When consumer behavior drastically shifts, leaving companies with little time to react, chaos is bound to ensue. It often falls to CFOs to step up and help their businesses remain agile, flexible and sufficiently cushioned to weather unforeseen events, like the pandemic. 

The stakes are different for nonprofit organizations, which have struggled in their own right as the in-person volunteering and events they often rely on were canceled and streams of income dried up. But no two organizations are the same, and no two CFOs have been able to rely on a common playbook.

“The nonprofit sector is anything but monolithic,” Andrea Wilson, a managing partner at BDO’s industry specialty services and co-leader of its nonprofit and education practice, said. “And the CFO’s role changes dramatically based on an organization’s mission. 

Additionally, “nonprofit” is somewhat of a misnomer. “It really means the organization can't have net assets at the end of the year, so a nonprofit CFO’s role is to put mission first," she said.

Balancing mission with money

In the best of times, CFOs function as financial advisors, Wilson said, to keep things on track and to strategically move an organization forward. But the past year has tremendously increased the demands put on CFOs in the nonprofit sector; Wilson puts these executives’ workload second only to those in the healthcare sector. 

“The number of beneficiaries and demand for services increased, but traditional funding outlets were harder to come by,” she said. “So it [became] incumbent upon the CFOs to do robust scenario planning to understand what services their companies could provide, and to whom.” 

Measuring a nonprofit’s financial success is not as straightforward as with a for-profit, John de Wet, CFO of global poverty alleviation nonprofit Evidence Action, told CFO Dive. 

“Metrics like return on equity or earnings per share are easily measurable; our metrics of success are the impacts of our programs,” he said. “That said, our organization is founded on principles of evidence and cost-effectiveness, so getting to the lowest possible ‘cost per impact’ is critical.”

Additionally, nonprofits are generally more resource-constrained, de Wet said, not only in access to cash reserves and lines of credit, but also in human resources; as a rule, nonprofits run as lean and efficiently as possible.

And when the C-suite is solely mission-driven, effective financial management suffers, Raj Kapur, a consulting nonprofit CFO of 30 years, told CFO Dive. “CFOs have to strike that balance of mission and thinking as though they're running a profitable organization, because nonprofits can’t run without money.”

Nailing the specifics

Kapur specializes in helping turn things around for well-programmed nonprofits coming up short financially. He’s helped organizations working with up to 20 budgets stemming from different sources, including federal, state and city governments, local funds and donors.

“When you're working with so many different sectors, all of them have their own rules and regulations,” he said. “If you're getting money from the federal government, you have to follow some very strict guidelines.”

Learning all the specifics is incumbent upon a nonprofit CFO, as is understanding the machinations of how the government works, particularly the Office of Management and Budget, which most nonprofits deal with in some capacity. CFOs with for-profit backgrounds often fail at nonprofits, Kapur said, because they don't grasp the depth of experience needed. 

As such, the best fit, generally, for most nonprofit CFO roles will be someone who has actually risen through the ranks at that company, and has learned the operational basics first-hand.

Sustaining income from outside funding streams can also be an issue. Take the government; if there are budget cuts, as in 2020, they inevitably trickle down. “Anytime the government changes, the donor base changes,” Kapur said, emphasizing the need for sustainable reserve funds. 

Accessing CARES Act funds

Salaries for personnel can take up to 80% of a nonprofit’s spend, so when income or donor streams dry up, layoffs are typically the first move, Kapur said. During COVID-19, PPP loans helped many nonprofits keep their doors open.

Evidence Action's PPP loan, received last spring, saved it from layoffs, de Wet, said. Martha's Table, a Washington, D.C.-based nonprofit centered on providing educational programs and food assistance to families, received a PPP loan in August, which let it keep its 120 employees, too.  

“We expanded our benefits, actually,” Martha’s Table CFO Bhumip Patel told CFO Dive. “We rolled out a new professional development program, including full in-state tuition reimbursement, and did a full compensation analysis. I think that's really a testament to Martha's Table’s commitment to putting the team first, and a testament to the health of the organization.”

Unpacking the nonprofit CFO’s role

Large, better-supported nonprofits can likely employ a big staff to handle management work, Kapur said. But at mid- to low-level nonprofits, CFOs are responsible for rolling up their sleeves and doing everything. That became more common at companies of all sizes amid pandemic layoffs, when CFOs ended up taking on an accountant or controller role in addition to their standard duties. 

Even at Evidence Action, which kept all its employees, de Wet’s responsibilities span from accounting, budgets, audits, tax and reporting to investments, grants administration, contracts, operations, IT, compliance, risk management and legal.

“There are a lot of responsibilities as you peel it back,” de Wet said. “From ensuring good stewardship of donor funds, to providing information to leadership, to managing risk and compliance. Then, of course, there's the global dimension, with operations in seven countries and growing, not to mention the strategic role supporting the board, Audit & Finance Committee, CEO and leadership.”

Outsourcing accounting functions has been a recent trend, which Kapur doesn’t recommend.  “When an outside team comes in and does the work, there’s no loyalty,” he said. “A real CFO would look into how to actually increase the impact. An outside CFO generally doesn't have that mindset; they come to do the work.”

During the pandemic, Martha’s Table distributed $1.4 million in direct cash assistance to families enrolled in its education program. It also distributed vital non-cash goods, like grocery store gift cards. Drawing up the projections and the analysis to ensure that that type of bold programming was possible was Patel’s biggest challenge; he spent the past year and a half prioritizing risk management, developing financial projections, and ensuring fiscal strength and asset management.

Focus on digital

Many nonprofits entered the pandemic already behind on their digital infrastructure. As things went further digital, this proved to be the distinguishing factor between those that could maintain business continuity and those that struggled, Wilson has found. 

“Nonprofits also saw an increase in cyber crime, which led to significant losses. You would think, well, that's the CIO’s terrain,” she said. “But at many organizations, the CFO oversees IT, often on a shoestring budget. Most CFOs I work with had to get smart very quickly about that critical infrastructure so their organization isn’t put at risk.”

At Evidence Action, most systems were already cloud-based and, because of its globally dispersed team, many staff members were well-versed in remote work. This meant de Wet and his team avoided disruptions to day-to-day tasks like making payments, closing books, or generating reports.

“We quickly changed processes, and thank goodness for technology that allows us to deposit via the bank app,” de Wet said.  “It was both a relief and satisfying that decisions made over the previous years, especially building reserves and opting for cloud-based solutions, paid off, and we were likely better off than many other nonprofits.” 

“Many of my CFO colleagues have said they've needed to do a full systems assessment to see where they can digitize, and improve productivity,” Patel said. “From my perspective, the difference is that nonprofit CFOs have to work and communicate across the organization with a diverse set of stakeholders: board members, community members, staff, members, funders, government funders, foundations, et cetera.”

Martha’s Table, Patel said, is well-accustomed to innovating and, when needed, pivoting. Its biggest change in 2020, then, was to digitize its systems that previously required in-person interaction.

It was a blessing in disguise, he said; as a result of those programming innovations and a more accessible user experience, the company saw a jump in online donations. It also saw more volunteers, as more people worked remotely and found time to show up for their communities. 

Key to success: fiscal conservatism

During the pandemic, Evidence Action, like Martha’s Table, was buoyed by several years of prudent financial management. Also like Martha’s Table, Evidence Action’s donors remained supportive. Even though overall revenue was lower than in previous years, it raised $4 million of new funding within the first six weeks of lockdowns.

Evidence Action’s largest program relies on a school-based delivery model, and with schools closed for most of the year in the countries it serves, its program activities and expenditures dropped by about 35%. This led directly to a lower recovery of indirect costs, which are critical to paying for the programs. 

“I expect increasing attention within the sector to building reserves to buffer future impacts, but those are difficult funds to raise," de Wet said. Going forward, he’ll explore how technology can leverage efficiencies like payment automation and system integration while being cognizant of growing cybersecurity threats.

Martha’s Table’s fiscal prudence over the last 40 years, Patel said, helped position it to “really act boldly” during the pandemic.

“We have continuously worked, at least during my tenure, to ensure diversified revenue streams, and ensure we're maximizing our unrestricted dollars,”  he said. “So we've been in a good place, even during the pandemic, to really take those bold steps to even better serve the community without too much of a shift on the financial side.”

To best serve the community, Patel said, Martha’s Table is often in the position of trying new approaches and starting from scratch, which can be difficult, particularly for a CFO. 

“CFOs want to reduce risk; that’s one of the key responsibilities, managing risk,” he said. “We want to maintain revenue streams, try to reduce costs and increase profits. So innovation in pivoting can sometimes be difficult. But don't be afraid to innovate, to pivot, or to listen and take leaps. Just try your best, from the CFO seat, to ensure the organization is ready to take those leaps."