It’s a big mistake to think that nonprofit entities aren’t in it for the money. They are, and in a big way, needing the financial resources to succeed in their missions to serve their constituencies. In many cases, this need to raise and disperse funds makes their operation as complex as, or even more complex than, their for-profit brethren’s. This complexity is reflected in software targeted to these organizations — it’s one of the most frequently purchased vertical offerings in the software market.
That volume and complexity has had another effect on the nonprofit software sector. It’s led to increasing sensitivity on what nonprofits require in their software. While nonprofit accounting software used to be the poor relation, that hasn’t been true for some time. The nonprofit software market is healthy, vibrant, and as up-to-date as other accounting software, with an increasing reliance on the cloud to deliver it.
In past years, in our annual software survey, we asked a long list of vendors a fairly lengthy number of questions. This year, we pared this list of questions down to just three we deemed essential: What are the major issues facing nonprofits? How are nonprofits using (or how can they use) technology to face those issues? And how is accounting software for nonprofits changing? Executives from nine of the major nonprofit software vendors responded to our questions. Here’s what they told us.
There will always be issues
One of the major uses of software is to solve problems. Whether these problems are issues such as the scarcity of skilled labor, the need for more transparency, or changes in the law or reporting requirements, software vendors and their products need to be able to move rapidly to address them.
One issue that Red Wing Software president Ken Hilton pointed out was the availability of specialized knowledge and skilled personnel.
“What we see in some smaller nonprofits is a board of directors that are passionate about the mission of the organization, but don’t always have the accounting and finance knowledge to provide good guidance to the day-to-day management,” he said. “This makes it imperative that the management of the nonprofit have an intimate knowledge of all the sources of revenue, and uses of those funds by a relatively granular level of detail in order to provide the board with the information they can use to make good decisions.”
Scarcity of resources was also mentioned by Joseph Scarano, CEO of Araize: “As in prior years, the main challenge facing nonprofits is the lack of resources available to their organization, both in revenue and in finding qualified personnel. As a result, they are looking at ways to develop a sustainable business model to generate the resources needed to effectively fulfill their mission. Because both federal and local governments have been cutting their costs, nonprofits have to find replacements for this lost revenue and are working harder to maintain the grants they relied on in the past.”
Another issue plaguing nonprofit organizations, according to Ryan Joneson, director of marketing at Aplos, is stricter reporting requirements. “The government is requiring more transparency and more detailed reporting for exactly where the grants are being dispensed, so people shopping for a new software solution mention this as one of their pain points,” he explained. “Their current software might not be able to get specific enough regarding disbursements for grants in its reporting.”
“Funding and all things related to funding are major issues,” according to Joan Benson, Sage Intacct’s director of nonprofit industry marketing. “This starts with the organization’s reputation, impact, and relationship with the community — which of course connects to compliance requirements, grantor requirements, and donor retention and engagement.”
Ian Scotland, a CPA and vice president and general manager at AccuFund Inc., surveyed attendees at the vendor’s annual user conference and found that another issue is the continuing increase in health care costs. “This forces nonprofits to squeeze their resources and find funds to pay for these increases,” he said. “As they are less likely than their for-profit counterparts to simply buy cheaper insurance, they are forced to find other means to save money. That means perhaps not hiring new staff when needed, and requiring more efficiency and results from the existing staff.”
Another issue mentioned by vendors was tax reform, an issue that can put fear in the planning of a nonprofit organization, according to Donald Cassady, the president and CEO of GMS Inc. “With the changes to the federal Tax Code, individuals are not getting the tax break they may have been used to getting for years,” he said. “This can reduce the typical refund or even put the taxpayer in a tax liability situation. When that happens, the individual understandably does not have the discretionary funds they have had in the past, which will then hamper their own ability to donate to their favorite charity or nonprofit organization. The nonprofit organization now has to potentially cut services or come up with new revenue streams to remain stable.”
AccuFund’s Scotland agreed, and expanded the issue to include new standards in addition to changes in the tax law: “The new lease standards (ASC 842) and the new revenue recognition standards (ASC 606/ASU 2014-19) are headwinds to nonprofits. For accounting departments, instead of focusing on providing better data to their internal staff, they need to spend time and resources to comply with the new rules, which they feel are a concern and distraction. Another concern is that the new standards significantly affect their financial statements, and not for the better. And the new tax law reduces the incentives for small donors to donate to charities. We saw this coming and it is happening. It means that
they must focus more on major donors and other sources of income.”
Technology figures highly in the issues nonprofits face. This includes “identifying the technology and best practices required to enable executives, senior management and program delivery personnel to access critical financial data via tools that don’t require extensive expertise in the use of ERP/financial management software applications,” according to Chris Stevenson, strategic sales executive at Serenic Software. “This is a vital consideration given the significant decision-making activities that take place operationally by non-accounting personnel throughout the organization.”
Finally, transparency is always important. “Nonprofits are facing increased pressure for greater financial transparency to prove their fiscal responsibility with donated funds,” said Steve Heye, social impact business solutions manager at Oracle NetSuite. “This includes a demand to clearly demonstrate the connection between the nonprofit’s programmatic outcomes and the use of their funds. Meeting this demand requires strong financial aptitude with financial controls, appropriate programs, financial data, and staff who are trained to do deep data analysis. Building the needed processes, systems and staff skills to make all of this happen can be a large effort, which is a big issue for nonprofits with limited capacity. This can become even more complicated when nonprofits rely on restricted funding tied to program delivery, which limits their ability to invest in operations or systems.”
Technology to the rescue
We also asked how nonprofits can use technology to address these issues. Not surprisingly, there was a lot of agreement in the approaches available to nonprofit entities.
Blackbaud’s director of product marketing, Liz Marenakos, pointed out a number of areas where technology can help.
“On the fundraising side, nonprofits should be using technology that allows them to communicate to donors across multiple channels. It is no longer about just having a website that accepts online donations. The conversation must be personalized according to the donor’s preferred channel of giving. Technology can automate communications based on a donor’s preference,” she said. “Technology can and should be used to automate administrative processes that take valuable staff time away from mission delivery. For instance, as expenses are incurred, they need to be tracked to a program, a project, a grant or an endowment fund. This process can easily be automated by allowing employees to enter their expenses as they incur them in the field, with the data flowing all the way into the finance system. No more paper-based expense reports with a wad of attached receipts! A third example would be managing all the applications a nonprofit might get for funding. The application can be moved online, which eliminates both paper and manual data entry to streamline processing.”
Oracle NetSuite’s Heye points out another place technology can be of benefit: “Nonprofits have historically used accounting systems which were isolated to only financial data and only used by the accounting staff. Modern technology systems allow nonprofits to either consolidate all of their data into the same system as their financials or leverage APIs to integrate systems to share data. Technology can be used to provide easier ways to collect, consolidate and analyze this information across a nonprofit’s different programs and revenue streams. When you take it one step further by creating automation based on the data, you drive greater efficiencies in your outcomes to increase visibility, agility and control into the organization.”
Social media and the internet are yet other places where technology can address some of the issues vendors brought up. “Nonprofits need to leverage tools to increase donor engagement and improve stewardship. They also need to be more active on social media platforms to push engagement, educate their community on the work they are doing, and engage with their constituents,” Araize’s Scarano said.
Aplos’ Joneson added, “Online giving is huge for nonprofits, and the ability to communicate with your donors and community via email has always been very popular. Also, nonprofits are now taking advantage of software features that allow them to more easily communicate with their volunteers and staff. Other tools nonprofits are taking advantage of include online event registration and check-in tools, which allow them to run events more smoothly.”
Serenic’s Stevenson also noted that a conscious effort is being made to ensure a high degree of data integration for organization-wide consumption, thereby forcing the acquisition of solutions that enable easy sharing of data across a variety of functional areas of the business. “This has resulted in the use of tools such as data warehouses, dashboard-based decision-support tools, cross-platform/consolidated reporting, and lastly, ERP/financial applications that offer very broad and deep nonprofit-focused functionality for managing both revenue and expense activity within a single application.” Stevenson also mentioned the emerging importance of analytics in making sense of the data generated by new technologies.
A change is in the wind
Our final question to the vendors was how nonprofit accounting software is changing.
“The use of financial dashboards and analytics lets users see the key information they need. Also, with more accounting applications moving to the cloud, the integration with third-party applications using APIs provides more robust and integrated solutions to handle other financial responsibilities. Finally, the use of artificial intelligence can save data-entry time by auto-coding transactions based on historical data, which can be tweaked using user feedback,” Scarano told us.
The cloud was also a popular answer. Serenic’s Stevenson pointed out that many of the financial management software solutions aimed at nonprofits are enabling system access and use to be managed via the cloud, providing lower-cost alternatives to in-house deployments.
Aplos’ Joneson also added, “Many nonprofits are embracing cloud solutions. They’re finding themselves enjoying this alternative too, as it allows them to work in the office or from their couch in the living room.”
Blackbaud’s Marenakos agreed about the flexibility that the cloud provides. “Accounting software for nonprofits is changing first and foremost by moving to the cloud,” she said. “This provides many advantages to the nonprofit — first by removing the overhead costs of maintaining servers and software and shifting it to the software provider who can do it at scale. The second advantage of the cloud is its native availability anytime, anywhere, on any device. Expenses can be filed on the phone, reports and dashboards are available when offsite with a donor or a client, grant applications can be reviewed with an applicant or a board member anywhere. The third advantage of the cloud for automation includes interfaces to banks, credit card providers and investment managers to speed reconciliation and automate payment.”
Presenting data in an understandable form is another way software is evolving according to GMS’s Cassady: “Accounting software for today’s nonprofit organization needs to have the ability to generate reports and disseminate information to the ‘non-financial person.’ The average taxpayer that has less discretionary funds available for contributions is going to be more selective as to what organization receives their contribution. It is important that reports generated by an organization can get the message across to the prospective donor.”
Finally, Blackbaud’s Marenakos made the point that nonprofit software is increasingly different from generic accounting applications.
“The gap between software specifically designed for nonprofits and those designed for commercial usage is widening. Nonprofits receive funding from multiple sources, each of whom allow different types and rates of expenditure and each of whom increasingly expect quantitative outcome data for the programs they fund. This often becomes very cumbersome to track in general-usage accounting software.”
And it’s this last point that perhaps sums up the differences. Nonprofits do have differing needs than for-profit entities, and to some extent this is mirrored in the issues they face and the solutions software provides. But technology is impartial. And the advances we’re seeing in AI, machine learning, and voice assistance will all be incorporated into nonprofit software solutions as they evolve.
