Nonprofits typically work hard to make the world a better place and their success depends greatly on financial health and integrity. That is why many nonprofits need to employ a chief financial officer (CFO). Depending on your size and other factors, you may be one of them.
What are the CFO’s responsibilities?
Generally, the nonprofit CFO is a senior-level position charged with oversight of the organization’s accounting and finances. He or she works closely with the CEO/executive director, finance committee and treasurer and often serves as a business partner to your program heads. CFOs typically report to the CEO/executive and director or board of directors on the organization’s finances, analyze investments and capital, develop budgets and devise financial strategies.
The CFO’s role and responsibilities will vary significantly based on the organization’s size, as well as the complexity of its revenue sources. In smaller nonprofits with budgets of $1.5 million to $10 million, CFOs often have wide responsibilities — possibly for accounting, human resources, facilities, legal affairs, administration and IT. Midsize organizations, with budgets running up to $40 million and simple funding and programming, also may require their CFOs to cover such diverse areas.
In larger nonprofits, though, CFOs usually have a narrower focus. They train their attention on accounting and finance issues, including risk management, investments and financial reporting. CFOs of midsize organizations with diverse programs (for instance, several programs that generate revenue) or governmental funding may have a similar focus.
What are your requirements?
Nonprofits with small budgets and straightforward operations probably assign these responsibilities to the executive director or choose a more affordable option, such as hiring an outsourced CFO. As organizations grow and their financial matters become more complex, though, CFOs can help steer the ship.
Experts suggest weighing the following factors when determining whether to bring a CFO on board:
- Size of the organization
- Complexity and types of revenue sources
- Number of programs that require funding
- Strategic growth plans
Static organizations are less likely to need a CFO than nonprofits with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures.
Who is right for you?
With CFOs playing such an essential role, your nonprofit should devote considerable time and effort to hire someone with the right qualifications. At a minimum, you want a person with in-depth knowledge of the finance and accounting rules particular to nonprofits. A CFO who has only worked in the for-profit sector may find the differences difficult to navigate. Nonprofit CFOs also need a familiarity with funding sources, grant management and, if your nonprofit expends $750,000 or more of federal assistance, single audit requirements.
What about educational and professional credentials? The ideal candidate should have a certified public accountant (CPA) designation and optimally an MBA.
In addition, the position requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints. It also is useful if the CFO has had experience in an organization with a wide range of functions — for example, human resources and IT — so that he or she can identify when outside professional expertise vital to the success of your organization is needed.
Finally, it is beneficial to find a CFO who has a genuine passion for your mission is highly beneficial as it makes it easier for the CFO to understand that success for a nonprofit is not only about the bottom line.
Asset to your organization
CFOs bring many advantages to the table. Not only can they help maintain fiscal health and assist the organization in achieving its goals, but they also can boost your credibility with potential donors and watchdogs. If your budget is growing and financial matters are becoming more complicated, you may want to add a CFO, or outsourced CFO, to the mix.
Sidebar: The outsourcing alternative
Does your organization lack the size or complexity to warrant having a full-time chief financial officer (CFO) on staff, but desire the financial peace of mind the position may provide? Nonprofits often look to existing staff when filling the CFO position, but in-house accounting staff may not possess the requisite financial expertise. A popular option is to outsource CFO responsibilities to your CPA firm. With outsourcing, you gain cost-efficient access to top-notch expertise as well as other benefits at a far less cost. An outsourced CFO may also provide a strategic sounding board for the CEO/executive director and board of directors. To learn more, please contact SKR+CO’s Business Advisory team.