed to keep restricted and unrestricted funds separate without manual intervention.
• Complex Donor Reporting: Producing detailed donor reports was time-consuming and required additional spreadsheet work to track donor restrictions and spending.
• Regulatory Compliance Issues: Compliance with nonprofit accounting standards was challenging due to the software’s limited capabilities in handling fund restrictions and reporting.

Making the Decision to Switch

After a board meeting to discuss financial transparency and efficiency, the decision was made to switch to an accounting software specifically designed for nonprofit needs. FastFund Accounting was chosen due to its comprehensive feature set geared towards nonprofits.

Implementation of FastFund Accounting

• Training and Onboarding: FastFund provided dedicated training sessions for the organization’s staff, ensuring a smooth transition. The user-friendly interface allowed the team to quickly become proficient in the new system.
• Seamless Data Migration: FastFund assisted in migrating financial data from QuickBooks Premier to the new system, ensuring no historical data was lost and everything was categorized correctly under the new fund accounting structure.
• Integration with Existing Systems: FastFund was seamlessly integrated with the organization’s existing donation platforms and CRM, enhancing data consistency and reducing manual data entry.

Results After Making the Switch

• Enhanced Fund Tracking: The organization can now easily track and report on individual funds. Each grant and donation is accounted for separately, ensuring compliance with funding restrictions.
• Streamlined Donor Reports: Generating detailed donor reports became straightforward. FastFund’s tailored reports for nonprofit donors improved the organization’s relationships with its supporters by providing more transparent and detailed reporting.
• Improved Regulatory Compliance: With FastFund’s built-in compliance features, the organization met all regulatory requirements with less effort, reducing the risk of compliance issues.
• Increased Efficiency: The finance team reported a significant reduction in the time spent on accounting tasks, allowing more focus on strategic financial planning and less on day-to-day management.

Feedback

The executive director noted, “Switching to FastFund has not only improved our operational efficiency but also enhanced our credibility with donors and stakeholders. We are now more confident in our financial reporting and better equipped to fulfill our mission.”

Conclusion

As a result of switching to Araize FastFund Accounting, Community Forward has not only overcome the limitations posed by the sunset versions of QuickBooks Premier but has also gained a strategic tool tailored to the unique needs of nonprofits. The organization now enjoys a higher level of precision in financial management, empowering them to fulfill their mission more effectively.

This scenario positions Araize FastFund Accounting as the optimal solution for nonprofits seeking a dedicated accounting system that addresses their unique challenges and drives their success forward.

Schedule a FastFund Demo: Learn more about our unique software approach to nonprofit accounting, payroll and fundraising.

Take the Next Step to Switch to FastFund

If your nonprofit is struggling with QuickBooks, you’re not alone. Workarounds, compliance issues, and complex reporting shouldn’t be part of your accounting process. FastFund was built specifically for nonprofits—with true fund accounting, seamless grant tracking, and FASB-compliant financials right out of the box. Stop forcing software to work for your nonprofit. Switch to FastFund and take control of your nonprofit’s finances—with accuracy, efficiency, and confidence.

Ready to discover how FastFund Accounting can simplify your financial processes, enhance reporting accuracy, and provide unparalleled insights into your funding and expenditures. Don’t miss the opportunity to see FastFund in action.

Schedule Your Free Live Demo Now! Join us for a personalized walkthrough of FastFund’s unique features and see firsthand how our solution can be customized to meet the specific needs of your organization. Transform your financial management with a system designed for and dedicated to nonprofits like yours.

Bottom Line

For nonprofit organizations looking for a Quickbooks Desktop or Premier alternative, FastFund Accounting offers a compelling solution that not only addresses the gaps left by generic accounting software but also enhances the ability of nonprofits to manage their finances more effectively. Whether you are a financial manager, an executive director, or a board member involved in financial oversight, FastFund Accounting promises to deliver a blend of ease of use, precise fund tracking, and robust reporting that is specifically designed with your needs in mind.

Frequently Asked Questions (FAQs)

1. What are the main compliance risks when using QuickBooks Online for nonprofits?

The main compliance risks when using QuickBooks for nonprofits include difficulties in generating accurate fund accounting reports and balancing net incomes between different financial statements. This can potentially lead to a lack of transparency and non-compliance with accounting standards.

2. Why is fund accounting challenging with QuickBooks for nonprofit organizations?

Fund accounting can be challenging with QuickBooks because it’s not specifically designed for nonprofits. This can make it difficult for organizations to properly manage and track multiple funding sources, as required by fund accounting principles.

3. How might QuickBooks limit compliance for nonprofit organizations?

Moreover, QuickBooks may limit compliance for nonprofits due to its limitations in providing FASB-compliant financial statements and handling federal accounting requirements for grants. This could potentially lead to legal and financial consequences for the organization.

4. Can QuickBooks for nonprofits generate FASB-compliant financial statements?

Most importantly, QuickBooks has limitations in generating FASB-compliant financial statements. This is a significant compliance risk as nonprofits need to adhere to FASB Update 2016-14 (Topic 958) Presentation of Financial Statements of Not-For-Profit Entities

5. Does QuickBooks comply with the Uniform Grant Guidance for federal accounting?

Ultimately, QuickBooks for Nonprofits may struggle to fully comply with the Uniform Grant Guidance for federal accounting. This is an important compliance requirement for organizations receiving federal grants.

6. How does QuickBooks compare to FastFund Accounting in terms of compliance?

Unlike QuickBooks, FastFund Accounting is specifically designed for nonprofits and offers features like true fund accounting, custom chart of accounts, FASB-compliant financial statements, and donor management. These features help ensure compliance with nonprofit accounting standards, which makes FastFund an alternative to Quickbooks for nonprofits.

7. How does QuickBooks impact transparency in financial reporting?

Due to its limitations in fund accounting and generating accurate reports, QuickBooks may impact the transparency of a nonprofit’s financial reporting, which is essential to maintaining the trust of donors and stakeholders.

8. What are the implications of non-compliance in nonprofit accounting?

While, non-compliance in nonprofit accounting can lead to legal and financial repercussions, loss of trust from donors and stakeholders, and potential loss of tax-exempt status. It’s therefore crucial for nonprofits to use an accounting system that ensures full compliance with all relevant laws and regulations.

Want to read more? Check out these insightful articles:

• Not-for-Profit vs Nonprofit: What Sets Them Apart?
• Why QuickBooks Won’t Work for Fundraising Donor Management
• Best Practices for Maintaining 501(c)(3) Nonprofit Status
• Unlock Nonprofit Accounting Efficiency with Bank Integration
• Statement of Financial Position: What are Nonprofit Net Assets

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