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The success of any nonprofit organization is highly dependent on a sound financial foundation, including quick access to accurate, up-to-date and relevant financial information. Making do with off-the-shelf software is not the most cost-effective way of reducing operating expenses and makes the job of any nonprofit's Finance department much more difficult than it needs to be.

It's no secret that nonprofit accounting differs significantly from that employed by typical businesses, and to support effective and accurate accounting practices, specialized nonprofit accounting software can be an invaluable investment. Standard commercial accounting software packages are designed for the needs, workflow and required outputs of profit-based businesses and are not usually an ideal solution for nonprofit use. For example, the IRS released a significantly revised Form 990 on December 20, 2007; the new form provides additional options for a nonprofit organization to outline its activities and includes major changes to the summary page, governance section and schedules. These changes come into effect for the 2008 tax year (for returns filed in 2009), employing a graduated transition period of up to three years for smaller organizations based on their gross receipts and total assets.

A good nonprofit-focused accounting solution will both reflect these changes and assist the organization's finance team in achieving compliance. Many standard accounting packages don't include the full suite of related forms, let alone offer functionality that supports compliance. An integrated nonprofit software package can help any size of nonprofit to accurately track and report on the key variables relevant to the Form 990 changes: gross receipts and assets.

Outside of taxation issues, one of the fundamental differences between a for-profit business and a nonprofit organization lies in the nature of financial reporting and operational accountability. Most businesses require their Finance department to generate reports that provide a bottom-line view to investors and shareholders: the firm's profitability and return on investment. Financial practices and supporting software solutions employed by the firm reflect this profit-driven accountability.

Nonprofit organizations, on the other hand, usually employ the principle of fund accounting. Under fund accounting, the success, financial health and general accountability of the organization is measured by fund balances and financial assets and their ability to support the services and programs the organization offers. Fund accounting software is based on these nonprofit-specific accounting principles and provides a nonprofit organization with the financial tools needed to properly track and report on these key criteria. One of the better known software packages for this purpose is MIP Fund Accounting, from Sage Software. Other well known software packages include Serenic Navigator for Not-for-Profits and Kintera FundWare.

For nonprofit organizations, fundraising is the equivalent of selling a product or services for a typical profit-driven organization. Fundraising, whether through a donation campaign or via grant applications, is how a nonprofit generates the revenue required to operate the organization and to fund the various programs and services it offers. Specialized fundraising software such as Sage Fundraising 50 and Sage Fundraising 100 can be an invaluable tool for successfully and accurately managing campaigns. The functionality of specialized integrated solutions of this nature would include access to trend analysis, tracking of results versus goals for specific events (or campaigns), tracking of donor response rates, detailed constituent information, e-mail management tools for targeted communications, efficiency reports allowing a 'cost per dollar raised' analysis, volunteer management components and performance metrics for funds (comparing against previous years, for example). In other words, fundraising for nonprofits can be easily measured, tracked, reported on, supported and analyzed for effective future planning.

A nonprofit with an established accounting program in place can still benefit from the use of donor management software, giving the Development arm of the organization access to key fundraising and organizational tools that are not included in accounting programs.

Big or small, the success, accountability and optimal performance of any nonprofit organization can be greatly enhanced through use of a software solution that has been tailored to the needs of this very specific group.