Nonprofit organizations (NFPs) are run by leaders who can be creative, are dedicated, and know how to make the most of small budgets. The luxury of hiring a full-time CFO is often beyond the budget of most nonprofits, especially with the scrutiny placed on them. People want to see that the money being brought in by a nonprofit is being used to serve the stated mission.
Thanks to nonprofit evaluators like GuideStar and Charity Navigator that provide an overview of the effectiveness and integrity of every nonprofit, there is significant transparency required in documenting financial information. However, both require the expertise of a CFO-level professional and demands you don’t spend the money to hire one. Rock, meet hard place.
The Challenge of Leading a Nonprofit
As an executive director of a nonprofit, you walk a tight balancing act. You need people on your team to help you complete your mission, grow your organization, and manage your funding. Still, you also need to demonstrate to donors (particularly large corporate donors) that you are spending the money responsibly. Beyond that, there are specific requirements that certain funds are spent as earmarked – you can’t simply move funds around to meet the organization’s needs. It’s a lot of pressure, and it’s often less stressful when you have a financial expert on hand to help with those decisions. But hiring a full-time CFO is often beyond the reach of smaller nonprofit agencies. The average CFO salary is over $100,000 a year; some nonprofits have total budgets of less than that. Finding the right financial partner can be crucial to the success of your nonprofit – but it does not always need to be a full-time, internal hire.
Growing Your Nonprofit
One of the best ways to grow your nonprofit is by demonstrating how well you’re meeting your mission. This is mainly done through financial reports that reflect how much of your incoming donations can be used to meet those mission goals. One of the ways in which charitable organizations are measured is by analyzing their revenue and expense data and measuring how much of their funding is used to cover program expenses versus the initiatives that are part of their mission. A CFO can help ensure that you not only meet all of the compliance requirements to maintain your nonprofit status but also to tell the story of your organization in such a way that you earn a high rating with nonprofit evaluators.
Considerations for CFO Need
How do you know if your nonprofit can justify hiring a full-time CFO? Many factors go into determining whether or not a CFO can be a justified expense. These considerations include:
- Size of organization – If your nonprofit is a multi-million-dollar operation serving a global community, no evaluator will blink twice at the need to have a full-time, internal CFO. Managing that large of a nonprofit would require a full-time financial expert.
- The complexity of revenue sources – If your organization has a variety of income sources, receives money from overseas donations, or accepts donations in kind on a large scale, there may be justification for a full-time CFO. However, it would still depend on the size and scope of your mission.
- The number of programs that require funding – If the money you receive from donations and supporters can be earmarked for specific programs or you operate a wide variety of programs throughout the country or internationally, a CFO may be a necessary and quite justifiable investment.
- Continually evolving programs – There’s nothing quite as complex as a nonprofit that must shift with the state of the region in which they operate. Humanitarian agencies often must adjust what and how they deliver their programs based on geopolitical and socioeconomic situations. These rapidly evolving programs may require an internal CFO to manage.
Finding the CFO Fit
Whether you are a nonprofit organization seeking to hire a full-time CFO or you prefer the idea of outsourcing your CFO role to a financial partner, it’s essential to find a financial expert who understands the nuanced differences between nonprofit and for-profit organizations. While both are accountable to their stakeholders, the stakeholders in each differ significantly, as do the goals and motivations. Beyond that, nonprofits must meet several compliance requirements to maintain their 501(c)3 status. It can be important to find a CFO or financial partner who understands these differences and is comfortable delivering the necessary financial documents.