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September 27, 2018


As a Nonprofit CFO, supporting “The Mission” is your mission. But CFOs of nonprofit organizations also share many of the same challenges of for-profit organizations such as increasing revenue, consolidating across multiple entities, budgeting, implementing internal controls, facilitating audits and compliance reporting.

How do you survive this challenging environment? Here are some tips on how to conquer some of those key challenges.

Accounting: It’s Still Job One

The Challenge: Accounting in nonprofit settings involves significant complexity.

The Solution: Implement solutions that provide flexibility for diverse accounting and reporting needs.

For so many nonprofit organizations, the daily tasks of bread-and-butter accounting and financial management are inextricably driven by a broad array of complexities. Beyond the basics of accounts payable and receivable that everyone needs, the basics for nonprofits encompass a distinct set of standard documents, including statements of activities, statements of financial position, statements of cash flow, and the Form 990. If only it stayed that simple.

For example, revenue management makes nonprofit accounting an especially thorny challenge—particularly with the way revenue is recognized. If the organization collects annual dues or periodic donations at different times of the year, it may be important to decouple cash receipts and disbursements from revenue recognition.

Some nonprofits operate for-profit subsidiaries and others sell items on a break-even basis. But many depend on donated monies, fundraising, and other sources. They might receive grants and directed donations—perhaps dozens (or, at the high end, even hundreds) of separate income streams. And each of those donors rightfully wants to know how their investment in your mission is faring. The result: You need to isolate the activity for each revenue source, which enables you to create a regular series of specific reports, each with its own unique requirements, for each source of funds. Those demands mean the accounting system that supports the team must offer an extraordinary level of flexibility.

For some nonprofits, there can also be a complicated hierarchy of entities such as chapters, subsidiaries, and locations.

In nonprofit accounting, survival depends on flexibility.

Key Best Practices for Survival:

  • Make sure your accounting system can support the separate, balanced sets of books required for fund accounting.
  • Carefully design your data structure and chart of accounts to support maximum flexibility.
  • Be ready to accommodate multiple locations and entities.

Internal Controls and Cash Management: The Importance of Vigilance

The Challenge: Nonprofits must be vigilant stewards of donated monies and carefully monitor what they spend on every initiative and program.

The Solution: Centralized controls only go so far–spreadsheets and single-user “quick accounting” programs aren’t up to that task. Nonprofits need centralized control and distributed responsibility by event, program, donor, and other dimensions—in one system.

Most for-profit corporations create their internal controls, reporting, and financial monitoring by products, divisions, geographies, and entities. Nonprofits have remarkably similar needs, seeking to manage their monies by grants / donors, programs, geographies, and other dimensions.

By decentralizing the planning and control process, nonprofits can achieve a granular level of accuracy. Setting budgets for each event, campaign, program, and funder—and then tracking the actuals—creates tighter controls and helps prevent unexpected outcomes.

Do capital budgets matter to nonprofits? Quite often, they do. Although many nonprofits don’t require extensive capital investments in property, plant, or equipment, capital budgeting still plays a role for some organizations

In nonprofit financial control, survival depends on careful monitoring.

Key Best Practices for Survival:

  • Distribute responsibilities to contributors and managers throughout the organization.
  • Regularly refresh rolling plans and forecasts to stay on-course.
  • Create tight controls to prevent unexpected outcomes.

Funds and Grants: The Lifeblood of a Nonprofit

The Challenge: No two funds or grants are alike, creating extraordinary complexity in nonprofit accounting

The Solution: From revenue recognition to reporting, the nonprofit’s accounting system must quickly respond to unique needs.

Whether it’s a major foundation, an anonymous philanthropist, or major sponsor, nonprofits rely on the generosity of like-minded people who provide the bulk of the organization’s funding and resources. But, just as CFOs at for-profit companies must respond to owners’ and shareholders’ (and regulators’) demands for transparent information, the nonprofit CFO must likewise deliver customized slices of results and reports tailored to each funder’s unique requirements.

Nonprofits must also carefully track general vs. restricted dollars donated for a specific purpose or cause. That can mean viewing actual dollars, percentages, and actuals-to-budget across multiple financial periods.

In nonprofit finance, survival depends on the ability to maintain separate balances by grant, fund, or donor.

Key Best Practices for Survival:

  • Balance and close each fund independently.
  • Put processes in place to track general vs. restricted dollars.
  • Create an infrastructure that supports rapid customized reporting by fund or donor.

Reporting and Visibility: “Know and Show” Where You Stand

The Challenge: Nonprofits face stringent requirements for reporting and transparent operations—and those hurdles are multiplying.

The Solution: The right financial infrastructure can help nonprofits “know and show” what’s happening in every aspect of their operations with superior speed and clarity.

In a challenging economy, agencies, social-service organizations, charities, and other nonprofits are under tremendous pressure to acquire, secure, and maintain funding sources to ensure their continued operation. Transparency is an essential strategy for securing and keeping those donors and sponsors on board.

Even internal reporting requires new levels of efficiency. When nonprofit board members—who are often successful executives from different business disciplines—convene to review the organization’s status, they’re increasingly expecting the same caliber of reporting and analysis they see in the for-profit world.

In nonprofit financial reporting, survival depends on unprecedented levels of transparency, auditability, accountability, and trust.

Key Best Practices for Survival:

  • Transparency of financial reporting is emerging as a basic requirement for all nonprofits.
  • Streamline auditing with online financial software that can support remote audits.
  • Elevate financial reporting and analyses to differentiate your organization in crowded market segments seeking dwindling funding sources.

Cloud-Based Financial Management: Simplifying Life for The Nonprofit CFO

The Challenge: IT budgets and expertise are scarce and financial management software can sometimes seem like a distracting and risky headache.

The Solution: Real-time, cloud-based financial management is enabling nonprofits to take advantage of the same functionality, performance, security, and infrastructure that major corporations use.

In the mission-driven nonprofit world, accounting and financial management can sometimes slip down the priority list. It’s not always easy to allocate budget dollars to back office infrastructure that doesn’t directly support the nonprofit agenda, and it’s even harder to find the time and expertise to make it all work. Consider some of the obstacles:

  • Capital investment for software and hardware
  • Facilities and expert personnel to implement and maintain the system
  • Lengthy deployment cycles
  • Capacity / scalability
  • Reliability / availability

These issues aren’t part of most nonprofit organization’s core competencies. That’s why many nonprofits are increasingly turning to new-generation cloud-based solutions to automate financial management. Cloud-based financials enable the application vendor to deliver shared, scalable services that the nonprofit agency can access over the Internet using a web browser or mobile device. There’s no need to buy, own, license, understand, manage, or control the underlying hardware, software, or data / networking infrastructure that supports the financial infrastructure. Cloud services are typically delivered on a term-based subscription basis, eliminating the need for upfront software licensing fees or major purchases of hardware. The result is cost-effective, anytime, anywhere managed access.

In nonprofit financial management, survival depends on predictable costs, a reliable infrastructure, and world-class functionality.

Key Best Practices for Survival:

  • Move financial management to the cloud for optimal accessibility and lower cost.
  • Enable global real-time access to financials, reports, and analyses.
  • Use cloud architectures to eliminate manual work and improve productivity while providing world-class functionality that far exceeds primitive single-user tools.

Are you facing unique challenges as a Nonprofit CFO? JDR understands and we would be happy to listen to your concerns. Please complete the form below and an associate will contact you soon to schedule a brief discovery call.