The Modern-Day Nonprofit CFO

The chief financial officer’s (CFO) role in a nonprofit organization is significant in today's landscape. CFOs in the nonprofit sector are no longer solely focused on the finance and accounting function but have taken on a range of responsibilities that extend beyond traditional financial duties. This article will explore the various aspects of the expanding role of the nonprofit CFO and provide insights on how CFOs can successfully manage their growing portfolio of duties while fulfilling their financial responsibilities.

The traditional and critical roles we have seen the nonprofit CFO focus on are related to managing the organization's financial health and stability. This role is similar to the CFO role in other industries and includes:

• Financial Management and Reporting: Overseeing the organization's fiscal management, including budgeting, financial planning and financial reporting. They ensure accurate and timely financial statements are issued, monitor cash flow and provide financial analysis to support decision making.
• Risk Management and Compliance: Managing financial risks and ensuring compliance with relevant laws, regulations and accounting standards. The CFO also establishes internal controls, oversees audits and ensures the organization's financial practices are aligned with legal and regulatory requirements.
• Treasury and Cash Management: Managing the organization's cash flow, investments and banking relationships. This often includes developing cash management strategies, monitoring liquidity and making recommendations to optimize the organization's financial resources.
• Financial Planning and Strategy: Working closely with the CEO and board to develop long-term financial goals, assess the financial feasibility of strategic initiatives and provide financial insights to support organizational growth and sustainability.
• Board and Stakeholder Engagement: Engaging with the board of directors and other stakeholders to provide financial updates, insights and recommendations. This includes collaborating with the board's finance and audit committees, presenting financial reports, and ensuring transparency and accountability in financial matters.

These traditional roles highlight the CFO's responsibility for financial oversight, risk management, strategic planning and stakeholder engagement. However, it is important to note that the role of the nonprofit CFO is evolving, and they are increasingly taking on additional responsibilities beyond these traditional roles to meet the changing needs of nonprofit organizations.

The Broadened Role of the Nonprofit CFO

The role of the nonprofit CFO has evolved to encompass a range of other responsibilities over the past couple of decades. In addition to finance, CFOs now play a crucial role in procurement, digitization, analytics and dashboarding, information technology, environmental, social and governance (ESG) initiatives, board engagement and regulatory compliance. This expanded scope reflects the changing landscape of the nonprofit sector and the increasing demands placed on CFOs.

CFOs are expected to drive long-term performance and update donors, funders, community leaders, board members and other stakeholders with unprecedented granularity and frequency. This requires CFOs to deeply understand the organization's strategy and mission-related activities while fulfilling the traditional financial responsibilities.

Managing the Growing Portfolio

Due to these changing requirements, CFOs are uniquely positioned to advise on all aspects of the organization and, by collaborating closely with other executives, they can ensure that finance is integrated into strategic decision-making processes.

When successfully managing this expanding portfolio, nonprofit CFOs build relationships across the C-suite and collaborate with other executives. This is more crucial in the current environment than ever before. Listed below are just a few things to consider:

• Establish Trust and Rapport: Build trust and rapport with other executives by demonstrating your expertise, reliability and commitment to the organization's mission. Foster open and honest communication to establish a solid foundation for collaboration.
• Understand Each Executive's Role: Gain a deep understanding of the roles and responsibilities of other executives in the C-suite. This will help you identify areas of overlap and opportunities for collaboration.
• Align Goals and Objectives: Work together with other executives to align goals and objectives across different departments and functions. Ensure that everyone works toward a shared vision and that financial goals are integrated into the overall strategic plan.
• Advise on Financial Implications: As the CFO, provide valuable insights and advice on the financial implications of strategic decisions and initiatives. Collaborate with other executives to ensure that financial considerations are considered in all decision-making processes.
• Collaborate on Strategy Development: Actively participate in strategy development discussions with other executives. Provide financial expertise and insights to help shape the organization's strategic direction and identify opportunities for growth and innovation.
• Enable Data-Driven Decision Making: Collaborate with the chief information officer and other executives to enable data-driven decision-making. Ensure the organization can access accurate and timely financial data and analytics to inform strategic choices.
• Embrace Technology: Understand the need for technology changes to improve the accounting and financial reporting, increase security in the system and provide current technology to improve efficiency and effectiveness. This can be difficult due to the required change management and the effect on the financial department. There are also challenges to fund this investment that must be analyzed by the CFO.
• Support Resource Allocation: Collaborate with other executives to ensure that resources are allocated effectively and efficiently across different departments and initiatives. Provide financial analysis and recommendations to optimize resource allocation and drive long-term performance.
• Promote Cross-Functional Collaboration: Encourage cross-functional collaboration among different departments and teams. Facilitate communication and knowledge sharing to foster a culture of collaboration and innovation.
• Advocate for Finance's Role: Advocate for the importance of finance in driving organizational success. Educate other executives about the value that finance brings to the table and how it can support the initiatives and goals.
• Build Strong Relationships: Continuously invest in building strong relationships with other executives. Regularly engage in one-on-one meetings, attend cross-functional meetings and seek opportunities to collaborate and support each other's initiatives.

By considering these factors, nonprofit CFOs can effectively manage their expanding portfolio of duties, build strong relationships across the C-suite and collaborate with other executives. This approach will help drive the organization's overall success and ensure that financial considerations are integrated into all aspects of decision making.

When working with the CEO, CFOs should focus on strategy and align financial goals with the organization's objectives. By collaborating with the chief information officer, CFOs can enable data modernization, which in turn helps the chief fundraising officer communicate effectively with donors. CFOs should also collaborate closely with the chief people officer to ensure that the organization is staffed appropriately and that recruitment and retention efforts are aligned with the organization's mission.

Evolution of the Finance Function

As the role of the CFO expands, the finance function also needs to evolve. Putting the right people in the right jobs is crucial to improving communication and technological familiarity and finding a balance with accounting skills. While hiring an entire team of data analysts may not be feasible for most nonprofits, CFOs should look for curious candidates, embrace analytics and support the organization's mission.

Career development and growth opportunities should also be a focus in staff recruitment and retention. CFOs should invest in their own understanding of the latest technologies, pronouncements and the strategic nature of the organization's future. By inserting high-level finance into strategic conversations and advocating for better automation, CFOs can enable the Finance staff to grow and interact with other departments.

Automating mundane tasks and integrating systems into a single source of information can help prevent errors in data and improve efficiency. CFOs should also prioritize work-life balance to keep staff engaged, and consider job rotation and special projects to provide staff with experiences beyond their day-to-day responsibilities.

Building Predictive Models and Managing Risks

To be proactive rather than reactive, CFOs should focus on building financial models that allow for scenario analyses and predictive modeling. This approach goes beyond cost-cutting and emphasizes selectively measured spending. Linking finance and strategy in the budget process is crucial, and developing key performance indicators that measure programmatic and fundraising effectiveness can help define success and identify areas for improvement.

When building predictive models and managing risks, there are several key considerations that nonprofit CFOs should keep in mind. Here are the top five things to consider:

• Data Quality and Availability: The accuracy and reliability of the data used in predictive models is crucial. CFOs should ensure that the data they use is high quality, complete and relevant to the specific risk being analyzed. It is crucial to have robust data collection processes, and regularly review and update the data to maintain accuracy.
• Model Selection and Validation: Choosing a suitable predictive model is essential. CFOs should consider the specific risk they are trying to predict and select a model appropriate for that particular risk. It is also crucial to validate the model using historical data to ensure its accuracy and reliability. Regularly reviewing and updating the model based on new data and changing circumstances is also crucial.
• Scenario Analysis: Predictive models should be used to perform scenario analyses to assess the potential impact of different risk scenarios on the organization. CFOs should consider a range of outcomes and evaluate the financial implications of each scenario. This allows for better preparation and decision making in the face of uncertainty.
• Risk Mitigation Strategies: CFOs should develop and implement risk mitigation strategies once risks have been identified and analyzed. This may involve implementing controls, establishing contingency plans or seeking insurance coverage. It is essential to regularly review and update these strategies to ensure their effectiveness in managing risks.
• Continuous Monitoring and Reporting: Predictive models and risk management strategies should be continuously monitored and reviewed to ensure their ongoing effectiveness. CFOs should establish regular reporting mechanisms to track the performance of the models and the effectiveness of risk mitigation strategies. This allows for timely adjustments and improvements to be made as needed.

By considering these five key factors, nonprofit CFOs can build effective predictive models and implement robust risk management practices to help guide their organizations toward long-term success.

CFOs should also focus on high-impact and high-likelihood risks and engage outside expertise to help mitigate such risks. By partnering with the CEO, CFOs can spend more time working with the board on strategic vision. Board meetings should devote more time to discussing strategy, programmatic innovation and financial health. CFOs can also influence the composition of boards and governance structures by adding diverse board members and members with expertise in emerging areas.

Conclusion

The expanding role of the nonprofit CFO presents both challenges and exciting opportunities. By building relationships across the C-suite, evolving the finance function, educating staff, building predictive models and managing risks, CFOs can successfully manage their growing portfolio while fulfilling their financial responsibilities. Today’s strategic CFO is a vital participant in driving long-term performance, ensuring financial health and aligning financial goals with the organization's overall objectives.

Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com