Posted by Zobrio on January 20, 2015
When you were a one-person nonprofit, you did all of your accounting by hand. It was easy because you had complete control of all your finances. Then you added a couple people and decided to get a very basic fund accounting program. But now, you’re in charge of 100 people around the globe managing complex projects. You’ve hired a finance chief, but still use the same fund accounting program that you used with three people on staff.
Needless to say, the current system doesn’t work for your nonprofit anymore. When organizations grow, they likely need to change fund accounting systems to better match their scale. Of course, upgrading to new systems involve costs and implementation time, but that time and money comes back on the back end by avoiding massive errors.
When should you make the upgrade? It isn’t often a precise science when to do the switch, but look out for these four telltale signs that your current fund accounting methods cannot support the growth of your small business, nonprofit or governmental organization:
1. Errors keep popping up
You are balancing the books for the quarter and the numbers don’t add up. Maybe bank accounts haven’t been reconciled. Maybe a check hasn’t actually been received but was inadvertently marked otherwise. This list of potential mistakes goes on and on.
If you’re running a large organization and still doing fund accounting by hand, expect to have to redo your books regularly. After all, we’re only human, and humans make mistakes. Lots of them, every day. But even using out-of-date fund accounting software may not catch all the mistakes necessary.
Errors in accounting are normal, but modern fund accounting platforms such as Aliba MIP are more sophisticated, reducing or eliminating common errors.
2. The IRS gets involved
The dreaded letter envelope comes in the mail. You’ve been audited. The IRS (or state revenue authority) has found discrepancies in your tax returns and needs to ask you a few questions about the previous year. And those few questions can turn into a major headache for you and your organization.
Audits happen for many different reasons and just because you received one doesn’t mean you did anything wrong. But if you keep getting these unfortunate letters in the mail, you may need better tools to help keep the bureaucrats content.
3. Takes too much time
Perhaps when your nonprofit was small, doing your fund accounting by hand or with a very basic fund accounting system wasn’t much of a hassle. But now you’ve expanded into serving different regions, brought on tons have money coming in from all different directions.
If you still use the same methods of fund accounting that you used when you were a small shop, you may feel like doing the books takes up an insane amount of time. That’s before you have to redo everything because you caught a couple of expense irregularities from two months ago. Save yourself the hassle and upgrade to a new fund accounting system.
4. Current system has trouble functioning effectively
Imagine if a Fortune 500 company tried to use the same fund accounting system that a local ice cream parlor used. It wouldn’t work out too well. After all, different accounting systems exist based on an organization’s size, complexity and
The needs of your organizations may have changed over time. Perhaps you have more numbers to crunch than your current fund accounting system can reasonably handle. Maybe the software crashes or moves slower than expected. Whatever the case, make sure to step back and take a look at the size and scope of your organization, a find a product that fits for you at the current time.
Although changing what has worked in the past is always easier said than done, sometimes it is necessary in order to continue to thrive as a business. If you run into these problems, you owe it to yourself and more importantly the organization to make the necessary upgrades.
Looking to upgrade to a new fund accounting system? Feel free to contact us.