What is the Role of Finance in a Nonprofit? 

      What is the role of finance in a nonprofit organization? Well, there's a lot of confusion. There are those who would rather not worry about the money, and instead stay focused on serving people and letting God provide.  On the other side of the spectrum are those who believe that a nonprofit must be run like a business. The tension between the bean counters and those who just want to get on with the mission is both real and eternal. So today, I want to share with you my five most critical functions of the nonprofit finance role. 

Record Keeping

     Of course, any nonprofit needs good record keeping. You have to capture the facts, right? Keeping the preverbal score is a very tedious, but necessary task. It’s so important that you find the right people to fill these seats on your bus! You need the type of people who actually find it fun to keep track of all the details. To you, it may sound absolutely dreadful.  But for these specially equipped people, it's like a game they must win. So, find that person. 

 Stewardship

Practically speaking, stewardship is really about looking for efficiency and spotting opportunities. Think of it as leveraging your spending so that it aligns with your values and mission’s purpose.  Sounds inspiring, right? We need to make sure that we're finding ways to maximize our impact while still minimizing our cost. Are we managing them both effectively?

Financial Reporting

     Of course, in this game called finance, there needs to be a scoreboard. Your financial reports are like the scoreboard. They need to communicate the financial stats in a way that is easily understood by others. For starters, this includes a balance sheet and an income statement (or a P&L as most people may know it). There are different names for these reports in the financial world, but I think those two names work really well, and are the most widely recognized. 

     But we can’t stop there! You also need more than a simple balance sheet or P&L. Another element of good financial reporting is excellent net asset reporting. For a deeper dive into net asset reporting, check out the additional articles on my blog here or the video content on my Youtube channel here. 

     Lastly, when we think of financial reporting, we can’t forget about true budget analytics. It’s not enough to simply present a table full of numbers. It needs to be as easy to understand as humanly possible. Not everyone in your organization thinks, dreams, or imagines in the form of a spreadsheet. The ability to present complex budget data both graphically and visually is essential in a nonprofit finance role. 

Safeguarding Resources

     When we talk about safeguarding resources in the nonprofit context, we’re really describing  what some people may call “checks and balances” or formerly,  “internal controls”.  Another term for this principle is  “separation of duties”. Regardless of the term you use, these are incredibly important procedures created to serve the best interests of the organization. I'm inspired by an example that Paul provided when he and Titus were handling the offering that they had collected.

 2 Corinthians 8:20-21

“We want to avoid any criticism of the way we administer this liberal gift for we are taking pains to do what is right, not only in the eyes of the Lord, but also in the eyes of men.”

      Like Paul, you definitely need checks and balances in place to ensure that you are “taking pains to do what is right” and stewarding those resources well, so they aren’t stolen, lost or misused.  Those are really important things for the finance function. These procedures are critical to the finance function. 

Next-Level Forward Looking Insights

     Finally, finance  must be moving to next level insights that are future oriented. You see, unlocking actionable reports and next level insights is ultimately going to be what sets apart the nonprofits of tomorrow. The unfortunate truth is, some nonprofits are not going to make it.  Many haven't made it.

So, if you want to be one of those nonprofits that moves into the future and opens up those dream opportunities that you feel most called to do, you're going to need this next-level data. And once again, you’re going to need it presented graphically, in a way that's beneficial for modeling situations, forecasting trends within the big picture, challenging the assumptions, and rethinking the revenue. 

     For example, I had a situation this week that was so profound. One of the organizations I was working with is a school that was evaluating teacher pay. We were able to look at their teacher pay situation and say, “What  are the assumptions that are really driving this?” We realized that one of them was the size of the classroom. Now there's definitely a very important, mission-critical element to their class size, but the other goal is that they fairly compensate their teachers without increasing their tuition beyond what families can reasonably hope to pay. So they began working through some scenarios with me. We looked at what's possible and what might be able to be adjusted or tweaked. Could we adjust a little bit, without going too far? How could this look? They're now equipped with next-level insights that are empowering them to  make some future-oriented decisions. Are you prepared for those  “up ahead” moments that you don't want to miss? These insights allow you to stay ahead and keep your nonprofit in existence. 

    Friends, I hope you have all of your bases covered when it comes to financial management. We’ve covered certain staffing, processes, and different people that you're probably going to need on your team. And while I hope you have someone like me (a nonprofit CFO)  on your team, if you don't, I want to remind you that I'm here to answer those money questions. You can book a strategic consult with me at any point in time. I'd love to meet with you and help you in whatever you might be facing at this intersection of your journey so that you can continue to serve the world with the things that God put in your heart and created you to do.