Does your Nonprofit Need a Fractional CFO?
What is a fractional CFO?
Fractional CFOs are financial executives who provide strategic leadership in nonprofits for a handful of hours each week or month.
They allow small and mid-sized nonprofits to access the same quality leadership and experience as their larger sister organizations but with fewer hours and at a price they can afford. Their mix of skilled financial reporting paired with strategic administrative leadership can make the difference between an mission that survives and a mission that thrives.
Whether you want to reduce back-office pain, increase board engagement, or right-size your staff in light of recent changes, a Fractional CFO can provide the solution.
Do you want more impact?
The most successful nonprofit leaders understand that their organization can do the most good when every key activity has robust, experienced leadership. Programs, fundraising, and administration each have a critical role and when any one of them becomes weak, that also limits the other two.
When administration, including accounting and finance, runs smoothly, program and fundraising staff can do their best work. Why? Because they no longer get distracted by such things as:
Worrying about whether the lights will turn on or their next paycheck will bounce
Slow, dilapidated technology
Not knowing how much they have left in their budgets
Reacting to administrative fires (instead of anticipating administrative needs and responding before they turn into a crisis)
A fractional CFO can build a strong back office for your nonprofit, allowing everyone else on the team to focus on what they do best.
Do you need nonprofit back-office support?
Most small and mid-sized nonprofits have back offices that struggle. This can happen due to factors like:
Understaffing
A lack of relevant experience
Outdated processes and technology
A fractional CFO pairs additional work hours with the know-how to ensure that administration happens with the right tools, techniques, and processes. This often means that the finance and accounting team can accomplish more without adding stress or hours to their work.
Do you want a board that engages in finances?
Few things cause board members’ eyes to glaze over more than traditional financial reports. Too many nonprofits treat this part of the board meeting as an unpleasant but necessary evil.
It doesn’t have to be that way.
Overcoming disengagement begins with knowing that 93% of American adults have math anxiety. Now that we understand that, does it come as any surprise that board members disengage? Or that they make unhelpful questions and observations? Or that this is the part of the board meeting that most people dread?
Fortunately, we can do something about it.
A good narrative and graphics that show the key measures of organizational health, such as what you find in a good dashboard, allow nonprofits to bypass math anxiety by engaging other parts of board members’ brains. A combination of pie charts, line graphs, and just a sprinkling of text make it easy to quickly identify patterns, understand why or why not a trend is worrisome, and to draw helpful conclusions.
When a graphic dashboard supplements the standard financial report, your board members will participate much more in your financial conversations, raise helpful questions, and bring their collective wisdom and experience into play on your nonprofit’s key financial decisions.
When we have introduced a graphic dashboard to clients, it’s amazing how the board’s trust and confidence have gone up!
A fractional CFO can build those graphic reports and deliver that engaging narrative for you.
Do you want a board that feels ownership for your nonprofit’s financial health?
A board that feels welcome and included in financial decisions will feel much greater ownership and responsibility for a nonprofit’s financial health.
This goes back to basic human nature. In our personal lives, for example, we feel much more responsibility for hosting a big dinner party if our spouse includes us in the decision-making, right? If, on the other hand, they surprise us by saying, “hey, I invited 20 people over to dinner with us tomorrow,” we’re much less likely to cheerfully lend a hand. Some of us might even tell them, “good luck with that,” and walk away angrily without lifting a finger to help.
Can you picture how a board that is engaged in financial decisions would participate more in fundraising?
Can you picture how that same board is more likely to step up with their time, treasure, and talent should the organization ever face a crisis?
Your fractional CFO doesn’t fundraise for you, but by engaging your board in financial decision-making, they deepen the board’s engagement in the organization beyond the financial reports.
Do you want to make well-informed financial decisions?
In the absence of financial reports that they can understand and engage with, too many nonprofit boards and executive directors make financial decisions with one or both eyes closed!
Without clarity about the organization’s financial health, how many nonprofits delay important decisions like hiring for a new role out of an over-abundance of caution?
Or, ignorant of an impending cash shortfall, how many nonprofits find themselves scrambling at the last minute to pay their staff and keep their doors open?
Your fractional CFO can provide analysis, like a cash flow projection. When you have a better sense of what your bank balance will look like in the coming months, you can make hiring decisions with greater confidence and anticipate any shortfalls long before they become an emergency.
Would you benefit from having a strategic thought partner?
Do you have a good, strategic thought-partner? One who understands how to make a nonprofit’s nuts and bolts operate smoothly? One whose deep experience sets you up as a leader to make confident decisions in a timely way?
I’ve gotten to see over and over how our fractional CFOs become trusted thought-partners for the executive directors they work with. They serve as sounding boards and advisors on thorny leadership questions, allowing the executive directors to make better decisions with more confidence.
With our clients, that role has taken many shapes, including:
Helping with hiring and staffing decisions
Helping the executive director think through difficult HR situations
Lending a hand with technology investments
Are you simply doing too much?
Maybe administration doesn’t come naturally to you, so it’s exhausting to DIY financial functions in your nonprofit. Or maybe it does, but you know that as the executive director you need to focus your attention on 99 other things that only you can do.
We’ve run into plenty of nonprofit leaders who simply have too much on their plate. They may even have strong experience in the CFO chair, but that is no longer the highest and best use of their time. Even though that executive director, for example, could do the financial analysis and reports, in the time it takes them to do that they could, instead, have four or five meetings with donors that bring in donations that more than pay for the Fractional CFOs time.
You’ll be a much more impactful nonprofit leader when your fractional CFO can help you take financial work off your plate and make it easier for you to make financial decisions quickly.
Is your nonprofit experiencing big staffing changes?
Whether your nonprofit is adding staff or making layoffs, a Fractional CFO can form a key part of the mix.
During growth, small and mid-sized nonprofits can benefit from a steady, experienced hand who ensures that finance and accounting-type functions scale to match the organization’s changing needs.
During downsizing, a nonprofit that can no longer afford and no longer needs a full-time CFO can benefit from a fractional CFO who brings the same kind of experience and expertise, but within a number of hours that matches the organization’s new size.
Other benefits of a fractional CFO
Your fractional CFO can perform all sorts of roles, including:
Improving internal processes so you and other staff can get time back
Ensuring you have appropriate internal controls in place (to prevent and detect fraud)
Guiding the audit and setting future audits up for success
Leading a strong, collaborative budget process
Managing through a difficult budget season
Making sure your nonprofit has the policies and procedures it needs for success
Confirming the accuracy of your data
Leading special projects
Helping you make sure your administrative staff has the right mix of skills and responsibilities
Pro Tip: Chief Financial Officer is more than a title
Sometimes, a bookkeeper gets a title promotion to Chief Financial Officer because they’ve had long tenure or to reward them in lieu of compensation. A title alone, however, does not a CFO make.
In reality, a bookkeeper is to a CFO as a carpenter is to an architect.
Both a carpenter and an architect have key roles to play in building construction, but each has different skills, training, experience, and leadership capacity.
Let’s compare some of your financial and accounting responsibilities side-by-side:
The Bookkeeper typically:
Enters transactions into your accounting software
Handles invoices
Handles basic record-keeping
The Accountant typically:
Verifies that the bookkeeper is following accounting standards
Handles taxes and related paperwork
Some analysis, especially of past transactions
The CFO typically:
Provides strategic insights
Advises leadership
Builds budgets, projections, and deep analysis
All of this to say that successful nonprofit leaders look beyond titles when evaluating their current staff and in seeking to add a fractional executive to the team. They look at what roles their current staff fill and ensure that they have a well-rounded team overall.
Once you add the right CFO to your team, you’ll find that that part of your nonprofit gives many fewer headaches and frequently makes it easier for you to focus on your mission and impact.