You are the CFO of a nonprofit that’s focused on long-term mission fulfillment, financial sustainability, and organizational independence. How do you guarantee that your legacy is aligned with the organization’s long-term success? You may have thought that years of successfully ensuring your debits equaled your credits, that audits ran smoothly, and that financial reports were completed on a timely basis would qualify you for the nonprofit CFO Hall of Fame. Yet despite those dedicated years of careful attention to the organization’s financial ins and outs, you still wind up on the strategic doorstep looking in while those on the inside shape the organization’s future. What must you do to cement your legacy as a visionary contributor to an organization marching forward toward increased mission impact rather than rolling backward on a perpetual mission and financial treadmill?
In today’s hypercompetitive, survival-of-the-fittest nonprofit environment, finance and mission overseers—including finance committees, boards, and CEOs — expect nonprofit CFOs to tell a compelling financial story seamlessly aligned with mission goals. The financial and mission trajectory of the organization increasingly pivots on the CFO’s sound wisdom, judgement, and vision in influencing key decisions. As it turns out, CFO legacies are often carved out in the crucible of finance committee and board meetings. It’s in these critical meetings that CFOs have a chance to make the compelling case for the long-term business model, especially when they emphasize a willingness and eagerness to invest in the long-term mission of the organization.
The Budget Narrative
So how do strategic CFOs structure and communicate the all-important budgetary-financial story in a way that aligns with the organization’s mission and ambitions? Start with a “budget narrative”, a structured story with a hypothesis, data, and conclusion that shapes the budget conversation. The budget narrative can provide the necessary scaffolding of accurate and timely financial data to make the most consequential strategic decisions. The big-picture, comprehensive structure of the budget narrative can be mapped into several sections:
- Section 1: Tell the “big picture” story — The gripping storyline revolves around whether the organization is viable, sustainable, and has a business model that’s capable of fulfilling its programmatic mission. Context and perspective based on previous fiscal year results and trends are important data points for highlighting future direction and uncertainties.
- Section 2: Present financial statements and key data — This section presents the financial data that management has prioritized as fundamental to the organization’s mission and goals. This might include unrestricted net asset fund balances, current organizational net income, P & L for specific departments, cash flow, diversity of funding streams, impact of debt, spending rates, and the reconciliation of budgets to the audited financial statements.
- Section 3: Explain the financial reports and data — Build a bridge between the numbers reported on the financial statements and the fiscal year budgets, forecasts, and programmatic and operating results. Most importantly, explain the variances.
- Section 4: Present opportunities and concerns for the current fiscal year — Discuss the opportunities and concerns for the current and upcoming fiscal years that will impact the organization’s financial reality and sustainability. Discuss contingency plans for various stages of implementation and start to weigh future options and their inherent tradeoffs.
- Section 5: Provide insight into the long term — The strategic CFO should identify the strengths and weaknesses of the business model and provide clarity on how long-term financial goals can be achieved. Upcoming decisions about investments in space, administrative and programmatic leadership, research and evaluation, and development must be put on the table even if the decisions are years away. Starting a development department focused on building unrestricted net assets turns out to be one way for a CFO to secure an enduring, positive legacy.
Preparing for Finance Committee Meetings
Even with the brilliance of a coherent narrative, there is no assurance that finance committees and boards are aligned with management’s goals. They may not fully understand the mission, appreciate the nonprofit business model, or even see their fiduciary responsibility to invest in opportunities rather than obsess over cutting costs. The strategic CFO cannot rest strictly on their storytelling laurels. They must prepare for finance committee meetings. Team-building activities like the following prior to meetings are an effective way to get everyone on the same page:
- Bring the “big picture story” and the budgetary goals into alignment with the finance committee chair and/or board chair prior to the meetings. This ensures clarity of goals and a common front to defend, especially if other finance committee members are less inclined to support the financial imperatives discussed or too risk-averse to plow ahead.
- Prepare the CEO for the meeting and expect them to provide mission and program talking points—especially ones that emphasize programmatic accomplishments and any positive press. When the CEO starts the finance committee meetings, they reinforce why everyone wants to be on the board and connected to an exciting nonprofit they can tell their friends about.
- CFOs need to prepare for questions from the finance committee—especially those malcontents predisposed to divert the discussion to their agenda (i.e. obsession with cash). Some of the simplest questions that distill the strategic financial story down to the big picture are as follows:
Where does this narrative leave us? Is it good or bad news? What does this all add up to?
What could go wrong in the short and long term?
What opportunities are there to pursue, and what resources are available to increase the probability of making positive movement happen?
What did you want to do or invest in that you didn’t do?
- Strategic CFOs communicate with program and development to ensure everyone is on the same budgetary page. CFOs must ask, “What is necessary to help grow the impact of your department?” The CFO’s drive and flexibility to work with programs contributes to their legacy and adulation in the organization.
- If the nonprofit CFO feels “communications-challenged”, they should enlist others (perhaps even from the communications department) for help presenting the material. It’s incumbent on the CFO to know what they want to say and to practice their opening remarks.
It’s critically important that nonprofit CFOs be effective and compelling big-picture storytellers. It’s just as important that the underlying story have a long-term impact on the financial and mission trajectory of the organization. The strategic nonprofit CFO’s legacy starts and ends by being remembered not just as a myopic bean counter, however competent, but as a visionary architect and builder of organizational mission and financial bridges.
This article was written by Russell C. Pomeranz, President and CEO of Claverack Advisory Group, following his guest speaking engagement for the CFO’s Guide to Strategic Planning panel discussion on October 3, 2019 in New York City. To stay up-to-date on future events in your area, view the calendar here.
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