Being the CFO of a not-for-profit or charity is not the same as being the CFO of a traditional business. Your goal is not to maximise profitability.
It’s about maximising your organisation’s impact. And this means a challenging balancing act – between reaching your social and philanthropic goals and keeping your not-for-profit on a firm financial footing.
You’re facing many of the challenges for-profit businesses do, such as increasing revenue, consolidating across multiple entities, budgeting, implementing internal controls, and facilitating audits.
But as a not-for-profit or charity CFO, there are unique challenges that you might need to deal with, such as:
A broad array of complexities lie behind the bread-and-butter accounting and financial management of a not-for-profit. Beyond the basics of accounts payable and receivable that everyone needs, the fundamentals for nonprofits encompass a distinct set of standard documents, indicating your activities, financial position, and cash flow.
Revenue management can be more complicated for a not-for-profit due to the way revenue is recognised. If the organisation collects annual dues or periodic donations at different times of the year, it may be essential to decouple cash receipts and disbursements from revenue recognition.
Handling donors and fund management
As a not-for-profit, you may well depend on donations and fundraising, as well as other sources such as grants. This means you might have a significant number of income streams.
Conditional on receiving most income is a requirement to demonstrate when and how you’re using funds. You may need to show donors what’s happening with their investment, which means isolating activity for each revenue source to create a series of specific reports with unique requirements.
You’ll want to improve the efficiency and management of funds – such as being able to track the uses of funding instantly. This frees up time for your staff – instead of them laboriously spending hours and days on manual tasks, you can redeploy them to activities which help your not-for-profit win more donors and funding.
Any accounting technology you use must be designed to present information from a variety of dimensions, such as geography, project, timeframe, and funding source. This enables you to run custom reports, support multiple entities, and consolidate more easily.
Transparency, compliance, and governance
As a not-for-profit, you’ll face scrutiny from all parties. You will be expected to be unimpeachable, even under the stress of securing funding to keep your operations going. The slightest error could be picked up or magnified by observers, with disastrous consequences in terms of reputation or fundraising efforts.
Some regulations differ for not-for-profits, such as lower or zero tax rates, but there is still a requirement to keep high-quality records. If, for example, you’re audited regularly by external parties, it’s much easier to use a shared online accounting system, rather than having to meet onsite and work over spreadsheets.
Even internal reporting requires high levels of efficiency. When not-for-profit board members – who are often successful executives from different business disciplines – convene to review the organisation’s status, they’re increasingly expecting the same calibre of reporting and analysis they see in the business world.
Fewer back-office resources
Your staff may be more likely to be part time or volunteers, and could be working with simpler tools, tighter budgets, and split management teams. Fewer back-office resources can impact financial visibility, as you don’t have as much time as you want to focus on it – the administration could be particularly time-consuming.
How can you meet these challenges?
Technology is a fantastic equaliser that allows not-for-profits and charities to achieve the same kind of efficiencies as corporate giants. Using the right integrated software can shave weeks off the reporting cycle, for example, freeing-up much-needed resources like budgets and staff time.
Cloud-based financial accounting tools could help, as they can automate financial management processes without the need to change underlying financial hardware and software infrastructure.
Modern not-for-profits and charities should aim to consolidate their data across as few systems as possible for maximum continuity – everything from donors, to funds and reports, need to be in one place. The old days of a handful of spreadsheets plus disparate software systems are over. Yet this is still the go-to configuration for many not-for-profits – and can be time-consuming from an administrative point of view.
Driving digital transformation in a not-for-profit organisation
Not-for-profit and charity CFOs have a lot of responsibility. You’re responsible for automating processes, improving productivity, creating higher levels of transparency and visibility, enhancing the governance of your organisation, and strengthening the team’s decision-making and strategic focus.
According to recent research detailed in our CFO 3.0 white paper – Digital Transformation beyond Financial Management, two-thirds of Australian CFOs believe that their role is transforming from number cruncher to business strategist. Your mandate could have moved beyond your traditional role of analysing past performance, and you might well be in charge of leading your organisation into a new frontier where you’re the gatekeeper of a vast amount of data and analytics made available through a connected and digitalised world.
Armed with the insight this data affords, you can create a vision for the future and plan for it. Not-for-profit and charity CEOs will be looking for you to future-proof finances, providing strategic direction on spending, managing risks, imposing governance and responding to regulatory change.
As a not-for-profit or charity CFO, you can lead the way in driving digital transformation; the finance function will be redefined and expected to play a more significant role in data governance, data flow, cybersecurity and other business priorities.
Kerry Agiasotis, Executive Vice President and Managing Director of Sage Australia said, “At Sage, we are passionate about providing business solutions that support organisations who are giving back to communities in need. With Sage Intacct now in the Australian market, we are excited by the prospect of leveraging the rich history that Sage Intacct has had in serving charities internationally and working with organisations such as UNICEF Australia and our local business partners to help make an impact to under-represented communities in Australia”.
For more resources on driving digital transformation, visit www.sage.com/au/nfp