When $80/year becomes thousands
QuickBooks Online is everywhere in the nonprofit sector: over 85% of small nonprofits use it. Available through TechSoup at a discount, it seems like the obvious choice for organizations under $10 million.
However, the real cost of ownership is much higher than the subscription price suggests. Nonprofits with grants, expense approvals, and complex allocations are managing all of these using spreadsheets or workarounds. And when those fail, it takes an expensive forensic audit by a bookkeeper to patch together what the software can't do natively.
Before digging into the problems, let's acknowledge why QuickBooks dominates nonprofit accounting:
For a small nonprofit just starting out with straightforward operations and a single funding source, QuickBooks Online might be the right choice. But many problems emerge for nonprofit Executive Directors even before they grow their organizational complexity with staff and grants.
The fundamental issue: QuickBooks was designed for small businesses, not nonprofits. It's built around profit-and-loss thinking, not fund accounting which nonprofits need. None of this is impossible, and smart QuickBooks Online pros will be able to explain all of this to you. However, figuring this out without accounting experience or trying to massage reports for your board creates another manual step.
Nonprofits need to track which money and for what purpose. For example, a restricted grant for youth programs isn't just normal revenue, it must be separated out and tracked against the specific expenses for that grant, program, or campaign. We call these 'dimensions' and they often need to be tracked simultaneously against the same transactions and line items.
Because there's not a simple way to do this, many nonprofits will use fields in QuickBooks like Classes, Customers, Projects, and Locations. Customers and projects become funders and grants, and restrictions are put into the "location" field.
Even if you track income by grant using Projects - tracking grant budgets, expenditures against budgets, remaining balances, compliance requirements, and reporting deadlines requires either a separate grant management tool (adding cost and complexity), or elaborate spreadsheets. Most people just use spreadsheets but it always takes work to keep them updated.
Nonprofits routinely split costs using allocations rules across multiple dimensions. These rules are important because auditors will often ask for them as evidence. Some common examples:
- Payroll allocated by person between three programs and two grants.
- Rent divided among programs, admin overhead, and fundraising.
- Indirect costs split between funding sources.
Without dedicated allocation tools, finance teams either enter the same expense multiple times manually, create month-end journal entries to reallocate, or maintain allocation spreadsheets outside QuickBooks. All three approaches are time-intensive and error-prone.
A lot of organizations need detailed budgeting even in their early stages. This is because fiscal years and grant years are often mismatched, and require multiple dimensions.
A common example is a multi-year grant: Let's say is $100,000 over 3 years. Even if this is an unrestricted grant, you need to recognize revenue each year, and match this with your budget which might be on a different fiscal calendar year.
QuickBooks can only budget by fiscal year and one dimension at a time. So nonprofits maintain budgets in Excel - they enter transactions in QuickBooks, export data to spreadsheets, and reconcile the differences for the budget vs. actual report.
Every grant comes with unique reporting requirements. One funder might want to see expenses by program. A more complex government grant might require spending and receipts to be reveiwed before they reimburse costs.
QuickBooks reports can only be grouped by chart of accounts without significant customization. The reality is that nonprofits must prepare reports for different funders, each with their own template.
Creating funder-specific reports means exporting data, restructuring it manually, and reformatting in Excel. For one grant, this may not be too bad, but once it gets to multiple grants the process gets messy quickly.
Managing net assets by grant is even more complicated. QuickBooks' Balance Sheet by Class report has some known limitations, but the both development and finance teams need to understand net assets segmented by restricted and unrestricted funds without significant manual adjustments. Again, this creates extra work for someone on your team.
The subscription price for QuickBooks Online Plus starts around $80/year + a TechSoup membership. That seems reasonable.
But the total cost includes:
Not to mention, this is all just to limit errors. Spending time on misallocated costs, unreported spending, or compliance issues is taking time away from thinking about your organization strategically and scenario planning for growth.
QuickBooks Online is ubiquitous for good reasons. It's accessible, familiar, and handles basic accounting well. For many small nonprofits just starting out, it's a reasonable choice.
But simple and cheap can become expensive as needs grow. Most critically, fighting your accounting software instead of having it support your work drains energy and focus from your mission.
If you're recognizing your own experience here, you're not alone!
ImpactGraph adds the grant tracking, payments, and banking capabilities that QuickBooks lacks natively. For forward-thinking nonprofits, we can replace manual work and simplify your finance and accounting. And, if you're not ready to change your accounting system, we integrate deeply with QuickBooks to help you get started.
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