The CFO'S Perspective

Over the last decade it has gotten harder to understand and evaluate the indirect cost rates being applied to grants. Nonprofit leadership has struggled to keep up as the requirements and recommendations around indirect cost rate calculations have shifted and changed. And yet, this work remains critically important to the effective financial management of nonprofit organizations because without accounting for indirect costs correctly nonprofits cannot cover their overhead.

Unless the expense of overhead costs such as rent, utilities, technology, and payroll are recouped through funding, an organization cannot be fully compensated for what it costs to run the programs that they offer, jeopardizing their ability to offer not only those programs but maintain other vital initiatives in the community as well. Therefore, properly calculating indirect cost rates is a cornerstone of effective grant management for nonprofits.

Sometimes in our professional lives we do things because we think they are a smart business move. Sometimes we act because we have no choice because the market demands it. Sometimes we take positions or actions because we are thinking about our company’s ethos and reputation in the community.

Every now and then, those things are at odds with each other. And other times, they align perfectly.

Paying attention to and acting on diversity in your business is one issue that can help you align all those facets of your business. It can help you show the world (your employees, clients, and potential customers) who you are, what you value, how the way you value people and business shows up in your work. It can also help you refine your thinking and actions to make all that public positioning real!

As in any industry these days, technology utilization in nonprofit organizations is on the rise. Nonprofits are using technology to shape everything from how they communicate to how they fulfill their missions with greater efficiency and effectiveness than ever before.

In a Harvard Business Review article on the smart tech transformation occurring in nonprofits, Allison Fine and Beth Kanter summarize,

“The use of smart tech by social service agencies and other nonprofits exploded during the pandemic. For example, food banks deployed robots to pack meals; homeless services agencies used chatbots to give legal and mental health advice; and fundraising departments turned to AI-powered software to identify potential donors. At many nonprofits, smart tech is becoming integrated into internal workflows, fundraising, communications, finance operations, and service delivery efforts, freeing up staff to focus on deeper societal changes that need to be made — such as addressing the root causes of homelessness in addition to serving homeless people. While smart tech helped scores of nonprofits to pivot to suddenly remote and digital delivery of programs and services at the start of the pandemic, it may also enable them to turn the page on an era of frantic busyness and scarcity mindsets to one in which nonprofit organizations have the time to think and plan — and even dream.”

It is not difficult to understand that a nonprofit organization needs money to accomplish its mission. And yet, in looking at nonprofits it is clear that they are so much more than the money they have to invest in programs and initiatives around a particular mission or cause. Nonprofits are made up of passionate people that care about making a difference and serving others with whatever resources they have available. But how much they need and how much donors are willing to give them hinges on understanding how they can use what they have to do what they do, which is called their Return on Investment (ROI).

Without knowing what kind of a return a nonprofit can achieve it cannot secure grants or attract donors effectively. So, how do you calculate nonprofit ROI?

While some economists and business analysts claim we are already in a recession, many more believe we will be in one by the end of the year. The general consensus is that whether we are already there, or it is coming soon, for-profit and non-profit organizations alike will be affected. The question is how will they be affected and what will those effects look like? Essentially, what should they expect and to what degree should they expect to be affected?

Obviously, nonprofit organizations will feel the effects of a recession differently than the private sector, but the types of issues they are dealing with right now are the same: changing consumer behavior (purchasing and donating), increased costs, labor market changes, and increased reputational risk. How will nonprofits be affected?

As 2023 begins many nonprofit leaders are facing the reality of operating after the government funds that were provided during the pandemic have dried up. Organizations that regularly operate with minimal or moderate budgets are finding that they are in a cash negative position. How they respond now will determine what the future holds for their missions, staff, and the people they serve.

Current data from CFO Dive indicates that the hiring woes companies and nonprofit organizations are experiencing will continue well into 2023 (or even beyond). The question for nonprofit organizations is how do you overcome today’s challenges?

Luckily, there are several key trends emerging that are enabling nonprofits to hire well despite the market’s current challenges. These trends span areas from how pay is communicated to how employees work, and everything in between.

Grant management is one of the fundamental elements of effective financial management for a non-profit organization. There are many components of grant management, and while the degree of sophistication may vary from organization to organization, the fundamentals remain largely consistent.

So, why is grant management important?

The entire answer to this question depends on the organization, but here are the core reasons: