The similarities and differences between nonprofit organizations and for-profit businesses are much discussed and written about. But here’s one difference that may come as a surprise: Small, growing nonprofit organizations are far more likely to run into nightmarish accounting challenges sooner than their for-profit counterparts (all other things being equal). That’s because a successful nonprofit can anticipate attracting a rising number of large benefactors, each of whose donations comes with specific restrictions in multiple dimensions (think: purpose, time frame, geography) — and regulations require the nonprofit to demonstrate that its funds are spent in accordance with donors’ intentions. Doing so is an accounting challenge, to be sure, but it’s one that is tightly coupled with operational and planning challenges — and its complexity rises exponentially with the nonprofit’s success. By contrast, all that a successful for-profit business must do is grow its customer base, show a profit and not break the law.
That unique nonprofit transparency challenge is what makes effective management of resources, operations and data even more essential to a nonprofit than to a business — and why enterprise resource planning (ERP) systems are potentially more beneficial to nonprofit organizations than to profit-making companies. ERP systems can integrate and automate the many aspects of nonprofit management, from fundraising to fund accounting. This, in turn, can lead to a large number of potential benefits that significantly improve a nonprofit organization’s effectiveness and maximize its mission impact.
Key Takeaways
- ERP systems can enhance the efficiency and productivity of nonprofits by automating many tasks and centralizing their data.
- More specifically, an ERP can benefit nonprofits by automating membership tracking and restricted-funds accounting; and an ERP’s more reliable, centralized data can be used to improve donor and volunteer communication, as well as monitoring industry compliance.
- ERP systems can lower a nonprofit’s overhead costs by helping it optimize management resources.
- Adopting an ERP system can be a strategic move that helps a nonprofit become more efficient — and more sustainable for the long run.
17 Benefits of ERP Software for Nonprofits
To understand how ERP can create so many benefits for a nonprofit organization, it’s helpful to think of it as a hub-and-spoke system, with its centralized database as the hub and each spoke a software module that helps operate a critical function, such as donor communications, volunteer management, marketing, collections inventory, membership tracking, accounting and finance. By automating, connecting and coordinating these various functions, the ERP helps the nonprofit’s operations run more smoothly and efficiently. Plus, modern, cloud-based ERP systems let nonprofits take advantage of tremendous computing power with lower up-front costs, faster implementation and limited or no investment in hardware, software, space and personnel, as compared to on-premises systems.
But that’s just the big picture. The rest of this article explores, in greater depth, 17 separate benefits ERP systems can potentially bring to nonprofits. Together, these advantages should reveal how ERP software can transform a nonprofit organization to help it better serve its mission.
First, however, it’s crucial to understand that not just any ERP system will afford these benefits. Because nonprofits must comply with strict, specialized accounting rules — which also have operational implications — only ERP systems purpose-built to meet those unique needs can deliver the benefits that follow.
1. Managing funds and restrictions:
Nonprofits often manage multiple funds with different purposes and restrictions, making accurate recordkeeping crucial if the organization expects to prevent commingling of funds that should remain separate. This makes proper fund management fundamental for nonprofits, both to assure donors that their gifts are being used as intended and, ultimately, to demonstrate compliance with the nonprofit fund accounting guidelines found in U.S. Generally Accepted Accounting Principles (GAAP) and its counterpart regulations in other jurisdictions.
Let’s say a nonprofit receives a donation earmarked for a specific project, while another donor pledges funds to support general operations and a third contributes to an emergency relief fund. Juggling these three funds, making sure expenses align with each donor’s intent and transparently reporting on it all can quickly become overwhelming. But ERP systems let the nonprofit define multiple discrete funds, automate fund-tracking, enforce fund restrictions and provide real-time access to the resulting financial data. Likewise, an ERP system can support grant management by providing a strong audit trail, ensuring that the organization meets all requirements and regulations related to each grant. This safeguards the nonprofit’s reputation and increases the likelihood that it can secure additional funding in the future. An ERP system’s fund management strategy and centralized data repository simplify resource allocation and monitoring of fund balances, and automate the generation of financial reports that adhere to regulatory requirements.
2. Budgeting:
Again, it may seem surprising that budgets might be even more important to nonprofit organizations than to profit-making ones, but it’s true. The reasons fit into three buckets. First, nonprofit funding sources can be less reliable, raising the challenge of sustaining financial stability in the face of sometimes erratic resource constraints. Second, nonprofits must spend in alignment with donors’ intentions. And third, many nonprofit funding opportunities — especially when a nonprofit applies for a grant — require detailed budgets to show how the monies will be spent. Meticulous budgeting supports all three of these activities.
The way ERP systems benefit a nonprofit’s budgeting process starts with the software’s centralized database and integrated nature. By integrating data from different departments, an ERP creates a holistic view of the organization’s finances that makes it easier to build budgets that account for all its sources of income and its expenses. Furthermore, ERP systems offer real-time access to financial information, so nonprofit budget authors can make decisions using the most up-to-date data; they can automate many aspects of the budgeting process to save time and reduce human error; and, working with an integrated grant management module, they can track actual grant income and related expenses against the budgeted plan and also verify compliance with grant restrictions.
3. Improving industry compliance:
Managing compliance can be complex and time-consuming because nonprofits must follow various regulations and guidelines to maintain tax-exempt status and to transparently report to donors and other stakeholders. An ERP system can simplify industry compliance by incorporating appropriate rules and guidelines — such as IRS requirements or the recommendations of nonprofit watchdog agency Charity Navigator(opens in a new tab) — right into the software modules used to manage various nonprofit operations. With the rules configured, the ERP system can then automate their enforcement. Moreover, top nonprofit ERP vendors regularly update their software to remain current with changing laws and regulations, helping nonprofits stay in compliance over the long run.
In short, an ERP system can greatly enhance a nonprofit’s ability to navigate complex regulations and maintain transparency, both of which are imperative for its long-term sustainability.
4. Communicating with donors and volunteers:
Keeping both donors and volunteers engaged and informed is vital to a nonprofit’s long-term success. Effective communication builds stronger relationships and fosters a greater sense of community — and support — between a nonprofit and its donors and volunteers. ERP systems designed for nonprofits have a specialized version of customer relationship management (CRM) — more appropriately called constituent relationship management — that provides a unified view of data for all of a nonprofit’s potential stakeholders, from donors and volunteers to members and beneficiaries. This consolidated view of contact information, engagement history and donation records can enhance nonprofit leaders’ understanding of their supporters, helping them to tailor more effective communication strategies that deepen supporters’ connection with the organization and cultivate stronger donor and volunteer retention.
For example, an ERP can segment donors and personalize communications to them, based on donation history (frequency, recency, amounts), demographics (age, gender, location, education, income) and interests (determined through surveys, events and other engagements with the organization). Similarly, volunteer communications can be customized with data about their interests, skills, availability, engagement level and length of service, all of which allow for more targeted outreach and personalized messaging.
In addition, ERP systems can enhance nonprofit storytelling through integration with digital marketing tools, such as email marketing and social media channels. Simplifying and automating communications in this way saves time and boosts messaging consistency across multiple touchpoints.
5. Managing operations:
Efficient management of day-to-day operations is as important to nonprofits as it is to for-profit businesses. After all, both must manage workers (even if some nonprofit staffers aren’t paid), customers (or, for nonprofits, donors and/or members) and marketing (such as email campaigns, postal mailings, advertising, events and so on) — to name just three functions. Nonprofits like museums also must manage collections inventories and the facilities that house them.
Let’s illustrate how an ERP might create benefits for nonprofit operations management, using the example of a medical research organization. The research nonprofit might need separate databases for its ongoing research projects, its donors and its partners (participating scientists, medical practitioners and pharmaceutical companies, for example). It would need a way to track inventories of research supplies, including enforcement of security protocols for any controlled substances. It would need a way to track when partner commitments are fulfilled and to send alerts when they’re not. Additionally, there should be an HR function to support employee and/or volunteer onboarding, payroll and benefits administration. Managing all of these requirements would be a significant undertaking for a medical research nonprofit staffed by a small team.
An ERP system can streamline that operational burden by automating routine tasks, such as tracking partner commitments and access to research supplies, and by centralizing the data to provide a collective view of all operations. ERP systems can even assist with nitty-gritty operational issues, like coordinating staff and volunteer schedules. And with cloud-based ERP, mobile access is simplified, so nonprofit managers can oversee operations from wherever they have internet access. By automating and consolidating operational tasks, ERP systems save time and resources, allowing nonprofit staff to focus on strategic initiatives that further the mission.
6. Reducing management/overhead costs:
Few things are more vital to nonprofit organizations than minimizing their overhead management costs. This is because the percentage of donated funds used for administrative overhead expenses is the nonprofit metric by which many donors judge whether to give. The lower the percentage the better; 17% makes a nonprofit “competitive,” while getting below 10% makes a nonprofit “best in class.” Nonprofits that try to make the number too low, however, often face a catch-22 of nonprofit growth: A nonprofit can’t expand without enough staff and resources, but donors would prefer to see all their funds spent on program expenses that further the mission.
As has been described many times, ERP systems significantly reduce an organization’s costs by automating tasks, eliminating wasted process steps, and integrating data to minimize repetitive, manual data entry, thereby reducing errors. For nonprofits, ERP systems can, for example, optimize fundraising efforts by providing insights into donor behavior and preferences, enabling targeted, more cost-effective campaigns. ERP systems can similarly boost efficiency in grant management, employee onboarding and facility management, potentially reducing the need for additional staff or external services. Taking a step back, this all means that ERPs can help nonprofits allocate resources more effectively — and more productively — than they otherwise could, which maximizes the impact of their budget and minimizes the amount they must spend on management overhead.
7. Reporting more accurately:
Accurate and timely reporting is imperative for a nonprofit to demonstrate accountability to stakeholders, board members and donors, as well as for regulatory compliance. Nonprofits often need to generate complex reports, detailing how operating expenses and salaries, for example, are allocated against various initiatives in accordance with donors’ intentions and grant requirements. This is time-consuming and resource-intensive when done manually.
The characteristics of ERP systems, however, can increase a nonprofit’s reporting accuracy while reducing the amount of time staffers spend making the reports. Chief among the characteristics are the integration of accounting data with data from potentially all operational functions and the ability to automate report generation. These tactics reduce errors, save time and allow nonprofits to present complex information clearly. For example, a nonprofit may need to generate a fund-allocation report for a specific project, detailing how resources were used and the outcomes that were achieved. An ERP system can compile this information from appropriate sources throughout the organization, ensuring accuracy and consistency, and can present it in a template format that is easy for board members or the public to comprehend.
8. Tracking memberships:
For nonprofits with a membership component, effectively tracking and managing member information leads to stronger member relationships. A nonprofit ERP system’s constituent relationship management module can automate many aspects of membership tracking, such as updating member records and reporting on membership status and dues, helping nonprofits make the most of their member bases.
For example, by tracking essential information, such as membership status, payment history, contact details and engagement, with the organization’s programs and events, nonprofits can use the data to tailor communications, identify potential volunteers and monitor membership trends over time. The ERP can also automate membership renewals, dues collection and member notifications. And because of the ERP’s centralized data approach, it becomes easier to integrate membership tracking with other functions, such as fundraising, event management and volunteer coordination. By automating these routine tasks, nonprofits free their leaders to focus on nurturing member relationships and using insights from membership data to drive strategic decision-making and growth.
9. Managing marketing and projects:
Nonprofits depend on effective marketing and project management to raise awareness, attract support and execute their core programs. While marketing projects are only a subset of the types of projects a nonprofit must manage, a single person or small team will often wear both marketing and project management hats — especially in small nonprofits. ERP systems’ main strengths in consolidating data and automating processes lead to potential major benefits here, too.
As discussed in No. 4 (communicating with donors and volunteers) and No. 8 (tracking memberships), ERP systems assist marketing activities by automating the routine efforts and personalizing interactions with potential donors, volunteers and beneficiaries. In addition, the centralized and consolidated view of marketing data that ERP systems provide to nonprofit leaders can enrich their marketing strategies — and performance — with data-driven decision-making.
When it comes to project management, an ERP designed for nonprofits should make it easy to maintain separate funding sources and expenses for each project, as the organization might require, in the course of providing project support. To illustrate, consider an educational nonprofit looking to administer an after-school tutoring project, a digital literacy initiative and a scholarship fund. For the first two projects, an ERP system could manage all the volunteer/instructor and student data, automate scheduling for classes based on mutual instructor/student availability, and track attendance and grades (if any). For the scholarship fund, an ERP system could automate the application process, track application status, disburse the funds and maintain records on scholarship recipients. Plus, it could match the expenses each project incurs against the donations made in support of them — then generate reports for the donors who provided the funds for each initiative.
10. Managing collections:
Museums, libraries and other cultural institutions usually manage collections of artifacts, books or other valuable items. These collections require cataloging, tracking and — sometimes — maintenance to preserve them and make them available for research and/or public viewing. Beyond that, nonprofits must manage donor “gift-in-kind” information for tax purposes, both to maintain good relationships with donors and to comply with relevant regulations.
This is a perfect match for ERP systems’ traditional strength in inventory management, which offers nonprofits a centralized platform to store and access information about donated items, their location and donor history. With ERP inventory management capability, nonprofits can more efficiently track and manage their collections, reducing the risk of errors or inconsistencies and ensuring that everything is properly cared — and accounted — for. For example, an ERP system makes it easier for a museum administrator to look up who donated an item and when, where it is located and how many items that donor has given in the last, say, five years. Such trusted information is useful for donor relations and when applying for funding or insurance coverage.
Overall, implementing an ERP system for managing collections contributes to a nonprofit’s long-term success and impact by optimizing its ability to preserve, showcase and leverage its most valuable assets.
11. Managing facilities:
Nonprofits, especially community centers, museums and shelters, depend on good facility management to optimize their resources, keep them safe for the public and maintain smooth operations. Effective facility management involves coordinating employee and volunteer schedules, handling maintenance and managing space utilization.
ERP systems offer a centralized platform for tracking and coordinating facility management operations, which enables nonprofits to optimize staff and volunteer schedules, promptly address maintenance issues and make data-driven decisions about space allocation and usage. For example, an ERP can help a community center manage room bookings, track equipment usage and monitor maintenance schedules. It can also track maintenance, making certain the center will be available for important programs and events. By automating these tasks and consolidating data, ERP systems save time and allow nonprofit staff to focus on delivering high-quality services to their community.
12. Managing employees:
People are the key strategic asset in any organization, whether for- or nonprofit. Here, again, human resources is another area where an ERP’s traditional strengths translate beautifully into the nonprofit world. ERP systems automate many HR tasks, such as onboarding, benefits management and payroll, and consolidate employee data in their unified databases, both of which save time and reduce errors.
For example, an ERP system can help a small nonprofit with a single HR professional manage employee onboarding, track schedules and paid time off (PTO), administer benefits, and process payroll. Because they’re no longer buried in manual tasks, the HR staff member has more time to interact with employees and to focus on strategic initiatives. Additionally, ERP systems can provide nonprofit leaders with insights into employee performance and engagement, helping them identify areas for improvement and make data-driven decisions about staff development and retention.
13. Centralizing data:
The fact that ERP systems merge data from all corners of an organization into a single, coherent central repository is one of the main attributes from which all benefits flow. An ERP system simplifies operations, reduces redundancies, enhances internal communications and guarantees that all staffers have access to the same accurate, up-to-date information. Perhaps more important, it eliminates data silos and supports better informed decision-making. Having centralized data plays a vital role in virtually all of the other benefits listed in this article, from managing fund restrictions and budgeting to tracking memberships and reporting more accurately.
For example, having all donor and volunteer information in one place facilitates better communication and engagement strategies, while allowing accounting software to share data with operational systems uncomplicates accurate fund management and regulatory compliance. Finally, centralizing data minimizes the risk of data breaches or loss, as all information is stored and managed within a single, secure platform.
How to Make Your Case for ERP
14. Saving time and improving productivity:
This is another fundamental benefit of ERP systems whose ripples can be felt throughout a nonprofit’s operations. By automating manual tasks, simplifying processes and centralizing data, ERP systems save so many work hours that everyone’s productivity rises. Nonprofit employees and volunteers have more time to focus on strategic initiatives and mission-driven activities when they’re not bogged down in endless administrative work. One health care research nonprofit’s three-person accounting team saved 40 hours a month after consolidating functions around an ERP system.
To understand how such large time savings can be achieved, consider grant management, which is indispensable to many nonprofits’ funding. An ERP system can save time/improve productivity at nearly every step of what is often a long, complex process. It can untangle the application step by centralizing data about grant opportunities, deadlines and eligibility requirements. It can track a received grant’s entire life cycle of milestone dates, deliverables and reports. It can automate allocation of grant funds to specific projects or expenses and then track the actuals, providing a strong audit trail to verify that the funds were used according to the grant’s stipulations and reducing time spent on manual bookkeeping. And it can auto-generate reports to satisfy regulatory requirements and instill trust within the granting agency that the nonprofit is in full compliance.
15. Improving data security:
One key benefit of an ERP system for nonprofits is the enhanced data security it offers. By consolidating data in a single, secure platform, ERPs minimize the risks of data breaches, loss and unauthorized access, which is so important for maintaining the trust of donors, stakeholders and beneficiaries. ERP systems can do this because they typically include strong security features, such as user access controls, encryption and regular backups. Moreover, cloud-based ERP solutions store data across multiple remote servers, creating redundancies and guarding against single points of failure. Consequently, deploying an ERP system can significantly upgrade a nonprofit’s ability to protect its vital information.
16. Minimizing redundancy:
This benefit is especially potent for nonprofit organizations, because the complexity of nonprofits’ operational and accounting challenges often results in a multitude of independent applications and spreadsheets that exacerbates redundancies. But an ERP system’s core strengths of centralizing data and streamlining operations serve to eliminate duplicate data entry, manual cross-referencing and other repetitive tasks, saving time, preserving resources and elevating productivity.For instance, an ERP system consolidates donor, volunteer and member information in one place, reducing errors from manual data entry as well as data inconsistencies, while fostering more efficient communication and engagement strategies. ERP systems also automate routine tasks, such as generating financial reports or tracking grant deadlines, allowing staffers to focus on strategic initiatives and mission-oriented activities. Minimizing redundancy translates into nonprofits with optimized resources and enhanced productivity — as well as greater impact on their mission in the world.
17. Improving training:
Excellent employee and volunteer training is essential to building a skilled and knowledgeable workforce that can efficiently carry out a nonprofit’s mission. ERPs can help: They can enhance training efforts by centralizing training materials, tracking employee and volunteer progress, and automating training-session scheduling and management.
For example, an ERP system can store training materials, such as manuals, videos and presentations, making it easy for staff and volunteers to access and review them as needed. Additionally, the system can track individual progress, showing managers areas where additional training may be required, so they can tailor training programs accordingly. All of these ERP capabilities save time and resources, giving nonprofit staff more time to focus on delivering high-quality training experiences that better cultivate the skills and knowledge of their workforce. And little leads a nonprofit to a greater impact on its mission more than a truly excellent and engaged workforce.
Manage Your Entire Organization in One Place With NetSuite
Because nonprofits must meet unique transparency requirements fostered by donors’ expectations and enforced by regulatory requirements, the many benefits of ERP systems are particularly attractive to them. NetSuite ERP is a leading cloud-based solution that offers a comprehensive and flexible platform tailored to the distinctive needs of nonprofits. With NetSuite, nonprofits can manage their entire organizations in one place, enhancing productivity across functions from fundraising to grant accounting and from constituent relationship management to inventory management. NetSuite for Nonprofits is designed to optimize projects and grant initiatives, providing real-time visibility into budgets and actuals for improved decision-making. It also increases accountability by automating accounting and grants management processes, ensuring compliance with industry regulations. With a complete view of volunteers and donors, NetSuite enables nonprofits to engage with constituents and establish close relationships, ultimately driving support and long-term success. NetSuite helps nonprofits save time, reduce management costs and focus on what truly matters: making a positive impact on their communities and the world.
Adopting a cloud-based ERP system can enhance a nonprofit organization’s ability to manage resources, streamline operations and, ultimately, achieve its mission. The 17 benefits discussed in this article — such as tracking memberships, managing funds and their restrictions, improving communication with donors and volunteers, and centralizing data — highlight the transformative potential of ERP software for nonprofits. By adopting an ERP system fitted to their unique needs, nonprofits can optimize processes and reduce management costs, leaving more time for nonprofit managers to focus on mission impact.
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Nonprofit ERP Benefits FAQs
How can an ERP improve data management for a nonprofit?
An enterprise resource planning (ERP) system enhances data management for nonprofits by automating processes, centralizing and integrating all organizational data, and reducing redundancy, all of which boosts data accuracy and offers real-time information access. An ERP system also streamlines reporting and analytics, providing insights for strategic decision-making. Plus, with built-in security measures, ERP systems ensure data protection, helping organizations meet compliance standards.
What should nonprofits look for when selecting an ERP system?
When selecting an ERP system, nonprofits should only consider solutions that are specialized for the unique accounting and operational requirements of the nonprofit industry. A nonprofit ERP system should offer flexible customizability and key modules, such as accounting, constituent relationship management, fundraising and project management.
What are some common challenges associated with implementing a nonprofit ERP?
Common challenges in implementing a nonprofit ERP include data migration, staff training and adapting to new processes. A good implementation partner can help nonprofits navigate these issues.
What are the benefits of having an ERP system within an organization?
The benefits that an ERP system can bring to any organization stem primarily from the way they automate repetitive tasks, and centralize and integrate organizational data. This approach saves time and enhances decision-making, while simultaneously boosting productivity, internal communications, customer marketing, inventory management and myriad other business processes. In addition, ERP systems enhance data accuracy, consistency and security, and can automate and improve reporting and analytics.
What benefits do nonprofit organizations get from ERP?
Nonprofits gain advantages from ERP systems through improved operational efficiency, resource optimization, better donor and volunteer communications, more accurate reporting and stronger industry compliance.
