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Do the math: Deciding whether you need a CFO

Nov 14, 2017

Nonprofits typically work hard to make the world a better place in one way or another. But their ability to pursue their missions depends greatly on their financial health and integrity. That’s why many nonprofits need to employ a chief financial officer (CFO). Depending on your size and other factors, you may be one of them.

What are the CFO’s responsibilities?

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 your program heads. CFOs report to the executive director or board of directors on the organization’s finances, analyze investments and capital, develop budgets and devise financial strategies.

The CFO’s role and responsibilities will vary significantly based 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 wide responsibilities — possibly for 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 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 that generate revenue) or governmental funding may have a similar focus.

What are your requirements?

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

Experts suggest weighing the following factors when determining whether to bring a CFO on board:

  • Size of the 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.

Who’s right for you?

With CFOs playing such an essential role, your nonprofit should devote considerable time and effort to hire someone with the right qualifications. At a minimum, you want a person with in-depth knowledge of the finance and accounting rules particular to 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.

In addition, the position requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints. It also is useful if the CFO has had experience in an organization with a wide range of functions — for example, human resources and IT — so that he or she can identify when outside professional expertise vital to the success of your organization is needed.

Finally, 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.

Asset to your organization

CFOs bring many advantages to the table. Not only can they help maintain fiscal health and assist the organization in achieving its goals, but they also can boost your credibility with potential donors and watchdogs. If your budget is growing and financial matters are becoming more complicated, you may want to add a CFO to the mix.

 

Sidebar: The outsourcing alternative

Does your organization lack the size or complexity to warrant having a full-time chief financial officer (CFO) on staff, but desire the financial peace of mind the position can provide? You might consider outsourcing CFO responsibilities to your CPA firm. Outsourcing can produce several benefits at far less cost.

With outsourcing, you can 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 expertise. Outsourcing will likely cost far less than hiring someone new with the appropriate background.

You also could improve efficiency due to the outsourced CFO’s resources. An outsourced CFO, with other nonprofit clients, may already have developed risk assessment or budgeting techniques that would be time-consuming if built from scratch. This person might have useful industry contacts, too.

Finally, outsourcing CFO services frees up your staff to focus on their core competencies. This increases the odds of accomplishing your organization’s mission.

© 2017

This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.

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