Nonprofit Finance: 5 Considerations for CFOs

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In a nonprofit environment, CFOs must learn to manage a new set of problems and tasks. The Bridgespan Group released a report outlining the top concerns for nonprofit CFOs that identify the struggles faced by small, medium, and large nonprofit organizations. In 2014, these same considerations remain a reality for nonprofit CFOs.Adjustment

Many nonprofit CFOs began their career in the for-profit sector. As a result, one of the largest considerations for many nonprofit CFOs involves a period of adjustment. Instead of working with capital, CFOs must adjust their finance knowledge to include terms such as “restricted cash.” In a nonprofit environment, many CFOs struggle to adapt their processes to account for donor-based regulations on financial management. 

Building Reserves

Daniel Weiss, Ohio-based CPA and attorney, recently wrote, “The best practices of nonprofit management dictate three to six months of cash reserves.” For an organization dependent upon donations and outside funding, cash reserves in this amount may seem laughable. To counteract this skepticism, Mr. Weiss advises CFOs to build a surplus of at least 5% into the budget to provide a cushion of cash reserve.

Stringent Internal Controls

For nonprofit CFOs, the development and implementation of stringent internal controls is a necessity. Since nonprofit organizations must work diligently to make full use of every donation, CFOs need to take additional steps to ensure that an organization’s financial reporting process and systems are efficient and accurate.

Efficiency without Resources

One of the largest obstacles facing nonprofit CFOs is the implementation of efficient operational and financial processes without access to adequate resources. Unlike the majority of for-profit companies, many nonprofit organizations lack access to advanced technology or staffing resources that would otherwise increase organizational efficiency.

Evaluating the Damage

Depending on the size of a nonprofit organization, CFOs entering their new positions may be greeted with sloppy accounting records, at best. A recent article outlined “complex accounting” as a top concern for nonprofit CFOs in 2014. Between compliance reporting, precise monitoring of income and expenses, and working with limited resources, nonprofit CFOs must work to make sense of it all while keeping tabs on changing regulations and requirements.

What do you think is the biggest challenge facing nonprofit CFOs?