The Dance: Financial Management for Not For Profits and Social Enterprises

Sep 30, 2020

Not For Profit (NFP) organizations and social enterprise businesses face unique challenges. Among them: Emotional motivations can be strong among NFP leaders; organizations can rely heavily on volunteers or spread responsibilities out among just a few staff; and managing donors, donations, income and expenses can be difficult. It can be a dance to know when to make what kind of moves, and in which direction.

Not For Profit Leadership: Passion and Competency

Most founders and executives are passionate about their business’s success, but leaders of Not For Profits can be especially passionate about the organization’s mission. It’s important to demonstrate that passion, but also the competency required to run the business. It’s essential to find a balance between the emotion and sense of purpose that drives the entire reason an NFP exists with business acumen required for success and growth. Financial stability is key to that success, especially in building a healthy cash reserve.

Building a healthy cash reserve for Not For Profits

In the private sector, profitability is a key metric. In Not For Profits, the conversation about “earning money” is very different, and there’s a common approach that whatever an organization raised should be spent – 100% should go to the mission. This leaves the organization vulnerable to economic downturns, unexpected community or world events, or a slump in revenue. Part of what contributes to this challenge is when available government funding or private dollars are given with directives for what they should be used for. Introducing restrictions on how income can be used can handcuff a nonprofit in many ways if it doesn’t aligned with their mission and purpose.

The Risks of Restricted Gifts

Not For Profits have to be very careful when accepting a restricted gift that it’s not creating extra work. A restricted gift is when a donor or foundation gives money towards the mission with instructions that it has to be used in certain ways – for instance, for certain shelters in certain locations. If the nonprofit doesn’t have staff in those locations, or they’re not set up to run programs in those spaces, what will that gift really cost the organization? It can in fact not be beneficial to accept the gift, when not accepting a gift runs counter to everything it seems an nonprofit should be doing! Eager to grow, leaders will say yes, accept the money, and then find themselves, in the long run, managing complex reporting and spending time trying to find a way to use the money – time taken away from more immediate needs the organization and its mission is facing.

The CFO: More Than Back Office Support for Nonprofits

Many nonprofits are running so fast, trying to do so much, leveraging small teams of dedicated people, that critical functions like operations and finance get put on the back-burner. Creating an infrastructure, systems and processes for sustained growth often feels like a luxury or a “nice-to-have” for leaders. In the private sector roles like these are usually staffed early, with roles like administration filled in part-time positions until more is needed. In NFP’s, this is often backwards, where administrative and fundraising staff will be hired first. Moreover, roles will often be filled with friends or family, or a single person will be tasked with managing the roles of what would, int he private sector, be two or three executives. The business isn’t run like a business until it needs to be run like a business.

Knowing how to manage Quickbooks is not strategic financial expertise. Working with a fractional or part-time CFO with expertise working with Not For Profits and social enterprises can help you manage cash flow and reporting. They can help you understand the impact a gift received now can have to your reporting vs delaying it by even a few weeks or days. A CFO can help you understand and manage restricted gifts, advising and guiding on the right times and ways to accept and use them. This frees up leadership in the NFP to stay focused on mission and growth, knowing that the strategic guidance available from the CFO can minimize wasted time and create a stronger, more sustainable future for the mission to make an impact.