Tuesday

Getting a Handle on Challenges For Nonprofit Organizations


Nonprofit organizations face numerous financial challenges they are often not prepared to deal with. Every nonprofit board faces fundraising woes, but a bigger concern could be related to fraudulent use of funds. The Association of Certified Fraud Examiners report for 2018 shows that nine percent of reported fraud involved nonprofit organizations with an average of $75,000 in misused funds. Since many nonprofit organizations are comprised of a board of directors, it may be better to hire a CFO service instead of having a full-time CFO which will further drain resources. Here are some ways this process can help.

Management of Organization

The primary obligation of most nonprofit organizations is to raise and distribute money. While these are laudable goals, these goals often mean the organization is managed more with the heart than with the head. Board of Directors are often comprised of volunteer which leads to further problems. The board may not be as active as they need to be, or there are restrictions in the corporate documents which limit their ability to properly manage the organization. A CFO service can help diffuse these types of issues primarily because they are charged with maintaining financial stability and as employees, may not face the same restrictions, as an appointed or elected board.

Many boards, regardless of the type of company, face challenges with expertise. Too often, board members are selected based on their donations, or activities with the nonprofit organization without much thought given to participation in board activities, or expertise that can help keep the nonprofit functioning at maximum efficiency. This is where a CFO service can make a significant difference. Your nonprofit gets financial expertise without a concern that a changing board means you lose the expertise you need.

Cash Flow and Fundraising Challenges

To have a strong budget, which dictates how you will spend your money, you must first be certain that your nonprofit has the necessary cash flow. While a budget may not seem like it is helpful, but a budget may be one of the most important tools for your nonprofit business. A sound budget can help keep stakeholders involved, motivate volunteers and employees as well as keep spending under control. Typically, nonprofit organizations depend on fundraising for most of their income. Rather than guessing what might happen next, you can count on your CFO service to help you create a realistic budget, while allowing you to focus on needed fundraising events.

Cash flow is not always consistent in a nonprofit because you never know when you can anticipate the next donation or grant approval. Working with your CFO service, a look forward and backwards can help you determine when you may see your next influx of capital.

Because fundraising is a significant part of your income, you will be expected to show donors and potential donors results. In some cases, you may be searching for an investor to help you with administrative costs. Whatever the case, you need to be able to show a compelling story that includes your financial picture. Working with a CFO service means having someone who can craft your message for both investors and donors.

Compliance and Fraud Issues

As a nonprofit organization, there are numerous forms which must be filed on an annual basis. In addition to your tax filing, you may have to file various forms on the state level to remain fully in compliance. As your organization grows, there may be additional reporting requirements which must be maintained. Working with a CFO service allows you the ability to keep track of new requirements as your nonprofit business grows and changes.

We have previously discussed the issues with fraud that should be a grave concern to all organizations, but particularly with a nonprofit. Keep in mind, a nonprofit organization depends largely on the goodwill established with donors and the public to maintain cash flow, grow, and serve their audience. Charges of fraud will have a serious impact on your public image which could have a devastating impact on your ability to secure funding. One of the best ways to avoid issues of fraud is to have sufficient internal controls which allow for transparency. Having a person who is not directly connected to your business dealing with cash flow, payments, and income, specifically a CFO service, means you are reducing the potential of fraud.

Understanding Nonprofit Organizations

Many people believe the name nonprofit means the company is not in business to turn a profit. As explained by the Council on Nonprofits, this is a misnomer, in fact, the business should be attempting to turn a profit. The specific term nonprofit means the business cannot randomly turn a profit for the benefit of the owners, the profits must be used to benefit a public interest. The idea is to maintain a financially strong organization and keep that organization sustainable.

Your nonprofit business has a specific mission statement and part of your mission is the betterment of society. A well-crafted financial plan, careful monitoring, and a well-developed fundraising plan are at the heart of your organization. The focus of a good nonprofit organization should be securing the capital, through donations or investments and putting those funds to the best possible use. Compliance issues, an inactive board, and other challenges should not deter you from your mission.
Outsourced CFO services allow you to focus on the most important goals of your business and have the ability to use financial information in the most effective way possible to help grow your nonprofit and serve your community.