By Russell Pomeranz, with Anita Vichare & Rich Von Bargen
In an increasingly competitive nonprofit world vying for fewer resources, an organization’s survival and sustainability is largely dependent on its capacity for short and long-term strategic financial decision making. It is this capacity that determines the success of decisions organizations make in response to external and internal stimuli. In today’s environment, organizations tend to fall into one of three categories regarding these stimuli:
- reactive: taking whatever the world gives,
- opportunistic: seeking out opportunities and positioning themselves to take advantage of them, or
- proactive: defining their own destinies by working to achieve success.
Whether your organization is reactive, opportunistic, proactive, or more likely some combination of all three, your financial strategic resources must be aligned with your mission and financial goals. Those ambitious organizations striving to control (to the greatest extent possible) their own destinies must have or build up strategic capacities in their financial functions. In other words, they need Chief Financial Officers (CFO).
What is the Role of the CFO?
The role carried out by the CFO is not merely a discrete strategic activity that articulates and implements the organization’s financial planning and strategy. To be successful, the role must be integrated into all organizational processes including budget, audit, financial and program planning, and programmatic strategic planning, and must understand how the whole organization works. The CFO understands the “holistic” nature of the finance department and can define and implement the strategic value of every role – even those seemingly limited to transactional responsibilities.Based on the resources of the organization, outsourcing the CFO function on a part-time or full-time basis can be an effective option to establish this capacity. An outsourced CFO can play an invaluable role by providing the following services:
- Working with the current finance, program, and development staff to support and expand the strategic capacity of the financial function. This includes identification of the financial goals of the organization, options to achieve them, decision making and the ramifications of those decisions in the short and long term, and an implementation plan to make sure that business planning and strategies have the desired impact. An outside partner could also play the role of “Shadow CFO,” mentor, or coach.
- Managing both up and down to drive a process of options, forums, decision making and effective implementation. Interaction with program staff and a seat at the senior staff meetings are essential for this to be successful.
While larger organizations should have a person dedicated to overseeing the financial and strategic functions, even they can benefit from an outside perspective and gain the ability to create even more options.
Benefits of the Outsourced CFO
The benefit of outsourcing the CFO function is that it provides an organization with access to a broad range of experience and action-oriented expertise. The issue of “not knowing what you don’t know” can’t be solved overnight. Organizations should invest in an on-going strategic financial function partner to ensure that the right short and long-term questions are being asked and forums are established to answer these questions.While strategic thinking, business model creation, adapting, and forecasting have long been staples of the for-profit world and the prerogative of larger non-profit organizations with a CFO, small and mid-size non-profit organizations often struggle to fund, justify, and carve out such roles given limited resources. However, regardless of budget size and even before the current economic upheaval, executive directors, boards, and funders expect the kind of forward-thinking financial strategic capacity that is represented by the work performed by a CFO. Ultimately, the fulfillment of an organization’s programmatic and mission goals is the real bottom line. Finding outside experts to fill the CFO position can provide the focus, capacity, and strategic direction to achieve those goals.
This article originally appeared on Nonprofit Accounting Basics, a web clearinghouse operated by the Greater Washington Society of CPAs, on December 3, 2010.