How does your nonprofit organisation make financial decisions?
Whether we admit it or not, nonprofit organisations are competing with each other for limited resources, whether they be top staff, government or philanthropic funding, or members. To ensure sustainability (ie 'healthy survival'), nonprofit decision-makers need to be strategic about the financial decisions they make. They need to be aware of the resource environment they operate in, and how realistic it is for them to be able to secure the resources they need for the plans they have.
We see nonprofit decision-makers which fall in to one of three groups..
- Reactive, so that they respond to whatever is sent their way,
- Opportunistic, where they hunt out opportunities, chase down leads and pursue resources assertively, or
- Proactive, where they have determined a path, and targeted their goals and work doggedly to the plan
Most organisations are actually a combination of the three, but importantly the pursuit of resources must continue to be in line with the mission of the organisation. And the strategic direction which is built around this pursuit must include a financial strategy to ensure the resources and the growth strategy are aligned.
At this point, the role of the finance personnel is key, whether it is the Treasurer, the accountant or the internal or external CFO. The finance manager is responsible for designing the financial plan and strategy for the organisation, and then getting sign off from the CEO (who in turn gets it approved by the Board).
To get this plan together, the finance manager participates in budget development, program planning and resourcing, and fundraising... in other words with all the main functions of the organisation. They need to be across the way the organisation works, and understand - in a holistic way - the movement of resources and functional activities of all the key departments, especially programs, administration, governance, marketing. This role fluctuates through the financial year cycle, and it is not always practical to employ a full-time Finance Manager for a role which pulses from hyper active to sedate. For many organisations using an outsourced CFO or senior Financial Manager leaves the provider to pickup the costs of downtime.
While larger organisations 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.
The benefit of working with an external source for the Finance Manager is that it provides an organisation with access to a broader range of experience and action-oriented expertise on a contracted basis, and good outsource accounting providers ensure their finance managers also have access to a team of various skills, which become available to the organisation. The sum is greater than the whole. The issue of “not knowing what you don’t know” can’t be solved overnight. Organisations 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.