Choosing Accounting Software

Print Share on LinkedIn More

Are you outgrowing your accounting system? Still using an old, DOS program, or have everything on spreadsheets? Can’t generate budget reports for programs with funding periods that extend beyond your fiscal year-end? Your bookkeeper just moved out of town and you’ve discovered that there are no entries for the last three months? These are some of the issues and problems that start nonprofit managers thinking about new accounting software.

But changing accounting programs is no small matter. Installing a new accounting system and training staff to use it can try the patience of even the hardiest of souls and should not be undertaken lightly. If you’ve concluded that you do need to update your system, where do you start? An important first step is to develop broader awareness about your organization’s needs among staff who will be most affected by the decision.

In order to know which accounting system to use, you need to have a very good idea of your requirements. Most nonprofits need to be able to do fund accounting. That means that income designated for a specific purpose is matched with the costs of that program. The accounting system must be able to create a discrete set of records for each activity with separately maintained balance sheet accounts. With training, small nonprofits can use inexpensive, off-the-shelf software such as QuickBooks ($150 – $550, depending on version, from Intuit, Inc.— and Peachtree ($100 – $600, depending on version, from Peachtree Software, Inc.— to track expenditures according to donor restrictions.

Larger organizations will probably need a specialized fund accounting package, although some higher-end non-fund accounting packages can accommodate the operations unique to the nonprofit world. However, these products can end up being significantly more expensive since they require work-arounds and extensive customization.

Other accounting features required by most nonprofits include the following:

  • The ability to report across fiscal years—have beginning and end dates for reports different from the regular fiscal year. Often it’s nice to be able to export data to a spreadsheet to generate non-standard reports.
  • Complex cost allocation—you should be able to do this quickly and easily even where the formulas are complex rather than simple percentages.
  • Compatibility with fundraising activities—gift and grant revenues need to be accurately allocated. Some software allows you to track donors. 
  • Encumbrance accounting—a practice whereby the nonprofit treats a cost as incurred when the item is ordered. This allows managers with fixed budgets (as with a grant or contract) to have real-time budget information. And finally, 
  • Compliance with industry standards—in the mid-1990s, the Financial Accounting Standards Board (FASB) revolutionized nonprofit accounting with two new standards (on counting contributions and on the kinds of required financial statements). The software should be compliant with current standards and should have mechanisms for upgrading when standards change.

Most experts agree that it is more reasonable to change non-standard business practices to match existing software than to try to find or create tailored software. If there is no good reason to keep a non-standard accounting practice, change it. Even so, don’t expect to find software that meets more than 90 percent of your requirements.  For example, agencies that have specialized billing requirements under government contracts are unlikely to find this capability built into any commercial software.

In our review, we’ve drawn on guides published by Computer Training Services (CTS), the Nonprofit Financial Center (NFC), and the American Institute of Certified Public Accountants (AICPA), as well as a comprehensive software review by Brent Dirks in the October, 2000 issue of CPA Software News. The following evaluation and selection methodology owes most to Sheldon Needle’s introduction to the CTS guide, but includes tips and suggestions from the other guides and our own experience.

The three steps listed below may seem tedious and time consuming, but choosing accounting software is not like deciding which version of computer golf to purchase! If you make the wrong choice, you will pay a heavy price in time, money, and stress. In fact, even if you make the right choice, this can happen. If you haven’t got the capacity to manage the process in-house (in terms of skill, time, and willingness), then consider hiring an outside consultant. We’ve seen more than one organization try to save time and money by taking shortcuts and end up spending much more of both—not to mention the emotional toll on the staff.

You should allow three to six months for the evaluation and selection process. Plan to run the new software in parallel with your old system for at least two months, ideally at the beginning of your fiscal year. Never, never switch over cold turkey! There will always be bugs to work out and you need to have the old system running while you get the new one up to speed.

  1. Evaluate existing systems. Identify problems. What are the current and future needs of current and potential users? Are these needs being met? If not, why not? Which needs are essential, which important, and which would just be nice add-ons? Be sure to address key areas such as overall functionality, vendor support, ease of use, flexibility and speed of reporting and querying, security, and hardware considerations and constraints. Determine if you can correct current deficiencies without new software. You may find that making modifications to existing procedures or systems could solve many of the problems you identified. If not, go to the next step.
  2. Prepare and issue a request for proposal (RFP). The RFP should be based on the evaluation you’ve already done, converted into a formal, detailed list of requirements. The more detailed and clear it is, the fewer questions you will have to field from vendors. The RFP will serve as a benchmark against which to measure the capabilities of software packages being reviewed. At this stage mediocre vendors tend to drop out. An RFP should also include requirements and vendor response guidelines. Find local vendors for the top five products that meet your general requirements and send your RFP to them.  
  3. Evaluate and select vendors. This step involves scoring five criteria. The first is the functional and technical capabilities of the program—these are the requirements that you have identified and listed in the first two steps. The second is live demonstrations (usually in your office with your data), and the third is site visits to and references from organizations that have installed the software and worked with the vendor. It is very important to check references and make site visits to observe the systems you are considering.

The fourth consideration is overall cost. Consider the total costs carefully, including annual maintenance. There can be many hidden costs, and many vendors have complex pricing structures, so make sure you know which modules (for example, accounts payable, accounts receivable) are included with the general ledger software, and the cost of any additional modules you may need. Inexpensive-appearing software may turn out to be quite costly if it demands a great deal of staff time to figure it out and make it run. So avoid unnecessary bells and whistles, but don’t skimp on functionality or staff training.

The final criterion is general vendor qualities such as reliability and responsiveness. You want to be sure that the vendor is stable and reliable. Ask about numbers of current installations. Will they upgrade the software periodically, and will you have to pay for upgrades? Will they be around to service your account in five years? (This is especially important if you are considering an Internet application in which the software and data are stored off-site, at the vendor company.) Evaluate vendors’ technical assistance capabilities and track records thoroughly. This factor often makes the critical difference in choosing between otherwise evenly matched products. Vendors may provide ongoing technical support by unlimited toll-free phone calls, or you may have to pay a substantial fee for phone support. Some suppliers offer help through the Internet. Check the manuals to see whether they answer questions you have as you view the software demonstrations. (You should also find out if there’s a users’ group in your area or an Internet chat room for users.)
What You Can Expect to Spend

If you’re outgrowing QuickBooks and have concluded that your financial management needs call for a fund accounting program, expect to spend anywhere from $3,000 to $50,000 or more for the software, installation, and initial training. Where your costs will fall within this wide range depend on budget size, the complexity of your needs, the number of internal users of the program, and, of course, your wisdom in selecting a product. Generally speaking, if your budget is in the $1 million to $3 million range, with moderate complexity, you can expect an initial cost of $5,000 to $15,000. Annual maintenance will run about 20-25 percent of the purchase price. And remember that for any technology project the largest cost is for training and other personnel-related costs, not for software or hardware, so be sure to factor this into your calculations.

We offer here thumbnail sketches of a handful of fund accounting products, based on the published guides referenced above and our own knowledge. We’ve included the name of the vendor in parentheses. Please note that the list is not comprehensive, and the Nonprofit Quarterly makes no recommendations for specific fund accounting products. Nothing in this survey article should be construed as an endorsement of any product.

American FundWare 7 (American Fundware, Inc.): contains an excellent audit trail, and the charts of accounts can have different structures. As it has a hefty hardware requirement, it is most suitable for mid-size to large nonprofits. Comes with extensive and well-written documentation and the company has a commitment to customer service and technology enhancement. ( 800-551-4458.

Blackbaud (Blackbaud, Inc.): a mid to high-level package that can handle both nonprofit and government accounting. AICPA calls it the undisputed market leader, in part because it has popular add-ons available, including a fundraising package called Raiser’s Edge, in part because all Federal Accounting Standards Board (FASB) required reports are built into the software. However, the software is not easy to use, and even experienced accountants need training.

It boasts a powerful underlying database and flexible account and report set-up. ( 800-443-9441.

BUCS (Donald R. Frey & Company, Inc.): Dirks considers this a “first-class system, which should be considered by any nonprofit organization.” Nevertheless, it is a high-end product, about as expensive as Blackbaud. It offers 11 modules, flexible account numbering, flexible fiscal years and a choice between cash and accrual accounting by fund. The software manual and online help are well written. ( 800-659-3739.

Cougar Mountain (Cougar Mountain Software): a front-runner in the market with 20,000 organizations in its customer base. A heavy-duty package aimed at medium to large nonprofits, loaded with features. Has an extensive report library and several modules geared for multi-user, batch-style processing. ( 800-388-3038.

Cyma (CYMA Systems, Inc.): the nonprofit product is based on the company’s commercial accounting package, so it is well-tested. The account set-up allows for up to 24 alphanumeric characters with a maximum of 10 segments. Dirks says it’s a capable package for any size organization. ( 800-292-2962.

EDS Fund Accounting Software Series (Executive Data Systems, Inc.): specializes in comprehensive fund accounting software and offers an integrated donor records fundraising module with the accounting package. The company offers a “nonprofit starter kit” for small organizations that has limited versions of the basic modules at reduced prices. You can generate reports using wildcard selection, which provides reporting flexibility without a complex multi-segment account structure. ( 800-272-3374.

ForFUND (Mirasoft, Inc.): runs on the Internet using terminal emulation software—allows live technical support to view the same screen as the user with live data. Keyboard oriented—data-entry screens are simple and can be navigated without the mouse. Features over 100 standard reports, and data can be exported to database or spreadsheet software. Also available in a non-Internet based system.
( 800-414-3863.

Fund E-Z (Fund E-Z Development Corp.): AICPA calls it a low to mid-level product and by far the friendliest product of the ones it reviewed. Ease of use translates to a lack of built-in controls, however. It lacks encumbrance accounting, but has an effective audit report, comes with a comprehensive fundraising module and many FASB reports pre-defined. Dirks considers it suitable for small to medium-sized nonprofits. ( 914-696-0900.

MIP Nonprofit Series Fund Accounting (Micro Information Products, Inc.): a mid-level package almost as easy to use as Fund E-Z, but more powerful, according to AICPA. The account code structure is table-driven, easy to set up and use. However, most of the standard FASB reports need to be configured by the user. ( 800-647-3863.

The system you choose will likely cost more than you want to pay, but you will save money over the long run by choosing a system today that will meet your needs into the future.
As you look at products you will find that each package has different strengths and weaknesses. What is best for one user may not work at all for another. You need to determine which features are the most critical to you. Make careful evaluations of your needs and of the products’ capabilities. Don’t trust the claims of a vendor. You must try the product and talk to other users with needs similar to yours. And remember that there are very important considerations about software selection beyond purely technical features. Be sure to check into a company’s references and reliability. You are buying more than a product when you buy accounting software.

Dirks, Brent. 2000. “Not-for-Profit Review.” The CPA Software News. 10(6) October: 37-61.
Jones, Roberta Ann. 2000. “Sizing Up NPO Software.” Journal of Accountancy. November. See ( jones.htm)
Needle, Sheldon. 1999. Selecting Software for Nonprofit Organizations and Trade Associations. Rockville, MD: Computer Training Services, Inc. See (
The Nonprofit Financial Center. 1999. The NFC 1999 Accounting Software Selection Handbook: A Resource for Nonprofit and Religious Organizations. Chicago, IL: The Nonprofit Financial Center. See (

(—NFP Accounting has good general information about products and selection process.
(—the Internet Nonprofit Center has some FAQs on accounting, including choosing accounting software.
(—see the Nonprofit Genie’s FAQs on financial management, including buying accounting software.
(—The Foundation Center’s FAQs include a helpful list of resources for finding information on fundraising and accounting software packages for nonprofit organizations.
(—The Management Assistance Program for Nonprofits has a library of useful tips. See their section on nonprofit finances and, within that, software for nonprofits.