The CFO'S Perspective

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?

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:

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.

At any nonprofit organization reporting tells the story of what is happening and why. But reports are not simply a snapshot of where the organization is today. They are a critical piece of information to predict where the organization will be tomorrow.

All nonprofits do some combination of financial reporting, management reporting, and board reporting. Internally these reports help organizations manage risk, evaluate current efforts against performance objectives, make strategic operational decisions, and prepare for what is coming next. Externally these reports communicate with key stakeholders and rally supporters. As such, reporting is extremely important for any nonprofit organization.

For-profit companies understand the importance of cash flow projections because they are inextricably tied to their goal of generating ongoing revenue. Nonprofits, on the other hand, are not typically as “cash flow savvy.” Some only do cash flow projections when required as a grant application stipulation, while others do not do them at all. And of the organizations doing cash flow forecasts regularly, many do not truly understand what they should be getting out of the process.

Every so often, one of my non-profit clients will see a small windfall in unrestricted funds, such as a large gift or bequest, proceeds on the sale of an asset, or loan forgiveness. Wanting to protect funding for mission-driven programs into the future, some will start discussing the possibility of setting up an endowment. But this begs the question:

What exactly is an endowment, and are they always the best thing to do?"

Is your organization positioned to navigate the unique strategic and financial challenges inherent in nonprofit settings? As a nonprofit leader, do you need more financial expertise but don’t know if you can afford it?