Nonprofit Newsletter December 2020: A New Nonprofit Environment Demands a Fresh Approach to Financial Leadership

By Chris Fields

Nonprofit organizations exist in a landscape that was unimaginable just a few years ago. Technology has transformed everything from basic accounting functions and internal program analysis to the way nonprofits connect with donors. Add to that a global pandemic and a volatile economy, and you’ve got disruption on a scale rarely seen before. To thrive in such a dynamic world, nonprofits need financial leaders who bring an innovative mindset and specialized and experienced skillset.

Solo number-crunching based on past financial performance was once the mainstay of the Chief Financial Officer, but that’s no longer adequate. Today’s nonprofit CFO must maintain a forward focus, assisting senior leadership and the Board in implementing mission strategy (and measuring progress) and being alert for what’s coming next in terms of opportunities as well as challenges.

Nonprofits require this kind of financial awareness to an even greater degree than for-profit businesses, due to their frequently seasonal cashflows and acute sensitivity to budget and timing of discretionary contributions. In addition, these organizations often experience cash flow peaks and valleys that extend beyond a single fiscal year, which can have a dramatic impact on liquidity management.

These vulnerabilities make it imperative that today’s nonprofit CFO have a breadth and depth of specific industry experience, utilize advanced analytical skills to consistently and accurately predict future trends and events, and possess strong core business skills and expertise in leveraging the latest digital technologies in order to maximize efficiency with limited resources. But even with this trio in place, effective financial leadership demands more. Nonprofit financial leaders must not only grasp the business side of the organization’s work, but also the human side.

The ability to translate data into a compelling story is critically important. This enables the CFO to support other organization leaders and stakeholders by developing metrics that “sell” the mission, by combining program data, financial data, outcome modeling, and other numerical analyses to create metrics that clearly frame a donor’s return on investment.

This “ROI” is the real story – how dollars translate into mission impact – and it is of primary importance now that most significant foundation and government grants require objectively measured program outcomes. Donors, too, are more financially sophisticated in the digital age and enjoy broad access to comparative data that helps them decide which organizations to support. Here again, the ability to harness the expertise of an experienced nonprofit CFO to use data to tell a compelling story drives fundraising outcomes.

Nonprofits generally maximize direct expenditures on the mission and, as a result, often lag in implementing new technologies. This leads to less efficient accounting and finance functions, which can over time create operating inefficiencies and reduced analytical capacity, but it doesn’t have to. Organizations can frequently access one-time designated funds from friendly donors who grasp the connection between efficient operations and core mission performance. And, in many cases, outsourcing accounting and finance provides an affordable alternative that offers NFPs a solid ROI.

A qualified outsourced provider allows nonprofits to access the optimal mix of NFP insight and deep business acumen – experts who can lead the team in a strategic financial plan customized around the organization’s mission, establish efficient processes and plan for technology implementation, so leaders can devote more time and resources to mission fulfillment.

The flexible structure of outsourced finance function also lets NFPs fill skill gaps within their existing team without incurring the financial burden of additional full-time employees or overpaying through duplication of effort.

An outsourced CFO with specialized experience can help the Executive Director, Chief Resource Development Officer, and Chief Program Officer gain a deeper understanding of revenue, expenditures, and their many implications, such as:

  • Delivery costs by program
  • Dedicated funding streams by program
  • Proportion of recurring versus one-time gifts in each funding stream
  • Which programs operate at a deficit relative to their funding stream
  • Which programs are in essence self-funding

Marrying this detailed financial scrutiny of individual programs with the organization’s program priorities and then analyzing that matrix to inform decisions is where the magic of sophisticated financial leadership can really make a difference and propel the nonprofit’s mission forward.

Innovation is more than a buzzword. It’s a fresh way of resolving challenges and identifying opportunities that open new doors for your organization and the mission that drives it. Is outsourced finance and accounting a part of the innovative approach that will help your nonprofit thrive in the new economy? Reach out to the nonprofit advisors at Mauldin & Jenkins to find out more about how we can help you achieve your mission objectives.

Chris Fields
770-955-8600 | ext. 35435