As nonprofits grow, some may struggle with the financial side. Let’s face it, nonprofits generally begin with a vision or passion, and not with financial know-how. For some organizations, a chief financial officer (CFO) may be a good choice.
What does a CFO do?
Generally, the nonprofit CFO (also known as the director of finance) is a senior-level position charged with oversight of an organization’s accounting and finances. CFOs work closely with executive directors, finance committees and treasurers, and serve as business partners to program heads. They report to executive directors or boards of directors on finances, analyze investments, develop budgets and devise financial strategies.
Startup nonprofits with small budgets and straightforward operations typically assign these responsibilities to executive directors. As organizations grow and their financial matters become more complex, though, CFOs can help steer the ship. Their roles and responsibilities will vary greatly based on an organization’s size, as well as the complexity of its revenue sources.
In nonprofits with budgets of $1.5 million to $10 million, CFOs often have broad responsibilities — possibly overseeing 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 generating different types of revenue) or governmental funding may have a similar focus.
Which organizations need a CFO?
The size of your nonprofit isn’t the only factor to consider. Also look at the:
- Complexity and types of your nonprofit’s revenue sources,
- Number of programs that require funding, and
- Strategic growth plans.
Static organizations are less likely to need CFOs than nonprofits with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures.
How do you find a CFO?
Once you’ve made the decision to hire a CFO, consider the following when evaluating applicants:
Financial knowledge. With a CFO playing such an essential role, your nonprofit should seek, at a minimum, a person with in-depth knowledge of the finance and accounting rules for nonprofits. A CFO who has worked only in the for-profit sector may find the differences difficult to navigate. A nonprofit CFO also needs a familiarity with funding sources, grant management and, if your nonprofit expends $750,000 or more of federal assistance, single audit requirements.
Educational and professional credentials. The ideal candidate should have a CPA designation and, optimally, an MBA. The position also requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints.
Passion for your mission. Additionally, you’d probably like the CFO (and every employee, for that matter) to have a genuine passion for your mission. Nothing motivates employees like a belief in the cause. And, in the case of a CFO, this makes it easier to understand that success for a nonprofit isn’t only about the bottom line.
Can you outsource CFO duties?
The short answer is “yes.” Let’s say that your organization lacks the size or complexity to warrant having a full-time CFO on staff. Nonetheless, you desire the financial peace of mind that filling the position can provide. In this case, you might consider outsourcing CFO responsibilities.
Outsourcing can produce several benefits at far less cost. With outsourcing, you can obtain cost-efficient access to top-notch expertise. It will likely cost far less than hiring an executive with the appropriate background. You might even determine that your organization doesn’t have enough financial “work” to keep a full-time professional on staff busily engaged.
Ready to take the leap?
Hiring a CFO to help your organization’s decision makers may boost your nonprofit’s financial performance. But don’t do it without first considering whether your nonprofit really needs one and can afford it — there’s a lot to consider before taking the leap.
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