Hiring a CFO for Your Nonprofit: Is Now the Time?
November 22, 2017
Nonprofit organizations aim to serve a public interest, but almost every aspect of their work connects to money, just like with any for-profit business.
And handling finances for a nonprofit can be just as complicated, requiring fiscal acumen and foresight.
By hiring a CFO, or first creating a position for a chief financial officer, a nonprofit gains a leader to meet financial obligations, ensure appropriate spending, and plan effectively. A CFO also can steer an organization through the always-changing economic landscape, which allows the CEO and other executives to focus on their areas of expertise.
But is now the right time for your nonprofit to hire a CFO? Some key indicators will let you know.
Most nonprofits are too small to need a CFO, since they have budgets of less than $1.5 million and can’t afford one, according to The Bridgespan Group, a nonprofit advisory. It surveyed several dozen nonprofits to determine the right time to hire a CFO.
Some organizations might need only to outsource CFO services, which is a great option for many. Some nonprofit leaders have difficulty discerning the exact moment the need for a CFO becomes apparent. But they point to one assessment that will make the decision clear:
- Is your nonprofit static, operating the same way year in and year out? If so, a CFO is less critical.
- Are your programs continually evolving, and does the growth of major assets (like buildings and enterprises) form a central part of your strategy? If so, the skills and perspective of a CFO are critical.
Review four areas for an analysis of growth: your organization’s size; the number and types of funding sources; the number of activities that require different types of financing; and the need for long-term financial planning and analysis.
Consult the Team
What does the ideal CFO have to offer? In addition to in-the-moment financial abilities, he or she needs to bring strategic thinking and vision.
Consult with other executives, department heads and board members to define the position’s responsibilities. Then, have several of these people meet with candidates. Include direct reports, as they can best articulate your specific financial needs. An advisory firm can fine-tune your qualifications and tap its network of contacts to find qualified candidates.
The Bridgespan Group also offers a guideline to determine the duties of CFOs at nonprofits based on budget size:
- Budgets between $1.5 and $10 million: Nonprofits of this size need a CFO to focus on elemental duties, such as accounting, administration, legal, technology and real estate.
- Budgets over $10 million: The work of a CFO varies with nonprofits of this size. If the nonprofit has simple programming and operates primarily on gifts, the CFO’s job will resemble one at a smaller organization. But if the nonprofit has many income-generating programs in multiple locations — and if funding comes from government contracts, earned income and other sources — then the CFO’s function will have a narrower focus, similar to that of a financial leader at a large organization.
- Budgets over $40 million: Organizations of this size require a CFO to take a harder focus on accounting and finance issues, including the oversight of the non-profit’s investment strategy and endowment.
It’s not surprising a significant share of nonprofit CFOs come from for-profit organizations, where financial leaders face myriad challenges. The number of for-profit candidates applying for nonprofit CFO jobs increased by 25 percent between 2015 and 2016 alone, according to The Wall Street Journal.
- Hiring the right CFO doesn’t have to be an impossible challenge. A team effort will help you find the right leader.
- Nonprofits face increasing pressure to optimize programs, justify funding, transparently document finances and effectively plan.
- Knowing when and how to add a knowledgeable, passionate and inspirational CFO is one of the best ways to meet these needs while simultaneously facing what’s next.
Is now the time for your organization to take the next step?
For more content on nonprofits read: Court rules bakery’s sales are taxable.