Configuring QuickBooks for Use in a Nonprofit: Planning and Implementation

"Begin with the end in mind" when implementing a new accounting system. "Begin with the end in mind" is based on the principle that all things are created twice. There's a mental or first creation, and a physical or second creation to all things. This concept is explained in The Seven Habits of Highly Effective People, the popular book by Stephen R. Covey.

The very first step in installing and implementing QuickBooks for your nonprofit organization has nothing to do with software or computers and everything to do with communication and understanding - and the good news is "communication and understanding" are normally among a nonprofit's strengths. Working with nonprofits for over 25 years has made it very clear (to me at least) that the "right brain" is dominant in most nonprofit organizations.

So, please, before you go and install a left-brained accounting tool into a right-brained environment - step away from your computer/server, put the QuickBooks disc back into the box, take a deep breath, and use your imagination to go to a vantage point where you can see the end goal that Covey speaks about so eloquently. Close your eyes and imagine that promised land where you can produce reports by grant or program or by the combined entity as a whole. Where you can satisfy the reporting needs of grantors, program managers, the board, your auditors, yourself.

Now that you have stepped back and are in that clarity-zone, setup a QuickBooks implementation and planning meeting. Invite ALL of the following (I know that this may sound like the tea party in Alice in Wonderland but just trust me on this one):

• Treasurer - Board of Directors
• All Program Managers
• All Accounting Staff (normally one person!)
• Your Auditor (You may be charged a fee for this so consider that into your plans)
• Development Director
• Executive Director
• IT Consultants or Staff
• Any other "stakeholder" who uses or needs financial information to perform her/his job in the nonprofit

The main goal (but not the only goal) of the implementation and planning meeting is to best identify how information entered into the system should be grouped and presented for the purpose of providing useful reports to all of the readers and those who use financial information. The readers of these reports may include government and private funding sources, internal managers, data entry staff, board members, auditors, and others, and each may have a different focus on your organization. Once you have a vision and plan of how the reporting should come out of the system you can work backwards to determine the best structure and setup to use in QuickBooks.

To prepare for the implementation meeting, create a "QuickBooks Implementation Questionnaire" (since nonprofits can never get enough acronyms, we'll call it the "QIQ"). The QIQ will act as the centerpiece for the meeting. You will send this questionnaire out to all the participants prior to the meeting and have them complete it. At a minimum, the following should be included in the questionnaire:

• What is the nonprofit's mission?
• What programs do we offer? (Not who funds us - but what service or product do we provide or produce - what do we do?)
• What are our sources of revenue?
  • Grantors
  • Corporate Donations
  • Individual Donations
  • Program Income (fees for services)
  • Foundations
  • Special Events
  • Other?

• What types of reports are required for all users? Bring samples of these reports.
• What does the nonprofit's chart of accounts currently look like? Is it sufficient? Does the chart use account names that are understandable to all readers? Should we use account names that our funders use?
• What is our current budget? Bring a copy. How does it sync up with the Chart of Accounts?
• How is payroll processed? Is there a labor distribution? How is the labor distributed to each account, program, and funding source?
• How do we request funding from our funding sources? How are the receivables and the subsequent receipts recorded?
• How does the nonprofit enter invoices from vendors? Is there an approval process? How are the expenses coded as to account, program, and funding source?
• What is the nonprofit's current hardware and network setup? Is the current environment sufficient to run accounting software? Will we need to upgrade our system in anyway?

I have developed and use a questionnaire in my practice when I assist clients in setting up QuickBooks and you are welcome to use it for your organization if it would be helpful: see http://mac-cpa.biz/resources-for-nonprofits/ or www.nonprofit-connect.com. The end result of this meeting should be a written plan that, at a minimum, defines your reporting requirements, chart of accounts, programs, and funding sources. This will be the raw material you will use to setup QuickBooks (there will be a future post in this series on how to setup programs and funding sources in QuickBooks, so stay tuned).

There is another equally important by-product. This exercise will promote team building and allow stake holders to walk a mile in another's shoes. People will come to see what a challenge it is to be a bookkeeper or accountant in a nonprofit and the accounting system will cease being called your system and start being called our system. Because good or bad, all the stakeholders had a hand in building it.

Watch for the next posts in this series, to learn more about configuring QuickBooks at your organization!

• STEP 2 - Setting Up the Chart of Accounts in a Nonprofit Environment
• STEPS 3 and 4 - Setting Up the QuickBooks Customer/Job Utility in a Nonprofit Environment and Setting Up the QuickBooks Classes Utility in a Nonprofit Environment
• STEPS 5 and 6 - Coding Transactions with QuickBooks Customer/Job and Classes Utilities and Creating Financial Reports in QuickBooks for a Nonprofit Organization

Mark McCallick, CPA, CITP has a practice dedicated to nonprofit organizations and small business - see http://www.mac-cpa.biz/. He has served nonprofit organizations for over 25 years and is a Certified QuickBooks Pro Advisor. He is also the founder of the website www.nonprofit-connect.com whose mission is to provide nonprofit organizations with a forum to collaborate with one another and share access to resources and best practices in the nonprofit industry. You can contact Mark McCallick at markm@mac-cpa.biz or markm@nonprofit-connect.com. These posts were updated by Mr. McCallick in February 2013 for our readers.

Photo: vaXzine