How to Set up QuickBooks for Nonprofits: The Complete Guide

Monday, March 11, 2024

As nonprofits expand and evolve, their financial situations become more complex. While many organizations start out managing their finances in spreadsheets, they eventually outgrow this method. To keep your nonprofit’s accounting practices on track, it’s best to invest in specialized software as soon as it’s within your organization’s budget and would effectively serve your needs.

One of the best-known accounting solutions that both for-profit and nonprofit organizations leverage is QuickBooks Online. In this guide, we’ll explain everything you need to know to configure and leverage QuickBooks at your nonprofit, including

• What is QuickBooks Online for Nonprofits?
• Steps to Set up QuickBooks for Nonprofits
• How to Use QuickBooks at Your Nonprofit

If you have questions as you go about implementing QuickBooks at your organization, don’t hesitate to reach out to a nonprofit accountant who has experience using this software. Let’s get started!

Partner with Jitasa’s team of QuickBooks experts to set up your nonprofit’s accounting platform.

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What is QuickBooks Online for Nonprofits?

QuickBooks Online is an accounting solution developed by Intuit and leveraged by organizations in all verticals, including nonprofits. Its main distinguishing feature is that it’s cloud-based, meaning your team can access the platform anywhere they have internet connectivity. This makes it easy for remote team members and outsourced financial professionals to collaborate in a secure environment.

While QuickBooks was originally designed for businesses, there are many ways to adapt the platform to the unique aspects of nonprofit accounting. Because your organization by definition can’t turn a profit, its goal in using QuickBooks is different from that of a business—to ensure accountability in financial management rather than to track profitability. QuickBooks has customizable settings that align with the fund accounting system nonprofits use to achieve this goal, and we’ll walk through how to configure these in the next section.

Learn financial basics in The Beginner’s Guide to Nonprofit Accounting.

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Steps to Set up QuickBooks for Nonprofits

Although QuickBooks Online is adaptable for nonprofits’ needs, it’s critical to configure it properly so you can keep accurate records and create reports without a hitch. To help you get started, we’ve broken down the setup process into five basic steps:

1. Choose a QuickBooks Online Plan

QuickBooks Online has two plans available for nonprofits: Plus and Advanced. Let’s look at a few of the key differences between these plans.

QuickBooks Online Plus

A QuickBooks Online Plus subscription costs $45/month for the first three months and $90/month after that. With this plan, your organization will get access to all of the core nonprofit accounting features for up to five users, such as:

• Automated record-keeping for various transactions
• Revenue and expense categorization
• Budget, donation, and grant tracking
• Custom report generation

QuickBooks Online Advanced

QuickBooks Online Advanced costs $100/month for the first three months and then increases to $200/month. In addition to providing access for up to 25 users, some of the additional features that the Advanced plan offers include:

• Batch invoices and cost reports
• Dedicated employee expense records
• Auto-tracking for fixed assets
• Expanded data storage and restoration capabilities

If your nonprofit is investing in accounting software for the first time, the Plus plan will likely meet your needs. However, if your organization has a more complex financial situation that could benefit from the additional user permissions and more extensive functionality that the Advanced plan offers, it’s worth it to upgrade.

2. Modify Account Settings for Your Nonprofit

Once you’ve chosen your QuickBooks Online plan, you’re ready to start setting up your account. After answering the initial setup prompts, you’ll land on the main dashboard. Click the gear icon in the top right corner to modify your account settings. Start by customizing your nonprofit’s:

• Name and logo
• Fiscal year start date
• Accounting method (cash or accrual)
• User permissions
• Company type/tax form

The most important of these settings to double-check is the company type. Choosing “Nonprofit Organization” from the list ensures that QuickBooks will configure your accounting system to align with the information required on your Form 990 so you can file your tax return accurately.

3. Configure Data Storage and Integrations

Next, there are a few things you should do to ensure data security and streamlined accounting workflows, including:

• Syncing your nonprofit’s bank accounts with QuickBooks for easy reconciliation.
• Connecting QuickBooks to the other software your nonprofit uses, such as your CRM or online donation platform.
• Ensuring your information automatically backs up to the QuickBooks Online cloud.

Additionally, spend some time familiarizing yourself with the platform to understand where major reports and types of data are stored. That way, it’ll be easier to find specific information later.

4. Customize the Interface

As previously mentioned, QuickBooks was originally developed for businesses rather than nonprofits. So, there are a few settings you should change to adapt the platform to your financial management model, such as:

• Form styles. QuickBooks’ default sales receipts are very business-oriented, but your nonprofit can customize the templates to turn them into donation acknowledgments. You can even incorporate your organization’s branding with just a few clicks!
• Financial statement terminology. In QuickBooks, the statement of activities is called the Profit and Loss by Class Report, making it seem very business-specific. However, you can easily change the name to avoid confusion.
• Classes. If you enable classes in the nonprofit organization interface of QuickBooks, the platform will organize your records based on the functional expense categories of program, administrative, and fundraising costs, which are required on your Form 990.

Setting up classes can also help you organize your nonprofit’s revenue by source. However, QuickBooks doesn’t provide a direct way to track funding restrictions, so you’ll need to manually create two extra classes for permanently and temporarily restricted net assets.

5. Set up Your Chart of Accounts

Your nonprofit’s chart of accounts serves as a directory for all of the financial information stored in QuickBooks Online. When you need to access or report on any details of your organization’s assets, liabilities, net assets, revenue, or expenses, this resource ensures you know exactly where to look.

QuickBooks Online has its own numbering system for charts of accounts. However, for clarity and consistency, we recommend also customizing this resource to align with the numbers on the Unified Chart of Accounts:

• Assets: account numbers beginning with 1000
• Liabilities: account numbers beginning with 2000
• Net assets: account numbers beginning with 3000
• Revenue: account numbers beginning with 4000-6000
• Expenses: account numbers beginning with 7000-9000

When you assign these numbers to each of your nonprofit’s financial designations, you’ll end up with a chart of accounts that looks something like this:

How to Use QuickBooks at Your Nonprofit

Once you set up your chart of accounts, you’re ready to start using QuickBooks Online for your organization’s day-to-day financial management! Here are a few ways your nonprofit can leverage QuickBooks in its bookkeeping and accounting practices:

• Recording transactions. Whenever your nonprofit spends or brings in money, your bookkeeper will ensure the information is recorded in QuickBooks. While they may need to do some manual data entry, QuickBooks’ integrations and automation can streamline this process and allow them to spend more of their time on complex bookkeeping tasks like allocating expenses and running payroll.
• Tracking restricted funds. Although you need to set up this tracking manually, the QuickBooks platform can organize your revenue into unrestricted, temporarily restricted, and permanently restricted categories. This makes it much easier to honor donors’ restrictions on their contributions and check that you’re spending the right money on the right projects.
• Comparing budgeted vs. actual numbers. By creating your nonprofit’s annual operating budget in QuickBooks, you can always refer back to it to ensure you’re on track with spending and fundraising and make adjustments as needed throughout the year.
• Managing grants. QuickBooks also allows you to upload grant budgets and create invoices specifically for recording grant funding, so you can lay the groundwork for effective grant management as a part of holistic financial management.
• Creating financial statements. In addition to the aforementioned statement of activities, your nonprofit can pull its annual balance sheet and functional expense report, as well as monthly cash flow statements, directly from QuickBooks. These reports are critical for accurately filing Form 990 and can be incorporated into your organization’s annual report to promote financial transparency with supporters.
• Filing tax forms. In addition to your Form 990, QuickBooks is also helpful for doing your due diligence as an employer each year by filling out individual W-2s and 1099s for each of your nonprofit’s employees and contractors, respectively.

Although QuickBooks Online makes all of these processes simpler, it’s still most effective to navigate them with expert help from nonprofit financial professionals, like the team at Jitasa. QuickBooks setup comes standard with our bookkeeping and accounting services, and our experienced accountants are prepared to answer any questions you may have and help you make the most of the platform based on your organization’s unique needs.

QuickBooks Online is a robust accounting software solution that, when leveraged effectively, can provide a variety of benefits for nonprofits of all shapes and sizes. Follow the steps above to get started, and don’t hesitate to reach out to nonprofit finance professionals (like the team at Jitasa) if you have any questions or want to learn more about maximizing your nonprofit’s use of QuickBooks.

For more information on integrating QuickBooks into your nonprofit’s accounting practices, check out these resources:

• Understanding and Applying GAAP for Nonprofits: FAQ Guide. Leveraging specialized accounting software can help your organization maintain compliance with the Generally Accepted Accounting Principles (GAAP). Discover what GAAP is and why it’s important.
• Nonprofit Financial Statements: 4 Essential Reports to Know. Dive deeper into the contents of your nonprofit’s statements of activities, financial position, cash flows, and functional expenses—all of which you can compile in QuickBooks.
• Nonprofit Bookkeeper vs. Accountant: What’s the Difference? Explore the differences between the roles of a nonprofit bookkeeper and accountant, the two professionals that will likely work in your organization’s QuickBooks account the most.

Work with the experts at Jitasa to simplify QuickBooks Online setup for your nonprofit.

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