For a nonprofit focused on its core mission, the need for financial expertise may be low on the list of priorities. However, without a designated chief financial officer (CFO) to help keep the organization running in the black, even the most urgent mission may go unfulfilled. Whether to hire a CFO or outsource the role is a question your organization can answer only when it has carefully considered and weighed the pros and cons.
What is a CFO?
Generally, the CFO (or “director of finance”) is a senior-level position charged with oversight of an organization’s accounting and finances. This person works closely with the executive director, audit/finance committee and treasurer and serves as a business partner to program heads. In general, the CFO reports to the executive director and board of directors on the organization’s finances, analyzes investments and capital, develops budgets, and devises financial strategies.
The CFO’s role and responsibilities vary significantly depending 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 broad responsibilities — which may include accounting, human resources, facilities, legal affairs, administration and IT. Midsize organizations, with budgets running up to $40 million and fairly simple funding and programming, also may require their CFOs to cover diverse duties.
In larger nonprofits, though, CFOs usually have a narrower focus. They typically concentrate on accounting and funding issues, including risk management, investments and financial reporting. CFOs of midsize organizations with a variety of programs (for instance, several programs that generate revenue) or governmental funding may have a similar, narrow focus.
Does size matter?
Nonprofits with small budgets and straightforward operations usually assign the accounting and finance responsibilities to their executive director or outsource such functions. But as your organization grows and its financial matters become more complex, a CFO may be the right answer.
You should weigh several factors when determining whether to bring a CFO on board, for example, your nonprofit’s:
· Size,
· Complexity and types of 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.
What are the qualifications?
Your organization should devote considerable effort and time to hiring a CFO with the right qualifications. At a minimum, you’ll want a person with in-depth knowledge of the reporting and accounting rules for nonprofits. A CFO who has worked only in the for-profit sector may find the differences difficult to navigate. Nonprofit CFOs also need a familiarity with funding sources, grants management and, possibly, single audit requirements.
The ideal candidate needs 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’s useful when CFOs have experience with a wide range of functions — for example, human resources and IT — so they can identify when outside professional expertise is needed.
Finally, you’d probably like a CFO (and every employee, for that matter) to have a genuine passion for your organization’s mission. Nothing motivates staffers like dedication to 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.
What about outsourcing?
Does your organization lack the size or complexity to warrant having a full-time CFO on staff, but desire the financial peace of mind the position can provide? You might consider outsourcing CFO responsibilities to an accounting firm or other service provider.
Outsourcing can allow you to obtain cost-efficient access to top-notch expertise. Nonprofits often look to their existing staff when filling the CFO position, but your in-house accountant may not possess the requisite financial knowledge you and your organization need.
Financial expertise is essential
Whether you decide to hire a CFO or outsource the role, the importance of financial expertise to the well-being of your organization can’t be overestimated. It’s key to helping your nonprofit withstand setbacks and continue to thrive. Contact the nonprofit experts at H&S to help you make the best decision for your particular circumstances.
