New Research Reveals Nonprofits’ Financial Software Challenges and Strategies
Pressured to perform with limited staff, rising operational costs, and an increasingly diversified funding landscape, nonprofits relying on legacy financial software systems face mounting inefficiencies that slow decision-making and create costly workarounds. To uncover the pains being felt by nonprofit financial professionals and to identify viable paths forward, NonProfit PRO and Unit4 collaborated on a recently released research study. The study explores the realities nonprofits’ finance teams face, where main bottlenecks occur, and what capabilities organizations need as they consider upgrading their systems. The findings show where nonprofit finance systems are falling short and ways to improve them.
Rising Complexity Demands More Advanced Financial Systems
The study surveyed nonprofit finance professionals at organizations with revenues of $50 million or more and asked respondents to select their top financial challenges. Increasing operational costs and complexity was the top choice, reported by more than half (53%) of respondents. Closely behind, 41% of respondents cited diversification of funding sources as a top financial challenge — a finding that underscores how managing a broader mix of grants, contracts, and donor streams often introduces significant administrative burden (Figure 1).
Figure 1: Nonprofits’ Top Financial Challenges
Credit: Alliance Insights
To address these challenges, organizations largely reported taking actions that focus on immediate needs but overlook underlying infrastructure. For example, the top responses include important steps, such as improving budgeting and forecasting (43%), launching individual donor campaigns (41%), and identifying new grant opportunities (39%). However, just 21% of respondents report rationalizing their financial or accounting operations, platforms, or systems. Because so few respondents report taking steps to modernize their financial systems, the study points to a major opportunity: most nonprofits are addressing symptoms rather than root causes and upgrading their financial infrastructure could deliver far more lasting, long-term benefits.
According to the survey, the financial software systems nonprofits rely on today point to a need for greater sophistication. When asked what software platforms their organizations use, 61% reported relying on generic spreadsheets, indicating a need for more advanced and centralized financial tools. Upgrading these systems can also open the door to more sophisticated reporting capabilities. Currently, only 35% of respondents generate automated or real-time financial reports and just over half (53%) produce impact reports. With so few organizations producing these timely and in-depth reports, the findings highlight a strong need for robust, nonprofit-specific financial software.
Overcoming Communication Barriers
Safeguarding financial information is essential for any organization, but when data becomes siloed and difficult to access, challenges can arise. Respondents were asked which departments have direct access to their financial systems, and the results reveal uneven visibility across organizations. The top responses included boards of directors (79%) and development and fundraising departments (71%). Meanwhile, slightly more than half (51%) report that their programming or service staff have access, which is often needed for planning and execution of mission-critical activities (Figure 2).
Figure 2: Cross-Departmental Financial Data Sharing
Credit: Alliance Insights
More than one-third of respondents revealed their organization’s financial data is mostly siloed, with limited sharing activity and capability. For nonprofits seeking to improve flexibility and empower their staff to work more effectively, a reassessment of which departments would benefit from financial data access could be in order.
Making a change, however, can be challenging, as respondents indicate a variety of barriers preventing their organizations from changing their current financial software systems. These challenges include:
- Lack of budget for IT or software investments: 28%
- Time required to adequately train staff on the new system: 28%
- High upfront cost: 27%
- Concerns about migration of historical data: 26%
The Path Toward Modernization
As these financial challenges coincide with a shifting funding landscape, nonprofits are signaling a desire to upgrade their software tools. In fact, 42% of respondents report a desire to change or upgrade their organization’s current platform in the next 18 months. When considering new solutions, nonprofits point to several critical priorities, many of which highlight the importance of adopting software designed specifically for the nonprofit sector.
Eighty-eight percent of respondents identified compliance with nonprofit accounting standards as a very important consideration in their decision-making, revealing a desire to move beyond generic accounting tools. Data security and privacy was just behind compliance, with 87% stating it is very important. Because nonprofits manage highly sensitive data, they are prioritizing software that can keep that information secure while still supporting the transparency and reporting their stakeholders expect (Figure 3).
Figure 3: Top Considerations Point Toward Purpose-Built Solutions
Credit: Alliance Insights
Software solutions, including those from Unit4, have been developed to serve nonprofits’ distinct needs and adapt to evolving times. To explore the full survey findings, check out the full report, available now as a free download.
