Not-for-profits and the CFO

No corner of the business world can escape the enhanced scrutiny and reporting that comes with demands for increased transparency and public accountability, including those organizations operating in the not-for-profit sector. And given the fallout across the Canadian not-for-profit ecosystem following the We Charity scandal combined with the financial pressures of the pandemic and post-pandemic world, it is not difficult to understand why more not-for-profits are focusing on clarifying and reinforcing the role of the CFO. But what exactly are the specific roles of the CFO within a not-for-profit organization.

Note: This blog uses the term CFO to include the CFO-equivalent terms and titles that come into play across the not-for-profit sector, including but not limited to:

• Director of Finance
• Director of Financial Services
• Finance Director
• Director of Finance and Administration.

Many Hats

Most not-for-profit organizations are too small to require the service of a full-time CFO, which means that most often, CFO duties are bundled with other responsibilities, including oversight or guidance in:

• Human Resources
• Information Technology
• Facilities Management
• Legal
• High-level Operations.

In other words, when looking to bring a CFO (full-time or fractional) onboard, most not-for-profits look for an individual with experience and a high level of comfort in wearing many hats and shifting focus quickly and seamlessly. Of course, hiring a dedicated CFO makes sense within larger organizations like the Boys and Girls Club.

Not-for-profits are not business as usual.

CFOs working in the not-for-profit sector face several unique challenges. The most important of these is the need to be fully versed in the rules of not-for-profit finance, which in many cases differ significantly from more traditional business operations. 

In most not-for-profits, for instance, cash generated as revenue is usually not liquid. Revenue tends to be restricted for specific purposes dictated by the funder (a government or corporation) or donor. Instead, the money is restricted, which often creates for CFOs who try to explain that while the organization’s bank accounts look healthy, the organization itself might be experiencing a severe cash crisis. One word that experienced CFOs often apply to the complexities of not-for-profit finance: exasperating.

Not-for-profits are in a near-constant state of resource shortage, whether in terms of revenues or staffing. Cash reserves are kept lean to manage public perception, funders and donors rarely cover staffing costs, and a CFO must constantly monitor expenses to ensure compliance with funder restrictions while at the same time ensure operations run as smoothly as possible on a day-to-day basis. 

All of which combine to make not-for-profit culture a unique and challenging animal for many CFOs to manage. Much of the work is done by volunteers instead of paid employees, which leads to challenges around specific skill sets or skill set development and what traditional employers would consider performance issues. It takes a particular set of skills to manage an enthusiastic community of volunteers, and CFOs are often forced to learn on the fly when moving into a new not-for-profit culture. 

One area that often presents several potential minefields is decision-making. Whereas decisions usually follow a hierarchical, top-down process in traditional businesses, decisions in a not-for-profit environment are often community- or consensus-driven. Accordingly, decisions take longer to make and, on occasions, are never made at all, leaving an issue on the shelf for future discussion. Additionally, many organizations have internal committees to oversee decision making and an external board of directors that also have input into the final decision, so even the most experienced CFO can often find herself caught between a proverbial rock and a hard place when the two groups cannot find common ground on an issue.  

The Four C’s of Success

According to a recent study from The Bridgespan Group, the four C’s that support CFO success in the not-for-profit world are:

• Competence and solid skills in the operations of the organization, as well as an ability to think bigger picture
• Commitment to the mission and vision of the organization
• Communication that translates easily for a variety of audiences and stakeholder groups as well as from the technical to the non-technical
• Creativity to find solutions that are not obvious and flexibility when building solutions that make sense to the organization, the funders and donors, and the broader community.

In the end, not-for-profits need skilled and creative CFOs to be able to continue to do the critical, rewarding work they do within a community. Missions and values are important in ways unlike other business operations, which makes the CFO a key figure in the success of any not-for-profit.