While nonprofits are unique organizations that run differently from for-profit companies, they still require careful financial management and strong oversight. It takes money to continue offering quality services and programs, and someone needs to keep track of all the moving parts.
With an inflexible budget, you might wonder, “Do I have to add to my headcount for this?”
Not necessarily. Leaning on what's called a “fractional chief financial officer” (or fractional CFO) can provide just enough lift to position your organization for success.
Fractional CFOs are 100% external executive partners that function as a service rather than full-time W-2 employees who earn benefits. They alleviate stress related to financial matters, operating on an as-needed basis to give nonprofits a solid external strategy partner. Of course, their priorities may differ from the corporate world.
Here, we explore the role of fractional CFOs for nonprofits.
The responsibilities of a fractional CFO for nonprofits
You’re used to thinking about roles such as executive director or philanthropy director in your nonprofit, and figuring out how a CFO fits in might not be so intuitive. Instead of thinking of the formal-sounding, C-suite “Chief Financial Officer,” think, “head of finance.” They’re not involved in the day-to-day bookkeeping and payroll, but rather larger initiatives and business strategy.
Chief among these are:
Budgeting and forecasting
Your fractional CFO acts as your external eyes and ears. They monitor your organization’s cash flow, making sure you don’t overspend. In the process, the fractional CFO also shows you how to find and explore new opportunities—but in a budget-conscious way.
Financial planning and modeling
A fractional CFO is a jack-of-all-trades. They’ll put on a new hat to be your advis0r, explaining the financial implications of the organization’s plans and programs, often factoring in current events and economic head- and tailwinds. An important part of this is building models of real financial situations, helping your CFO partner analyze project or investment performance.
System implementations
When your nonprofit gets on the fast track to growth, things start looking a little different. In comes your fractional CFO again, ready to implement systems to accommodate the shift. Change is hard no matter how prepared you are, so they stand ready to handle risks and monitor resources during the adjustment period.
Audit support
An audit can strike fear into the hearts of any organization, but a fractional CFO can make the process run smoother. Instead of feeling like you need to scramble to collect documents, your fractional CFO takes care of it, organizing your information in one place, usually with accounting software. If you want to be more involved in the process, they can also provide financial coaching to your team.
Data visualization
If figures and percentages don’t come naturally, a fractional CFO can use the latest tools to provide insights into your nonprofit’s data and how the pieces go together. Financial professionals can attest that QuickBooks can be a must-have tool for this. Its cash flow dashboards show how much money is going in and out of your organization at all times, helping you respond and make evidence-based predictions. And as a bonus, you can see all revenue sources—from donations to sales—in one place.
The benefits of hiring a fractional CFO for nonprofits
It’s a common refrain: “Do we really need a fractional CFO?”
For some growing nonprofits, the answer is yes. You’ll be glad to have one by your side when you see how much easier life gets. A fractional CFO can bring strategic and financial chops to refocus your organization, delivering:
Time and productivity savings
Your nonprofit is probably more concerned about delivering benefits or fulfilling its mission than fussing over finances. But having a financial professional dig into cash flow forecasting, financial planning, or growth strategies? That’s time your executive director can get back and put into day-to-day operations. A fractional CFO could even participate on your board and collaborate with bankers and attorneys, taking the lead on administrative functions to further free up the executive director to focus on big-picture needs.
Money savings
As Kathy Svetina of NewCastle Finance puts it, “A fractional CFO is a great way to get that full-time CFO expertise for a fraction of the time and cost.” And she’s spot on—just think of how much full-time salaries and benefits eat into your nonprofit’s already limited funds.
Fractional CFOs help nonprofits access professional financial advice, even when there’s no room in the budget for full-time staff. With the money you save, you can focus more on:
- Programs
- Marketing
- Fundraising
The right fractional CFO can be worth their salt, coming into the picture with diverse experience to understand the financial management needs of your unique group.
Prior nonprofit experience
Chances are good that you’ll find a CFO with experience not only in your nonprofit sector but across diverse industries, including:
- Minority- and women-owned businesses
- Disability advocacy and support organizations
- And more
That’s because fractional CFOs usually have a few full-time CFO positions on their resumes, even if they now serve multiple nonprofits. And you win because it helps them provide fresh perspectives for your organization, where they apply those experiences to their partnership with you. With such a solid nonprofit background, a fractional CFO can identify and respond to trends they’ve seen affect others and apply effective strategies for your organization.
How to choose a fractional CFO for nonprofits
Hiring can be daunting when so many CFOs are available 100% virtually. You have the whole wide world of pros to choose from!
Clear the cobwebs by breaking the process down into just a few steps:
Ask key questions
You need to get certain things out of the partnership. It takes research. Start with a few simple questions to weed out your options, such as:
- What services do you provide?
- How long is your onboarding process?
- What will the relationship look like?
If a candidate can’t meet your needs, it’s okay to move on.
Look for experience
A fractional CFO also needs the technical know-how, and that comes from executing the CFO function day in and day out. They should bring at least a minimum of core skills to the table, including:
- Data analysis, risk management, and forecasting
- Accounting software experience
- Analytical skills
- Ability to explain financial terms
- Familiarity with nonprofit structure
By trusting a partner with wide-ranging experience, you can take advantage of a larger professional toolbox. A veteran fractional CFO brings with them strategic insights and network connections to help you. It’s also important to look beyond simple financial experience because CFOs need to be more strategic than an average accountant.
If a prospective partner has only ever worked as an accountant, it’s okay to move on. A strong CFO partner needs to approach the organization from a big-picture view, rather than just looking at the numbers.
Don’t forget about chemistry
Think about picking a CFO like dating. After all, you’ll want to ask yourself a lot of the same questions you would at a candlelit table:
- Are you comfortable with the candidate?
- Do they seem to care about you (and your organization)?
- Do you see a future together?
And like any great romance, your differences and similarities strengthen the relationship. Your fractional CFO should align with your organization but also be able to challenge you when needed. Look with a keen eye to find “the one.”
Let your fractional CFO drive nonprofit growth
Your executive director doesn’t have to do the lion’s share to keep your organization moving forward. An external CFO partner can be a valuable asset to manage big-picture financial operations, whether it’s managing the budget or understanding mounds of data. And you’ll save boatloads of time and effort to boot, making way to put more energy into growth.
Find effective ways to support your nonprofit. Take the steps to find a fractional CFO partner who can position your organization for success—and trust QuickBooks to simplify your accounting so you can focus on your mission.
