Introduction: Why Finance Tools Matter for Nonprofits
Nonprofit finance is fundamentally different from for-profit finance. Rather than tracking profitability across business lines, nonprofits must manage funds—tracking whether restricted grants are being spent on permitted activities, maintaining separate accounting for program, management, and fundraising expenses, and producing reports that satisfy both the IRS (Form 990) and grant funders.
The consequences of getting this wrong are severe: grant funders who discover their money was spent on unallowed activities can demand repayment. The IRS can revoke tax-exempt status for organizations with poor financial governance. And a sloppy Form 990 can damage donor confidence and reduce future giving.
The good news is that excellent nonprofit finance tools exist at every budget level. This guide covers the right stack for nonprofits ranging from small volunteer-led organizations with $100K in annual revenue to professional nonprofits with $5M+ in program spending.
The Core Finance Stack Overview
Accounting and Bookkeeping
The Core Difference: Fund Accounting
For-profit accounting tracks one bottom line. Nonprofit accounting tracks multiple funds, each with their own balance and often their own restrictions. A nonprofit might simultaneously manage:
- Unrestricted funds: General operating money that can be spent on anything
- Temporarily restricted funds: Grants with specific program or time restrictions
- Permanently restricted funds: Endowments where the principal cannot be spent
Standard accounting software like QBO or Xero can track this with the right chart of accounts setup, but it requires workarounds and discipline. Purpose-built nonprofit accounting software handles it natively.
QuickBooks Nonprofit Edition
QuickBooks Nonprofit is QuickBooks Online Plus with a nonprofit-specific chart of accounts template and some reporting customizations. It handles fund accounting through class tracking—each fund is a "class" and reports can be run by class to show income, expenses, and balance by fund. Cost is $90/month (QBO Plus pricing).
The limitations: class tracking is somewhat clunky for complex fund restrictions, and generating FASB-required reports (Statement of Functional Expenses, Statement of Financial Position) requires additional setup. For organizations with fewer than 10 grants and simple restriction structures, it works well.
Aplos: The Best Purpose-Built Nonprofit Accounting Tool
Aplos ($59–$189/month) is built specifically for nonprofits and churches. It includes true fund accounting (not just class tracking), budgeting by fund, automated bank reconciliation, and built-in Form 990 preparation assistance. The reporting module generates FASB-standard financial statements automatically.
For organizations managing 5+ grants with varying restrictions, Aplos's fund accounting is significantly easier than QBO's class tracking approach. It also handles pledge tracking, donation recording, and donor acknowledgment letters—integrating accounting and development functions.
MIP Fund Accounting (for medium-large nonprofits)
MIP Fund Accounting ($500–$2,000/month) is the standard for mid-size nonprofits with complex needs: multiple programs, federal grant compliance (Uniform Guidance / OMB A-133), multiple cost centers, and large teams. If you are managing federal grants over $750,000, you may be subject to Single Audit requirements, and MIP's audit trail and reporting capabilities are specifically designed for this.
Blackbaud Financial Edge NXT (for large nonprofits)
Blackbaud Financial Edge NXT ($1,500–$5,000/month) is the enterprise solution for large nonprofits, foundations, and universities. It handles multi-entity consolidation, sophisticated grant management, and advanced reporting. The investment is substantial, but for organizations with $10M+ in grants and program spending, it provides capabilities no other tool can match.
Functional Expense Allocation
One of the most important (and challenging) nonprofit accounting requirements is allocating expenses across functional categories: program services, management and general, and fundraising. Salaries must often be split across these categories based on time spent. Rent, utilities, and overhead must be allocated using a reasonable basis.
Your accounting software must support expense allocation. Aplos and MIP handle this natively; QBO requires manual journal entries or a third-party tool.
Payroll and HR
Gusto for Nonprofit Payroll
Gusto works well for nonprofits. Key features: it handles the split payroll required for dual-role employees (someone who is both a program manager and an executive director), generates the payroll data needed for Form 990 executive compensation reporting, and supports salary allocations across cost centers for grant reimbursement purposes.
For nonprofits with government contracts or federal grants, Gusto integrates with timekeeping systems that support certified payroll reporting. The $40 base + $6/employee/month pricing is affordable for budget-constrained organizations.
Gusto also handles 403(b) plans—the nonprofit equivalent of a 401(k). Nonprofit employees can participate in 403(b) plans with employer matching, and Gusto's payroll integration with 403(b) administrators automates contribution processing.
Grant Management
Why Grant Management Software Is Essential
Grant management is not just a finance function—it spans program delivery, reporting, and compliance. A grant management system tracks:
- Grant award terms and conditions
- Allowable expense categories and restrictions
- Reporting deadlines and deliverables
- Spend-down rates and risk of over/under-spending
- Multi-year grant periods and carryover rules
Without dedicated grant management software, this tracking typically happens in spreadsheets—which creates risk of missed reporting deadlines, misspent restricted funds, and incomplete audit trails.
Submittable ($500–$2,000/month) is most commonly used by foundations (grant makers), not grant recipients. If you are a foundation awarding grants, Submittable handles the application, review, and reporting workflow.
Fluxx ($500–$2,000/month) is a more sophisticated grant management platform used by mid-size foundations and corporate giving programs. It handles both outbound grant-making and, for larger nonprofits, tracking inbound grants.
For smaller nonprofits tracking inbound grants, a well-structured spreadsheet or Aplos's built-in grant tracking is sufficient for organizations with fewer than 20 active grants.
Expense Management
Expensify for Nonprofits
Expensify ($5–$9/user/month) has a nonprofit pricing program and works well for managing employee reimbursements and corporate card expenses. Its SmartScan feature captures receipts automatically, and its policy enforcement prevents out-of-policy spending. For nonprofits with grant expense documentation requirements, Expensify's receipt storage and reporting export is valuable.
Ramp also works for nonprofits—the free corporate card with spend controls is attractive for budget-conscious organizations. Ramp requires a business entity (not fiscal sponsorship), so some early-stage nonprofits may not qualify.
Banking
Relay and Mercury for Nonprofits
Both Relay and Mercury offer nonprofit accounts with no monthly fees. Relay's multiple sub-accounts are particularly useful for nonprofits—you can maintain separate sub-accounts for each restricted fund, giving you a real-time visual of available cash in each fund without complex accounting reports.
For a small nonprofit, having separate Relay accounts for operating funds, program reserves, and grant-specific spending provides a simple cash management system that reduces the risk of accidentally spending restricted funds.
Donor Management
Integrating Development and Finance
Nonprofits that separate their donor management system from their accounting system create reconciliation challenges. Ideally, a donation recorded in your CRM should flow automatically to your accounting system.
Bloomerang ($125–$500/month) is the leading donor management platform for small-to-medium nonprofits. It tracks donor relationships, giving history, and retention rates, and integrates with QBO and Xero via native connections.
DonorPerfect ($99–$500/month) offers more sophisticated gift processing, event management, and direct mail integration. It also has built-in QBO integration.
The key integration: when a donation is recorded in your donor management system, it should automatically create an income entry in your accounting system categorized to the correct fund. Manual data entry between systems creates errors and duplicates work.
Form 990 Preparation
The Form 990 is the IRS annual information return for nonprofits. It is publicly available and reviewed by donors, journalists, and grant funders—meaning errors or omissions have reputational consequences. Key schedules:
- Schedule A: Public support test (critical for public charity status)
- Schedule B: Major donors
- Schedule F: Foreign activities
- Schedule L: Transactions with interested persons
For most small nonprofits, a nonprofit-specialized CPA prepares the 990. Budget $1,500–$5,000 annually depending on organization size. TurboTax Business can prepare 990-EZ forms for very small organizations, but professional CPA preparation is strongly recommended for organizations with over $200K in revenue.
Building the Stack on a Budget
Common Mistakes to Avoid
Spending restricted funds on unallowed expenses: This is the most serious nonprofit accounting error. Grant funders take this extremely seriously. Maintain separate accounts or fund codes for each restricted grant and review spending against grant budgets monthly.
Not maintaining functional expense allocation: The IRS Form 990 requires expenses allocated across program, management, and fundraising. Reconstruct this at year-end is painful and often inaccurate. Allocate expenses in real-time as transactions are recorded.
Ignoring audit requirements: Nonprofits with over $750,000 in federal expenditures must undergo a Single Audit. Many state governments have similar requirements at lower thresholds. Know your audit requirements and budget accordingly.
Conclusion / Getting Started
Nonprofit finance requires purpose-built tools that understand fund accounting, grant restrictions, and Form 990 requirements. Start with Aplos for accounting, Gusto for payroll, and Bloomerang for donor management. As you grow, add formal grant management systems and upgrade to MIP or Financial Edge. The investment in proper tools pays off in grant compliance, donor confidence, and audit readiness.