Effective nonprofit financial management is a team effort. Having multiple people working on your organization’s finances helps ensure accuracy—not only by delegating tasks efficiently, but also by allowing for additional review of records and reports. Plus, different professionals bring unique perspectives and experience to the table so your nonprofit can make the best possible financial decisions.
Two key members of your organization’s financial management team are your accountant and your chief financial officer (CFO). While large nonprofits often have full-time staff members filling both of these positions, small to mid-sized organizations often outsource their accountant’s role and hire their CFO on a part-time, or fractional, basis.
Your accountant and fractional CFO will likely work closely together, though their primary focus areas and responsibilities are distinct. In this guide, we’ll look at each role individually to help you understand what these professionals do—and therefore help you find the right people to fill both positions. Let’s dive in!
Nonprofit Accountant
Nonprofit accountants help organizations ensure financial health and stability, analyze financial data, and make decisions based on the nonprofit’s unique financial position.
Whether you hire internally for this role or outsource it, make sure your accountant has at least a bachelor’s degree in accounting or a related field, as well as a CPA certification. Previous experience working with nonprofit finances is also a plus, since nonprofit accounting requires different priorities and associated duties than its for-profit counterpart.
Focus Area
Your accountant’s primary focus is on financial analysis. Unlike a for-profit business’s accountant, who would review the company’s data to determine how to maximize profitability, a nonprofit accountant will use your organization’s financial information to decide how best to use your funding to pursue your organization’s mission. At the same time, they’ll ensure accountability among your team and with external stakeholders.
As they analyze your nonprofit’s finances, an accountant will likely ask the following questions:
- What does this organization’s current fiscal situation look like?
- What is this nonprofit doing well when it comes to financial management?
- Where is there room for improvement?
- What practical steps can we take to get this organization where it needs or wants to be with its finances?
Responsibilities
To answer the above questions, your accountant may perform a variety of functions depending on their analysis of your nonprofit’s situation. However, their main duties generally include:
- Reviewing and maintaining financial records. The job of recording basic data in your organization’s accounting system typically falls to another member of your financial team—the bookkeeper. However, your accountant will periodically review these records to identify and fix coding errors, balance transactions, and reconcile your internal information with your bank statements.
- Analyzing budgets. Your accountant will use your recorded financial data to review your nonprofit’s annual operating budget and suggest revisions before it goes to your board for final approval. They’ll also perform budget vs. actual comparisons throughout the year to help keep your organization’s spending and fundraising on track.
- Preparing for audits. If your nonprofit undergoes an independent financial audit, your accountant will compile and organize all of the documentation the auditor requests. While they typically won’t perform the audit themselves to avoid a conflict of interest, they may be able to recommend external auditors.
- Filing tax forms. When the time comes to file your nonprofit’s annual tax return via IRS Form 990, your accountant will ensure it’s filled out correctly and submitted by the deadline. Since your organization is an employer, your accountant will also issue W-2s and 1099s to your employees and contractors respectively to help them file their individual taxes each year.
All of these responsibilities will not only help your organization maintain compliance with legal regulations but also promote financial transparency with external stakeholders—which can lead to increased support for your mission!
Fractional CFO
Fractional nonprofit CFO services provide access to the expertise of a full-time professional on a part-time basis, saving small and mid-sized nonprofits money. Although fractional CFOs may have a range of financial certifications and educational backgrounds, they often have previous experience as full-time CFOs for larger nonprofits.
Focus Area
While accountants focus on financial analysis, the key word to associate with your fractional CFO is strategy. They’ll consider how your financial activities align with your nonprofit’s overall strategic plan by answering the following questions:
- What are this organization’s financial goals (revenue generation targets, spending objectives, etc.)?
- What management systems or tools should this nonprofit have in place to allow it to reach its financial goals?
- What challenges could get in the way of this organization achieving its financial goals, and how can we overcome them?
Responsibilities
Just like with your nonprofit’s accountant, your fractional CFO’s duties may vary somewhat based on the goals and challenges they identify. Some of the tasks they will most likely perform include:
- Creating budgets. Although your accountant will be involved in the budgeting process, your fractional CFO will take point on creating your organization’s operating budget. They’ll leverage past financial data and cash flow forecasts to project your nonprofit’s revenue and expenses for the coming year.
- Tracking financial metrics. Based on your accountant’s financial analyses, your CFO will select key performance indicators (KPIs) related to your nonprofit’s goals. Then, they’ll monitor your progress toward those KPIs and adjust your organization’s management strategy accordingly.
- Implementing fiscal policies. Your CFO will establish guidelines for various aspects of your team’s day-to-day handling of your nonprofit’s finances, such as gift acceptance, expense reimbursement, and staff compensation. They’ll also develop internal controls, which are specific procedures designed to minimize financial risks. For instance, they might stipulate that two individuals must sign checks over a certain amount to prevent fraud.
- Leading the grant management process. Your nonprofit typically has to allocate, record, and report grant funds in specific ways to align with funders’ requirements. Not only will your fractional CFO take the lead on these tasks, but they may also use their experience and connections in the nonprofit sector to help your organization find grant opportunities that align with its needs.
In addition to collaborating with your nonprofit’s accountant, bookkeeper, and other finance team members, your fractional CFO will also work closely with your organization’s leadership to ensure your entire team is aligned on and making progress toward your financial goals.
If your nonprofit is trying to decide whether to hire an accountant or fractional CFO, the short answer is both, since you will need to have both on your team eventually. However, if you only have the resources to bring on one or the other at this time, consider your nonprofit’s needs. If ensuring proper financial analysis and reporting is your priority, look for an accountant. If you’re setting financial goals for a new strategic plan, fractional CFO services will be your best bet.
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