We’ve previously discussed the value of a Chief Financial Officer (CFO), a senior executive responsible for the financial affairs of a corporation or institution. Here we want to talk specifically about how a CFO can benefit not-for-profits.
Every business aspires to create sustainable financial success, and the same holds true for not-for-profit organizations. By engaging a CFO, a not-for-profit obtains a strategic financial leader who will have a deeper understanding of their business model, financial standing, and banking relationships.
A CFO will serve as a sounding board for the board of directors, while providing data analysis and key insights to help the organization grow. They assess processes and operations, suggest improvements, and implement change all while considering economic, industry, tax, government regulation and social issues.
Keeping an organization funded is another key role that that involves managing relationships with key partners and donors and nurturing relationships with potential sources of capital. CFOs also serve as change specialists in a world that is increasingly unpredictable. Shifting market dynamics, new leadership models and disruptive technology require an ability to adapt, and a CFO fits the bill.
Whether project-based or a permanent solution, having a CFO within the organization helps not-for-profits achieve financial goals. Let’s look at three distinct ways a CFO can help not-for-profits.
Strategic Direction
A CFO helps plan strategy that directs an organization forward. Established not-for-profits are best served by a CFO as they can provide strategic direction. They help the board of directors align their goals and strategies with the underlying financials.
The CFO holds the top financial position in an organization, which is an evolving role. They not only oversee accounting and finances, but also act as a strategic business partner. They are responsible for:
- Tracking and projecting cash flow
- Financial planning
- Analyzing an organization’s financial strengths and weaknesses and internal controls
- Evaluating profitability
- Proposing strategic directions
- Providing detailed financial data
In addition to managing financial services, CFOs protect not-for-profit assets, ensure compliance with regulations and assess financial risks. Through financial analysis, they can help boards formulate goals and strategies that align with the not-for-profit’s mission. They can also provide big picture insight as to where to invest and optimize efforts.
Most not-for-profits also need a good financial model representing their strategy, which requires an investment in people and technology. Having an effective CFO can support this process while providing a high-level perspective regarding the organization’s finance and accounting needs. This will ensure that the financial constraints surrounding the strategy are realistic and not too risky.
Bottom line, a CFO can be a significant factor in whether a not-for-profit’s strategy succeeds or fails.
Engaged, Effective Board
A strong, not-for-profit board consists of many different professionals working together to ensure your organization succeeds. While every professional has value to contribute, an effective CFO can make or break a not-for-profit. The key reason why a CFO would sit on a board of directors is directly related to their role as the primary executive responsible for the organization’s financial statements.
Board members expect the CFO to play the devil’s advocate within the management ranks, making sure significant projects and issues get properly vetted before being brought to the Board. A CFO will own the financial model that rationalizes large capital or human investment.
By preparing concise reports on key issues and establishing clear operational processes with the board, CFOs can help directors meet their oversight responsibilities and create greater value for their organizations. This enables the board to deliver the organization’s vision while providing necessary resources for infrastructure and day-to-day operations.
Fundraising
A good CFO will support the Fundraising department, requiring analytical data that can predict future fundraising efforts, and reviewing the numbers to tell a story. A well-known not-for-profit financial story can have the biggest impact on giving, for both donors and grantors. Organizations want to make sure their “storyteller” fully understands their potential, strategy, and mission.
A good fundraising strategy also relies on identifying donor behaviors related to fundraising efforts, then repeating the efforts to continue capturing the behavior.
For example, launching a holiday giving campaign that starts with a mail piece, followed by an email, and supported by social media posts. Tracking donors’ behaviors through this cycle – who donates through which process – can help the fundraising department follow the donations.
It’s also important to understand the donor giving relationship, which is emotional. Donors feel good when they give money. If you stop communicating with them, they lose the emotional connection and stop giving. A good CFO understands this cycle and will support the fundraising department’s efforts to build long-term donor relationships.
A good CFO will also craft an effective financial story that will encourage donors to continue giving and support grant writing efforts. A compelling financial story will demonstrate how funding will positively impact the not-for-profit. Prospective sources of capital will want to see this story before agreeing to provide funding.
Hiring a full-time CFO may not be feasible for many not-for-profits. If this is the case, a not-for-profit can always outsource certain types of CFO work to maximize financial potential.
About Bowers & Company CPAs
Bowers & Company CPAs aims to offer helpful information to our clients and friends. Learn more about how we can help should your not-for-profit organization need accounting and financial services.
Disclaimer: To ensure compliance with requirements imposed by the Department of Treasury, we inform you any U.S. federal tax advice contained in this document or video is not intended for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
