QuickBooks: One Tool to Improve your Nonprofit's Financial Reporting

Most nonprofit board members are not experts in accounting. Nonetheless, accurate bookkeeping, efficient budgeting, and comprehensive reporting are crucial for the success and sustainability of a nonprofit. They are also part of a director's and officer's fiduciary duties to the nonprofit. Your nonprofit organization must ensure that the funds that it raises are used for charitable purposes. It also must also be able to accurately compile its financial information into periodic government filings like the IRS Form 990 and state charity regulators.

In this blog post, we will explore how QuickBooks, a widely used accounting software, can improve your nonprofit's financial reporting - it is a game-changer. Please note that by writing this article, Legal for Good is not formally endorsing Intuit or its QuickBooks product, warranting QuickBooks for any specific purpose, or guaranteeing that QuickBooks will prevent financial mismanagement. Like any tool, it is important that the user be properly trained and the tool be used for its intended purpose. If your organization chooses not to utilize QuickBooks, we encourage you to seek out another form of financial reporting software because using a simple spreadsheet or a check book register is not a recipe for success.

A. Setting Up Your Nonprofit in QuickBooks:

After you have created the organization’s account in QuickBooks, there are three initial steps that we recommend that you take:

1. Customize the software for a nonprofit. QuickBooks defaults to operating for a for-profit corporation, but you can easily adjust the settings. To change the setting, you simply click on Settings; then Account and Settings; and then Advanced. This will take you to a screen that describes your organization. Here, you will select go to Company Type and change the setting to “Nonprofit Organization (Form 990)”. 

2. Change the “Customer" label to “Donors”.

3. Set up your chart of accounts. We suggest that nonprofits use the Unified Chart of Accounts (UCOA).  While there will be many categories that your organization will not need to add from this list, but by setting up the chart of accounts in this way, you will be able to generate useful reports and have transactions properly classified for the IRS Form 990. Here's some additional information from Jitasa that will help you set up the chart of accounts along with an example.
   

If you need assistance with this process, we recommend that you reach out to an accountant or QuickBooks Pro that's fluent in nonprofit accounting. They will be able to help you configure QuickBooks for your nonprofit.

B. Advantages of Using QuickBooks:

Simplified Bookkeeping:

One of the key advantages of QuickBooks for nonprofits is its ability to simplify bookkeeping processes. Once properly configured, the software allows you to track income and expenses by financial category, manage accounts payable and receivable, and reconcile bank statements effortlessly. With its user-friendly interface and intuitive features, even individuals without an accounting background can easily navigate and manage financial transactions. 

Budgeting and Reporting:

Proper budgeting and financial reporting are critical for nonprofits to adequately monitor their financial health and demonstrate transparency to stakeholders and government regulators. QuickBooks offers robust budgeting tools that help you create, manage, and track budgets. Additionally, the software provides customizable reporting features, allowing you to generate financial statements, donor reports, and grant-specific reports.

Donor Management:

Beyond tracking your nonprofit's income and expenses and creating reports, QuickBooks also enables efficient donor management, which is an essential aspect of charity operations. You can record and track donations, generate donor acknowledgments, and create reports to analyze your donors' giving patterns. By centralizing donor information and streamlining the donation tracking process, you can better cultivate relationships with supporters and tailor your fundraising strategies for success.

Grants Management:

Nonprofits often rely on grants to fund their programs and initiatives. QuickBooks offers features specifically designed for grants management, such as tracking grant income and expenses, managing grant restrictions, and generating reports to monitor grant utilization. This helps ensure compliance with grant requirements and facilitates accurate reporting to grantors.

Integration with Other Tools:

QuickBooks integrates seamlessly with other popular nonprofit management tools, such as donor management systems, fundraising platforms, and payroll services. This integration enables efficient data transfer between systems, reducing manual entry and the potential for errors. By integrating your nonprofit's software ecosystem, you can streamline operations, improve data accuracy, and save valuable time and resources.

C. Your Takeaway:

As a nonprofit organization, effective financial management is crucial to measuring outcomes, fulfilling the mission, maximizing your impact. QuickBooks provides nonprofits with powerful tools to streamline bookkeeping, manage donors, track grants, budget effectively, and generate comprehensive reports. By leveraging the features and functionalities of QuickBooks (or other financial tracking software), you can gain better insights into your organization's financial health, enhance transparency, and focus more on achieving your nonprofit's goals.

For recommendations to accountants who specialize in nonprofit accounting, you can contact Legal for Good.