For large nonprofit organizations, a chief financial officer (CFO) is a critical part of the management team. A CFO provides a high level of financial knowledge, and helps the organization understand their finances on a deeper level, as well as create plan strategically for its financial future.
For smaller organizations, this level of knowledge isn’t affordable. Some organizations are able to hire a CFO on a contract basis for a limited number of hours per month, but for many, even that cost is too high. This means the executive director needs to develop their financial knowledge to help the organization thrive.
Here are a number of areas/functions/methods that the ED can use to improve the financial literacy of their organization.
Start Smart
Even if you can’t afford a CFO long-term, see if you can find someone who can help you set up your accounting systems correctly from the beginning. Nonprofits need to use fund based accounting so they can separately track both programs and various funding sources easily. If you put this in place from the beginning, you’ll be in a much better position as the organization grows. In Nebraska, one great resource is Nonprofit Association of the Midlands, which offers finance and QuickBooks classes, and CFO services. Here’s more on getting QuickBooks at a discount.
Plan Ahead
All organizations need a solid budget, but six months into the year that budget inevitably doesn’t match reality in a few areas as things change. To help understand the changes, add a projection to the budget to actual report, showing how you expect to end the year. In addition, create a rolling projection that projects the next 12 months so you can stay on top of trends for your income and expenses.
Cash Flow Projections
In addition to the budget, projecting cash flow is critical. Often, reimbursements come in from grants long after the funds are spent, and you must have the cash in the bank to float those expenses. If you know your cash flow highs and lows, you can plan for large expenses, or fundraising events to address this issue.
Matrix Map
Creating a matrix map is a simple and powerful way to show board and staff how each program contributes to the bottom line of the organization, as well as its social impact. When I did this with an organization, it really helped the board see where it made sense to change our program offerings. Read full details on the process here.
Train Staff and Board
Board members and staff often shy away from financial topics, but it is important that everyone in the organization understand them. Your role is to help them increase their understanding of the basics so they are ready to help you make decisions on important issues when needed. Here’s a great list of ways you can educate your board.
Reserve Funds
Everyone wishes they had a reserve fund, but it takes careful planning to accrue one. Set yourself goals each year for how much you need in your reserve fund, and you’ll never have to worry about cash flow. See this article for more details.
This could be a daunting list of strategies for you to address. Don’t tackle all of these at once, but pick one and get started. As an executive director, you have a responsibility to take time and continue educating yourself, and continually help the rest of your organization learn.