Nonprofit organizations are champions of challenge. They are inherently designed to recognize, address, and overcome challenges of all kinds. And while there has been a tremendous amount of buzz over the last two years about the kinds of social and political challenges that nonprofits across the country have been taking aim at, very few people have talked about the kinds of fundamental organizational challenges that are keeping nonprofit leaders up at night. These kinds of challenges are not newsworthy or exciting, because despite everything else that has changed in this post-pandemic society we are living in, these challenges have remained the same.
Yes, today’s top nonprofit leadership challenges are yesterday’s challenges continued. Every organization regardless of size, location, or focus area has the same core hurdles that their leadership team needs to address. And how leadership handles these challenges can make the difference between whether an organization thrives or closes its doors.
Understanding the most pressing challenges facing your organization right now is the first step in knowing how to lead successfully through them. In the conversations our financial leaders have with their colleagues every day these six areas are routinely identified as the most common challenges that nonprofit organizations are facing:
Knowing when and where to spend money is a central to achieving your mission. However, nonprofits that only focus on making finance and accounting related decisions with short-term objectives in mind can miss out on the broader picture of where the organization can go in the future. That is why it is critical that leadership not get so carried away with the daily management of the organization that they forget about its long-term mission-related goals. It is a give and take of keeping a strategic focus that balances today and tomorrow with equal weight. As our CEO, Kevin Briscoe, explains in an interview on financial acumen in nonprofit leadership,
“Most early stage professionals are looking at ‘How do I leverage the assets to the mission of the organization?’ and that’s not a bad thing but they end up restricting the focus of what can be an important tool to ensure that you have a longer runway so that the organization will be able to fulfill its mission into the future.”
The best way to balance your strategic focus is to work closely with your board to determine the vision for the organization and the communicate regularly as changes happen, obstacles are encountered, and opportunities arise.
Knowing which kinds of reports to generate and which key metrics to track is a topic that every nonprofit will need to evaluate for themselves. What should be reported will depend on its fundraising sources, assets, organizational structure, and compliance requirements. Organizations are used to doing basic reporting like 990 reports, grant reports, and donor reports. However, this is by no means an exhaustive list of the kinds of reporting that organizations can (and should) be doing.
Nonprofits should also conduct a full lineup of financial reporting, including a Statement of Financial Position and Statement of Activities. (And nonprofits that have a retail or commercial arm, will likely need to do additional reporting to account for funds generated from that side of the organization as well.) The goal is to track and report on anything that is crucial to the ongoing effective management of the organization.
Unfortunately, most organizations are only looking backwards with their reporting. Therefore, they are only answering the question, “Was what we did successful?” not the question, “Will what we are going to do be successful?”
The best nonprofit leaders understand that strong forward-looking financial management is key to achieving organizational success. Anything that leadership can do to anticipate what is coming next financially will be highly beneficial in keeping the organization moving forward. For instance, cash flow forecasting provides the financial projections that nonprofits need to be prepared for future challenges.
Risk management is as important to nonprofits as it is to for-profit companies. Any growth such as adding locations, programs, or people brings with it added risk. Understanding the financial, legal, and regulatory implications of change are important to consider. As a result, a nonprofit leader should be surrounded by the kinds of experienced professionals that can draw on their expertise to advise in these areas.
These days there is also social risk for nonprofits to consider. Alienating members of their core audience or donors can carry a heavy reputational (and financial) cost. Nonprofits must carefully chart rough waters when it comes to today’s most pressing social issues to mitigate risk. This is where prudent use of social media and other public platforms becomes critical, especially among members of its leadership.
Like any institution, nonprofits need the right systems, tools, technology, and framework in place to be able to manage the organization. Using the right tools is crucial for keeping staff working together, especially in a hybrid or fully remote environment or when they are out in the field with the people they serve. Talking to other nonprofits about the tools that they use and find helpful is a great way to not only get advice on which types of systems and technology to utilize, but also to network and partner with other organizations. Aligning with other nonprofits often expands what each can offer, bettering their communities by bringing their resources of people and information and assets together.
Compliance will always a “necessary evil” in the nonprofit world. Of course, everyone can agree that there should be some guidelines in place to regulate how nonprofits use funds and operate for the good of their communities. However, with national, state, and local regulations changing frequently and compliance matters often being nuanced and confusing, even the best intentioned nonprofits can sometimes get tripped up. Further complicating matters, individual grants can also have their own compliance requirements, necessitating close attention to detail to ensure funds are being used as they were intended.
This is another area where strong financial leadership is key, but a nonprofit Financial Director should not be siloed in this area. Financial leadership should work closely with the Executive Director and retained legal counsel on compliance matters (especially when the organization needs to be represented to a CPA firm for examination on financial compliance matters).
A year after the pandemic hit, an AP article on how the pandemic was affecting nonprofits reported that one-third of all nonprofits were in jeopardy of closing within the next two years. In March we will hit that two-year mark, and an Independent Sector report from earlier this year shows that the gross value added by nonprofits outpaced overall US GDP numbers, but was still down substantially from previous years, even when adjusting for inflation. If the trends continue as we have seen them thus far, the number and reach of nonprofit organizations across the nation in 2023 will still be down from pre-pandemic days.
During difficult economic times and times of uncertainty, the decisions that nonprofits leaders make carry additional gravitas because there is less room for error. But even the best nonprofit Executive Directors or CEOs cannot lead independently. Heads of organizations need to be surrounded by the right leadership team to be successful – passionate, dedicated, rational, dependable individuals that represent a broad range of skillsets and areas of expertise. This includes people with the strong financial acumen and fiscal discipline to ensure that the organization’s mission can be carried out effectively while evolving in response to challenges.
When nonprofits are undergoing significant changes, they may need additional financial support. Even if the executive leadership team is financially savvy, having an external source offer fresh, unbiased perspective can be extremely beneficial. Our experienced team of consulting CFOs provides short-term or part-time financial services for nonprofits to help organizations achieve their goals and act as a force for good. Find out more about how we can help your nonprofit develop and execute on its strategic plans during times of change and uncertainty!