CFOs Deliver Financial Know-how — But Does Your Nonprofit Really Need One?

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Some executive directors, board members and others in nonprofit leadership roles may look at the financial side of their organization and muse, “We could do so much better.” You may think you can boost financial performance by hiring a chief financial officer to help “run the show.” But there’s a lot to consider before taking that step.

Defining the CFO’s role

Generally, the nonprofit CFO (also known as the director of finance) is a senior-level position charged with oversight of the organization’s accounting and finances. He or she works closely with the executive director, finance committee and treasurer, and serves as a business partner to program heads. CFOs report to the executive director or board of directors on the nonprofit’s finances, analyze investments, develop budgets and devise financial strategies.

The CFO’s role and responsibilities will vary greatly based on the organization’s size, as well as the complexity of its revenue sources. In smaller non- profits 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 program- ming, 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.

Nonprofits with small budgets and straightforward operations probably assign these responsibilities to the executive director or choose a more affordable option. As organizations grow and their financial matters become more complex, though, CFOs can help steer the ship.

Deciding to hire

Weigh the following factors when determining whether to bring a CFO on board:

  • Size of your organization,
  • Complexity and types of revenue sources,
  • Number of programs that require funding, and
  • Strategic growth plans.

Static organizations are less likely to need a CFO than not-for-profits with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures.

Finding the right person

With CFOs 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 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. The position also requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints.

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.

Considering outsourcing

But here’s a different scenario. Let’s say that your organization lacks the size or complexity to war- rant 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.

Make a decision

For a growing organization, a CFO may be the right choice. First talk with your department heads and board members, list the “pros” and “cons” and only then make your move.