Restoring and Ensuring Effective Nonprofit Finance Practices
Decades ago, healthcare trailblazer Sister Irene Kraus moved her mantra of “No Margin. No Mission.” into the limelight. Underscoring this was her ahead-of-the-curve understanding that mission-centered organizations must have strong finance and compliance-related practices and expertise in place to be able to provide services in line with their mission. And when shortcomings and lapses in those crucial cornerstones persist in a nonprofit, so too do risks to the organization and those they serve.
Here, we look at what can cause finance and compliance-related practices to go astray in nonprofits, as well as what can be done to get them back on course and keep them there.
How Cracks in Nonprofit Finance & Compliance Creep In
Nonprofit CEOs rely on their organization’s CFO to provide sound fiscal management, ensure full compliance, and be strategic partners. A CFO will evaluate financial performance, and bring attention to potential issues. They also rely on the CFO’s leadership, providing up to date communication, and accurate financial reporting. But even when CEOs believe all the necessary bases are covered, significant risks and finance-related fissures could be growing outside their awareness. Here are a few anonymized but actual examples of how nonprofit CEOs have described the finance challenges they’ve found their organizations faced with:
- We just let our CFO go after learning a sizeable chunk of our funding is in jeopardy because several compliance reporting and grant requirements had not been met, despite us being assured that they were.
- When our CFO unexpectedly left, we did not have an internal successor ready and it is taking longer than we expected to find a replacement. Things have started to drift as a result.
- We’ve grown significantly in recent years but have not been able to scale finance capacity at the same pace. We need to lighten the load to avoid delaying projects that need to get going.
- We are unable to get key finance data that our previous finance lead was storing on their personal computer. We need to rebuild several models and implement measures to ensure continuity and information access.
CEOs and boards should understand that not every disruption stemming from a nonprofit’s finance function is avoidable. Key leaders and staff may leave for unforeseeable reasons and other anomalies may arise. Yet the impact in most instances can be minimized while many disruptions can be avoided altogether.
Securing the Right Leader and Augmenting Expertise
Arguably the most important aspect of setting a nonprofit’s finance practices up for success is first finding the right leader. Nonprofit CEOs and the boards they report to must be fully aligned and clear as to what type of CFO the organization needs (e.g., work style, areas of expertise, experience) and what their expectations are. This should directly inform all aspects of recruitment, including job description development, candidate sourcing, and details of the interview and evaluation process.
Read our previous post on how to Attract & Retain Nonprofit Employees
Adding the expertise and experience of a fractional CFO is also highly recommended for restoring and sustaining effective nonprofit finance practices. A fractional CFO comes with extensive finance leadership experience that enables them step in and prioritize triage to close gaps and bring stability when a full-time CFO isn’t in place. Additionally, a fractional CFO can add capacity by taking on select projects and provide specialized expertise as needed. Examples of fractional nonprofit CFO focal points include:
- Advising the executive team on current and short-term priorities and evaluating long term goals.
- Engaging with grant writers to solidify funding sources and establishing a master calendar of due dates and key milestones for accountability and executive visibility.
- Building comprehensive reporting mechanisms in the organization’s finance/ERP platform to ensure accurate and timely financial reporting.
- Providing an unbiased assessment and recommendations on potential financial matters to avoid unintended rationalization and improve decision making.
- Documenting processes and task requirements to guide existing staff to increase efficiencies and support continuity when staff transitions occur.
- Supporting strategic planning, budget development, cash flow projections, analysis, and related activities.
- Assessing and advising nonprofit’s current financial technology and assisting with selection and implementation of new programs and platforms.
- Bringing experiences and best practice ideas from other nonprofit organizations.
- Providing different perspective and forward thinking.
- Taking a deep dive into financials and providing recommendations.
In short, fractional CFOs provide nonprofits with added practical expertise and extend the capacity of the finance function. The organization can either bridge to a full time hire by using a fractional resource on an interim basis, or save money on an ongoing basis by removing the salary and benefits burden of a full time employee while getting the benefit of being able to increase or decrease the fractional CFOs involvement as needed.
Mission. Accomplished.
Nonprofit CEOs and boards can’t be everywhere all the time. For a nonprofit organization to live up to its mission, an effective and active leadership team is a must. Examine any highly successful nonprofit and one is virtually certain to find a well-oiled finance function with leadership that provides strategic oversight and steadfast focus on ensuring the organization’s financial health and sustainability. Nonprofit CEOs and boards make this possible by doing the work needed up front to secure the right finance leader for their organization and by smartly augmenting their capacity and capability with expertise that can plug in as needed to ensure the right questions are being asked.
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Need to assess or augment your nonprofit’s finance and compliance practices? Request a Free Consultation from a vcfo expert who can help ensure the whole organization is optimized and operating in line with the nonprofit’s mission. We will help you ensure margin matters! We’ve partnered with more than 5,000 businesses in our 27 years and would love to share our expertise and experience with you.
