By Frank Tsai
At FLG, we are often called when a CFO has suddenly jumped ship, has been fired or when the organization is poised to pivot on a new trajectory requiring a new level of or type of leadership. In the world of nonprofits, this is no different. With tight labor markets, the potential for a nonprofit CFO to be lured to another opportunity is particularly hazardous. And due to the complexity of the CFO role at nonprofits where knowledge of grant funders, fund accounting, earned revenue models and the like are paramount, turnover in the CFO role is especially costly in both financial and organizational terms.
So how do you choose the criteria with which to make decisions about the CFO hire? What are the most high-priority skillsets necessary in this role? How do you balance tangibles and intangibles here? How does “fit” matter in a more process-oriented nonprofit culture and workforce when it comes to the CFO role?
At FLG, we believe that experienced nonprofit CFOs should have a proven track record of success in their portfolios of experience. This should extend across at least 6 areas:
- Fundraising and Earned Revenue
- Donor and Lender Relations
- Board Credibility
A strong nonprofit CFO will have demonstrated capabilities to creatively develop and cost out a variety of strategic growth scenarios for their organization. They should have strong cross-functional relationships allowing them to partner with others in the organization to test assumptions and examine upsides and downsides to their projections. And they should be able to create a roadmap for accountability within the enterprise from KPIs to departmental performance metrics used at the department level.
Fundraising and Earned Revenue
CFOs must also show a depth of experience evaluating different types of fundraising initiatives by the organization. They should be able to ask tough questions about why fundraising events are costing so much, the longevity of donor prospects, the ROI from marketing initiatives and the projected forecast from planned giving activities. They need to work closely with the Development department to closely examine the revenue forecast for excessive optimism and then look for ways to mitigate any revenue shortfalls as the year progresses.
Many non-profits are realizing that earned revenue from mission related activities achieves both mission and margin. Understanding the business model, the scalability of the infrastructure, sales culture and pricing strategy is critical to realize the double bottom line. Understanding the Unrelated Business Income (UBI) rules are in important when pursuing earned revenue. Done well, non-profits can dramatically expand their reach and impact. In addition, many institutional donors prefer non-profits that have non grant-based revenue streams.
Investment management is not something you want your nonprofit CFO learning “on the job”. You should carefully understand whether a CFO candidate has put together an investment management organization and spending policies which support ongoing execution and reporting of investment performance. They should understand how to develop an investor relations roadmap and how to establish oversight and governance checks and balances with the Board. And they should have a finetuned set of investor “opportunities” crafted for potential donors (planned giving, sponsorships, naming, program-related investments etc.) with clear metrics in terms of what a given level of investment will generate in terms of mission-based ROI outcomes.
There are a number of best practice processes that are needed to insure a sustainable approach that relies on professional investment consultants, custodians, and investment managers. There can be a high cost for not doing this right.
Donor and Lender Relations
A strong nonprofit CFO should have significant experience working with lenders and bankers, able to frame the nonprofit’s financial realities in a lender’s language. Given the new audit guidance regarding liquidity, a CFO can assist the nonprofit obtain a line of credit from its bank as a part of its liquidity plan. They should understand the need for regular and consistent lender communications.
A strong CFO should be a valued partner of the organization’s leadership team and chief executive. But all CFOs must be able to make the tough calls and sometimes this is particularly challenging when these issues bump up against the desire to “do good” at a nonprofit. A seasoned CFO can navigate these rocky waters. They know that establishing credibility and respect among their peers, their boss and the board of directors will allow them to be an objective voice of independence when the time comes. This is particularly important at the board level where community lay representatives may not be as familiar evaluating financial and organizational performance when compared with board members at for profit entities. A talented CFO will know when to “manage up” with a board and the executive team, proactively surfacing financial and strategic issues on the horizon and quantifying the potential impact of these to organizational health.
The last factor which we believe is critical to a CFO’s success is leadership. Unfortunately, a skilled, talented and experienced CFO will fail in their job if they can’t lead effectively. They need to be able to hire well, train well, delegate, communicate, challenge and reward their teams. They must be masters at setting an example around exemplary performance as a department. They must be superb listeners and adept collaborators. This is particularly important at nonprofits where a higher priority is placed on process and consensus building versus what you might typically see in a for profit setting.
If you are looking to hire a CFO at your nonprofit, please contact us. We help many nonprofits faced with this very issue as well as provide interim, part time and full time CFOs to non-profits in transition and operating “between” CFOs. This hire couldn’t be more important. Take your time and make the right CFO choice.