Three Roles of the Mission-Infused Nonprofit CFO That Lead to Organizational Success

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Introduction

As the leader of an organization’s finance function, the nonprofit CFO makes a critical contribution to overall mission success. While this has always been an understated reality, it is especially important in today’s climate as organizations work to meet short-term and long-term challenges in an extremely competitive and constantly evolving world. If the ultimate goal of the nonprofit sector is to positively impact society—whether through advocacy, arts, direct service, education, healthcare, public policy, research, or social services—the nonprofit CFO must have a seat at the mission table.

This playbook defines the three major roles of the mission-infused nonprofit CFO: the builder, the strategist, and the cultural trendsetter. It identifies best practices and guiding questions that drive finance and mission success. This playbook is written with the hope that the reader will consider the meaningful connection between mission and finance, as well as define and implement strategies that will result in better organizational outcomes.

Contents2 Introduction

3 The Builder

4 The Strategist

5 The Cultural Trendsetter

6 Guiding Questions for the Mission-Infused CFO

7 Conclusion

7 About the Author

8 How Software Can Help You Move Your Mission Forward

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The Builder The builder is driven to construct a sustainable financial structure and business model that meets mission needs, goals, and

aspirations over time. Such mission success represents the lasting legacy of the nonprofit CFO. The builder takes pride in

multiple organizational contributions, but three areas are particularly relevant to the success of the organization’s mission:

• Building a sustainable financial structure that meets long-term programmatic capital needs and organizational aspirations

• Building a sustainable and dynamic business model that grows diverse short-term and long-term revenue

streams and efficiently and effectively manages expenditures

• Building a sustainable organizational infrastructure that supports and contributes to programmatic success

Financial Structure

The goal of the sustainable financial structure ultimately enables the organization to exert some level of control over its financial

and mission destiny. The combination of cash, receivables, fixed assets—such as land and buildings—as well as manageable

liabilities, especially debt, forms the basis for a financial position that brings financial and mission aspirations into alignment.

In particular, the organization must commit to understanding the importance of unrestricted net assets and striving to

grow and invest them. Unrestricted net assets comprise an asset pool which the management team directly controls, and

unlike temporarily restricted net assets, unrestricted net assets have no donor restrictions. This affords management a reserve

of capital that is not beholden to any externally defined future expenses and can therefore be used to:

• Pay down or pay off specific deficits, such as gaps in indirect cost recoveries

• Invest in new programs, human capital, and space

• Cover costs in long-term program, fundraising, and administrative leadership that were not allocated to particular

grants or contracts

Unrestricted net assets can meet immediate and long-term program needs as they continue to change and evolve. These

assets are critical in particular for providing an organization with the opportunity to develop a long-term capital strategy that

will propel them toward financial sustainability.

Business Model

The builder is responsible for creating a sustainable and dynamic business model that consistently achieves financial,

programmatic, strategic, and administrative goals. Often these goals are inherent in a fiscal year budget or several fiscal

year budgets and forecasts. It is less often the case—though no less important—that an organization has a clear vision and

strategy for how the fiscal year mission goals align with the organization’s fiscal year financial results. A focus on long-term

revenue streams is key to building a sustainable business model that perpetuates long-term mission success. The CFO

should also drive the conversation about unrestricted bottom-line trade-offs to ensure that optimal decisions are made.

Building Blocks of a Successful Nonprofit Business Model

Run unrestricted net assets either break-even or in surplus of budgets.

Prioritize diverse revenue streams that enable the organization to cover core program costs.

Build an indirect cost rate into grants and contracts to minimize the gap between indirect costs and indirect cost recoveries.

Engage the CEO, board of directors, program and development leadership, and other internal stakeholders to provide options and trade-offs both in terms of revenue and expenses to achieve unrestricted net income goals.

Revenue streams may include earned revenues, government funding, foundations, individual contributors, special events, and more. There must be a willingness to invest in long-term revenue streams.

Indirect cost rates have to be competitive enough to get grants, but also provide enough cushion to sustain necessary administrative support for programs.

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Organizational Infrastructure

The builder must develop a finance function that meets the fixed and variable support needs of the dynamic organization.

It has always been important to clarify roles and define relationships within the finance department, but structured and

purposeful interactions with program and development teams are also critical to efficient operations.

At the management level, the finance team must work hand-in-hand with programs, development, and administration to

implement investment decisions based on organizational goals. Likewise, the programs, development, and administration

teams must work hand-in-hand with the finance team to determine organizational goals around mission investment decisions.

The CFO or financial function should always ask the team(s) responsible for programming, “What do you need (i.e. financial

or human resources) for this investment to be successful?” In return, the finance team will expect timely communication

related to budgets, forecasts, and cash flow to accurately evaluate the financial impact of investment decisions and appraise

and predict the organization’s current and future financial positions.

IT Infrastructure

It is also important to build up IT infrastructure and capacity. This ensures that everything runs smoothly and accurately not

only in the accounting and fundraising departments, but also in the program departments. IT offers a competitive business

advantage when pursued strategically and implemented thoughtfully.

Carefully researched investment in new or existing software not only encourages transparency and better communication as

part of the organizational culture, but it also integrates organization-wide systems so that teams can more clearly understand

the links between programmatic and financial successes.

Specifically, one of the infrastructure priorities is integrating financial, development, and program data to produce financial

forecasts on a timely basis. The subsequent process of analyzing reports, identifying red flags, and ensuring that programs

are fully funded enables the organization to make timely and informed financial and programmatic decisions before those

decisions are made for them.

Finance and Mission Storytelling Capacity

The ability to tell multiple short-term and long-term financial stories and connect them to the organization’s mission metrics is

extremely important for getting all constituencies aligned and working together. Ultimately, the builder is directly responsible

for and corresponds with the stories told in the statement of financial position, statement of activities, and statement of

functional expenses—all part of the fiscal year audited financial statements.

Upward-trending, long-term legacies are built on financial statements that tell a story of financial viability and long-term

sustainability. It should come as an unsurprising revelation that an organization’s financial success has a significant impact on

its mission success, just as its mission success has a dramatic impact on its financial success. The two are inextricably linked.

The Strategist To ensure that the fiscal year financial and mission stories go as planned (or better than planned), the CFO cannot be a

passive bystander; he or she must be an active participant. The role requires a proactive, strategic decision-maker who

moves the organization along the path to mission and financial success.

To be a successful strategist, the finance team must produce the necessary financial information and reports in a structured

and timely manner, achieve clean donor-wide and organization-wide audits, and be able to explain the larger financial story

behind the numbers. This reinforces a confidence in and deeper understanding of the financial position for leadership to take

measured but proactive financial and mission risks. The strategist might consider setting up a standing management risk

committee, which evaluates the ramifications of strategic choices and opportunities in light of long-term mission fulfillment.

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Ultimately, indecision and/or a passive approach to addressing financial needs leads to a financial and mission treadmill. An

inability to move forward can doom an otherwise successful organization to a prolonged period of financial and organizational

sclerosis. The finance team—understanding the aspirations and ambitions of the mission team—must make a compelling

financial case that supports forward-looking decisions. If members of the finance team don’t, their competitors will ultimately

do it for them. Staying put is no longer an option.

The Cultural TrendsetterSome say the nonprofit CFO is the loneliest job in the organization. The expectation is that the role exists to cut operations

down to size and achieve bottom-line goals regardless of all the good work the organization does. However, this perception

doesn’t have to be the reality; it doesn’t even have to be the perception.

The CFO is very much an organizational leader, partner, and participant in the work and in the success of the nonprofit.

To ensure that everyone knows this is the case, CFOs and the financial function as a whole need their own public relations

initiatives to communicate their collaborative vision and success. Ultimately, the CFO has to be an organizational trendsetter

who creates a culture prioritizing the alignment and integration of programs and finance, as well as transparency among

all parties. CFOs also need to show their less objective side: one that is empathetic to the human characteristics of the

organization. Flexibility, curiosity, and an ability to listen go a long way. To set the organization’s cultural trends, the CFO

should work to:

• Establish and nurture mutually beneficial relationships with all parts of the organization. Be a partner and

advisor to the CEO, department directors, and even the finance committee, especially when there is confusion about

short-term and long-term mission objectives. Offer solutions, options, an understanding of trade-offs, and, most

importantly, suggestions for a path forward.

• Emphasize transparency and clarity of each program’s impact on the bottom line and vice versa to build

trusting relationships. Ensure that CEOs and program heads have a firm grasp of what the audit results mean,

understand what the unrestricted bottom line number means for their department, and recognize what their impact is

on the bottom line. Explain what the finance team thinks about and what their challenges are—i.e. getting transactions

submitted on time to bill for grants and contracts.

• Effectively communicate financial and mission goals so that the CFO, finance committee, and board

share a common understanding of the organization’s culture and priorities. Share the financial narrative in an

easily digestible way. Prepare a budget narrative that directs and shapes the conversation and provides past, present,

and future context and perspective. The finance committee wants and needs to know the whole but distilled story,

while also maintaining its financial oversight role.

One of the duties of the CFO is making the entire organization aware of the finance function’s commitment to the success of the

mission. Meanwhile, the finance function needs to be able to count on the organization’s respect for all business office roles and

accomplishments. The CFO and finance team must be appreciated for the integral role they play in the success of the mission.

Three Key Focus Areas for the Strategist

Effective Cash Management

Cash vs. accrual can be a trade-off between short-term and long-term strategic decision-making. Strategic decisions should not be predicated based on cash on hand, unless the organization is in cash extremis.

Timely Mission Investment

Successfully deploying current and expected financial resources is critical for meeting strategic goals and opportunities.

Increased Development Capacity A fundraising capacity that identifies and builds long-term, diverse revenue streams and significant unrestricted net assets allows the organization to supplement core earned income and restricted grants, pay for indirect costs, and build reserves.

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Guiding Questions for the Mission-Infused CFOThe successful fulfillment of these roles—the builder, strategist, and cultural trendsetter—hinges on understanding the nonprofit’s

needs, aspirations, and impact. In other words, the goals and strategic motivation of the finance function should be a reflection

of what the organization wants to do, when it wants to do it, and how it should do it to have the greatest impact. Answers to

the following questions will help the CFO connect the success of the organization’s finances to the success of its mission:

• What kind of organization do we want to be?

• Are we well-positioned to take advantage of mission opportunities?

• What role can the CFO play in driving mission goals and priorities through the organization’s finances?

• What services and programs do we want to provide over time?

• What investment of financial resources should be made to achieve programmatic growth and financial success

over time?

• What sort of impact do we expect the organization as a whole to have?

• What programs in particular are critical to mission success (or, just as importantly, what programs are not critical or

even undermine mission success)?

• What exactly is mission success in the short-term and long-term?

• How do we know if we’ve achieved mission success?

• Can we control our own destiny, to the extent it is possible, to achieve these desired results?

© January 2018 Blackbaud, Inc.

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implied, in this summary. The information contained

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About BlackbudBlackbaud (NASDAQ: BLKB) is the world’s leading cloud software company powering social good. Serving the entire social good community

—nonprofits, foundations, corporations, education institutions, healthcare institutions and individual change agents—Blackbaud connects

and empowers organizations to increase their impact through software, services, expertise, and data intelligence. The Blackbaud portfolio

is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising,

corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing, and analytics.

Serving the industry for more than three decades, Blackbaud is headquartered in Charleston, South Carolina and has operations in the

United States, Australia, Canada, and the United Kingdom. For more information, visit www.blackbaud.com.

ConclusionThe nonprofit CFO must be able to take a step back to become a strategic visionary for the organization and not revert to

the stereotyped role of the myopic bean counter. To effectively invest in new initiatives, programs, research, and evaluation,

and reinforce organizational and programmatic infrastructure with clearly defined impact metrics, it is necessary for nonprofit

CFOs—as well as CEOs and boards—to embrace a broader and more strategic approach.

About the AuthorRussell Pomeranz has thirty years of experience leading the finance and administrative departments of nonprofit organizations

with missions related to social services, education, the arts, and think tanks. Pomeranz started his own consulting firm,

The Claverack Advisory Group, to focus on the critical connection between the nonprofit finance function and organizational

programmatic, strategic, and financial trajectories. Before establishing a consulting practice, Pomeranz was COO/CFO of

the Vera Institute of Justice, director of finance at the Council on Foreign Relations, and CFO at Spence Chapin Services

to Families and Children. He served as business manager of the Maret School, where he taught geometry, and served

as adjunct assistant professor of public administration at NYU Wagner. He has served on the NPCC Nonprofit Excellence

Awards Selection Committee for the past several years.

Pomeranz is chair emeritus and current treasurer of Workforce Professionals Training Institute (WPTI), president emeritus

of the Columbia County Historical Society, and treasurer of JobPath NYC. He also serves on the board of several other

nonprofits. He has been published in The New York Times, Chronicle of Philanthropy, Wall Street Journal, and CPA Journal.

He has a degree in economics from Haverford College and an MBA from the University of Michigan.

800.443.9441 solutions@blackbaud.com www.blackbaud.com | January 20188 |

How Software Can Help You Move Your Mission ForwardThe nonprofit CFO has long been recognized as the financial steward for the organization. However, the role has evolved over

time, and today’s CFOs are not only fulfilling their traditional roles as financial leaders but are now taking on responsibilities

across multiple functional areas. As nonprofit CFOs continue to assume a more central role with strategic planning, systems

building, and facilitating better communication, adoption of processes and tools that support these efforts are critical to

achieving organizational goals.

Designed specifically to meet the needs of nonprofits, Blackbaud Financial Edge NXT™ can provide you with the level of

transparency and visibility needed to make informed decisions and position your organization for long-term success.

Scale your mission with cloud accounting software for nonprofits.

As a complete fund accounting solution, Blackbaud Financial Edge NXT provides the tools you need to drive accountability,

stewardship, and compliance. Blackbaud Financial Edge NXT can help streamline financial processes at your organization,

so you can spend more time and resources to move your mission forward.

• Configure processes that map directly to your organizational control model, making it easy to enforce the capture of

important data outside or prevent entry errors such as invalid account combinations

• Compare budget versus actual amounts and receive auto-notifications on spend alerts, overdue payments, and more

Bring your finances into clear view with powerful reporting.

Gain a complete picture of your organization’s finances with powerful reporting and analytics. Configurable dashboards, in-

depth records, and custom reports allow you to quickly review critical information and drill down for a more detailed look at

the transactions that are driving results.

• Improve strategic planning and confidently communicate how your organization is meeting its mission goals with fast,

flexible reporting

• Confidently communicate how your organization is meeting its mission goals with the ability to quickly adapt and

securely share reports and dashboards for your various stakeholders

Keep your organization connected with one system for nonprofit management.

Blackbaud Financial Edge NXT was built from the ground up alongside Blackbaud Raiser’s Edge NXT™, the world’s leading

fundraising and constituent management solution. Together, the two provide the most advanced cloud enterprise relationship

planning (ERP) solution built exclusively for nonprofit organizations.

• Identify funding opportunities, trends, and risks to optimize your fundraising strategy

• Improve your cash flow forecasting with better visibility into outstanding pledges and gifts

At Blackbaud, we work to ensure that you have the technology you need to support your organization’s processes. That

means delivering a comprehensive fund accounting solution based on more than three decades of best practices and

experience working exclusively with nonprofits and government entities. Blackbaud Financial Edge NXT provides a flexible

solution that is natively compliant and optimized to meet the unique needs of nonprofits.