In today’s not-for-profit (NFP) landscape, Chief Financial Officers (CFOs) are encountering unique challenges. These include inflation, outsourcing, risk management, and the evolving role of the CFO.
Inflation
The rise in prices that reduces purchasing power, is affecting NFPs. Unlike for-profit organizations, NFPs can’t easily increase prices to cope with inflation. Inflation increases financial pressures on NFPs, impacting both expenses and revenue. Historical data may no longer be reliable for budgeting, and uncertainties like remote work, interest rates, and donor behavior make forecasting challenging. Donor contributions may decrease, and some expenses have risen significantly since the pandemic.
Outsourcing
NFPs are considering outsourcing various tasks and functions to cope with rising costs. Areas like payroll, tax return preparation, and event planning are commonly outsourced. Outsourcing utilizes specialized skills and cost savings but may lead to concerns about losing control, especially with donor-related functions. Due diligence in selecting third-party vendors is crucial, and NFPs should have clearly defined policies and procedures for outsourcing.
Risk Management
CFOs must address various risks, including strategic, operational, reputational, and compliance risks. Strategic risks involve sustainability threats and funding declines. Operational risks have evolved due to factors like remote work and cybersecurity threats. Reputational risks can damage donor perceptions and revenue. Compliance risks require navigating complex requirements. CFOs must prioritize and manage these risks effectively while considering potential impacts and likelihood.
Expanding CFO Role
The role of NFP CFOs has expanded beyond finance into such areas as procurement, digitization, IT, diversity, equity, inclusion, governance (DEIG), and board engagement. CFOs must balance traditional financial responsibilities with these new roles. Building relationships across the organization, investing in professional development, and focusing on technology and automation are vital. CFOs need to educate staff about the organization’s mission and strategy, enhance staff recruitment and retention, and maintain work-life balance.
Conclusion
NFP CFOs are facing multiple challenges in today’s environment, but they can adapt by effectively managing inflation, exploring outsourcing opportunities, mitigating risks, and embracing their expanding roles. Building a capable finance team, using data for decision-making, collaborating with peers, and encouraging strategic board involvement can help NFP CFOs negotiate these challenges and contribute to their organizations’ success.
