Do You Need a CFO for Your Nonprofit Organization? 5 Clear Signs That You Do
A sudden air of change has recently started to blow amid workplaces, businesses, and organizations, with chief financial officers facing even more challenging tasks than accurate financial reporting.
CFOs now navigate a space that requires them to partake in the decision-making process and even to address the top concerns of the company or institution. As this article will elaborate on later, finance leaders are a key strategic partner for nonprofit and for-profit organizations alike.
And as nonprofits and charities struggle to meet demands in a time when inflation has risen to 7.7% in Canada and to 9.1% in the US, one could easily grasp the idea that the critical role of a CFO is undeniable.
Who Is the Modern CFO?
The chief financial officer is a financial leader in an executive position. With their knowledge of the market, accounting, cash flow, investment banking, and financial planning, they lead the finance team and present the financial data to the chief executive officer (CEO) and the board members.
A CFO occupies a senior finance function after an extensive educational and professional background in finance and economics. To impeccably supervise the financial activities of a for-profit or nonprofit organization, the chief financial officer must absorb an abundance of industry knowledge before taking his seat in a CFO position.
CFOs are responsible for bravely looking into the future of an organization, rooting their advice in financial analysis. The financial reports they produce are about forecasting, managing risk, identifying future opportunities, and developing a sound strategy.
Signs You Need the Financial Leadership Skills of a CFO
Although it might seem uncommon and even dangerous, especially during a period in which resources are scarce, bringing in a nonprofit CFO is what will yield financial results. But when is it the time to elevate your accounting to strategic planning?
1. The Bond Between the Organization, Donors, Partners and Funders Is Weak
|“The CFO of today and of the future must be able to take financial data and use it to influence operational decision-making and strategy.” – Paul Ainsworth, finance expert, for Toptal.|
In a large business, the CFO reports to internal and external stakeholders about the finances of the company with the aim of aiding during the decision-making process. And most CFOs use data as insights for the board of directors.
For a for-profit, the finance department informs the future of the company, and finance leadership uses reporting in order to generate better performances.
A nonprofit CFO must inform donors and sponsors that their money is being put to good use through transparent reports and responsible operational behavior. The management of finances must be a thorough activity, conducted along with careful planning.
If your relationship with your donors, partners and funders feels like it is lacking in substance, you need a CFO to further the bond with the key sources of revenue using accurate reports.
2. The Financial Planning Is Ineffective
Regardless of being a business or a nonprofit organization—budgeting and planning are critical activities that require skills and an analytic mind. However, the contexts in which the two types of organizations reside are not quite similar.
Although the prosperity of a business depends, among others, on the planning of finances, it is the survival of a nonprofit that forces a CEO to leverage it.
The scope of a nonprofit organization is to support and make advances for its mission, using limited resources acquired in the form of donations, sponsorships, and sales. The donors and the sponsors believe in the cause endorsed by the organization and, consequently, demand that their money is put to good use.
If the money circulating in your nonprofit organization is not used as efficiently as possible, this is a sign you need a nonprofit CFO to regard the revenues, sales, and expenses in the process of budgeting, and create a strategy around them.
3. You Are Encountering Challenges With the Cash Flow
As common as it is, identifying an issue of cash flow is a threat to all organizations. However, when a business runs out of funds, executives can choose to focus on the many methods to produce artificial growth, such as flash sales and promotions.
Per contra, a nonprofit with insufficient funds has no strings to pull. While government funds are not easy to obtain, there is a need for money to operate the office and to contribute to the core mission. Its own nature is exactly the reason that cash flow problems tend to be even harder to overcome for nonprofit organizations.
If a rough analysis points to developing cash flow issues, the most responsible reaction is teaming up with a CFO who is trained in foreseeing adversity before its actualization.
4. You Have Difficulties Securing Funding
In light of today’s economy, fundraising for nonprofits could be a difficult undertaking. It is especially tricky to transcend the usual revenue-generating methods and gain leeway for innovations.
For that matter, nonprofits progress when they generate revenue from multiple sources, and as such, many CFOs recommend diversifying the sources of funding. Finding numerous sponsors, securing government funding, and brainstorming merchandise or services to sell fall under the responsibility of a CFO and ensure great finances.
If obtaining funds for your organization is a daunting task, hiring a CFO will open new pathways for generating revenues.
5. The Organization Is Not Failing, but It Is Not Growing Either
This sign is harder to pick up on because it does not present itself as a problem to solve. But imagine having a myriad of opportunities to develop your organization. Other than fundraising for nonprofits and careful budgeting, how can a CFO add value to your nonprofit?
While an accountant has a deeper understanding of how past decisions impacted your activity, a CFO identifies what future actions could serve your purposes. Therefore, CFOs catalyze growth.
If the organization reached a point of inertness, you could use the perspective of someone with a proactive approach to finances.
Why Do You Need the Expertise of a Nonprofit Chief Financial Officer?
Analysis generates knowledge, and knowledge is the generator of growth. But to initiate growth, you need to understand the object of your scrutiny and be aware of the dangers it is subjected to.
That is what CFOs can do for your nonprofit. They operate with collected data, nurture the connections that ensure a steady income, budget with effectiveness in mind, share their expertise on cash flow, and create multiple sources of revenue.
CFOs can be the tipping point for your nonprofit.
If you need a North-American-based expert to glance at your finances before you decide to move forward with a CFO or on your own, book a free consultation with Zivo.