Choosing the right accounting software for your nonprofit is key to having access to quality financial data. There are a lot of misconceptions about QuickBooks Online (QBO) not being sufficient for nonprofit organizations. I wholeheartedly disagree and if you’ve been on the fence about QBO, these myth busters will help you make a decision.
MYTH 1: You Can’t Track Individual Donations
The first myth is that you cannot track individual donations in QuickBooks online. That is completely false. Before diving into this more, please understand that anytime you are going to implement a new software for your organization, you should vet the software. You need to determine internally what it is that you need, what it is that you expect from the software, what it is that will help you run more efficiently, and ultimately what problem are you solving. Only then should you go out and search for the software.
There’s a lot of software options to choose from. Some are more robust that others and depending on your organization, you may not need the more robust option. The QuickBooks Online equivalent to donors is customers. When you first choose to use the software, one of the very first things you want to do is make sure that you are identifying your industry. This alerts the system to flag certain areas of the software for your specific industry. An example would be changing the income statement to the statement of activities and the balance sheet to the statement of financial position. Completing the initial setup is integral to maximizing your use of the software.
When adding your donors to QBO, you simply add your donor as customers. When you need to record the individual donation, you now have the donor already in the system and you can select their name from the drop down to book that donation to their name. The importance of doing so is to create donor statements at the end of the year and to identify how much a donor has contributed to your organization.
This is also important because you want to make sure that you are sending a thank you and acknowledgement letters to your donors. Donors also write off charitable donations on their taxes so you want there to be an incentive to continue to give.
MYTH 2: QBO Doesn’t Have Fund Accounting
The second myth about using QuickBooks Online for nonprofits is that it is not conducive to fund accounting. That is also false. Nonprofits operate with three high level functions. General admin, fundraising, and programs. These are added to your QBO account as high level classes. You can then use the “location” function to indicate whether certain income and expenses are related to restricted or unrestricted funds. By setting this up properly you are able to view detailed financial reports by class and by fund.
When I was a nonprofit controller, the nonprofit was running about 48 to 50 individual programs. At any given time, we needed to know how they were performing, were any of those funds restricted, and whether specific reporting was required. By having QBO set up for fund accounting, pulling reports for management and funders was easy and simple.
MYTH 3: You Can’t Create Management Reports
Not only should you be reviewing your organizations financial statements but you should also have management style reporting. These are internal reports that leadership and the board reviews to make certain decisions about how to manage the organization. For more examples on those types of reports, check out Financial Reports for Nonprofit Boards.
If you don't set up the accounting system properly, you are going to feel like it’s not working for you. You’ll be frustrated and begin to think that you need to try something new when in reality it hasn’t been set up to be beneficial to your organization’s needs. The question isn’t whether QBO can do it but rather have you set it up to do what you need. By setting up proper classes, funds, and tagging of transactions you can run reports at the program level, fund level, etc. This is where management reporting can be beneficial.
For example, let's say if your organization is running a summer youth employment program. That summer employment program should be tagged to a specific class and location (restricted or unrestricted). This allows you to easily pull a profit and loss statement that details all funding and expenses specific to that program. This details allows management to assess how the program is performing, if there are any expense leaks, or if adjustments need to be made.
Yes, nonprofit accounting is complex, but its a little easier when you’re equipped with the right tools. These myths have just touched the surface of what QBO can do for your nonprofit. As the leader of your organization, you need to be well versed in what's happening with the organization financially but you should not be managing the books. Your job is to lead the organization and that's where your zone of genius is. You will not be able to effectively lead AND manage accounting and financial reporting. That is why you have so many questions and issues about how best to use the accounting system. If you're going to be using any kind of software, you need to know how to use and maximize it or hire someone who does.