CPA or CFO: What is the right solution for your organization?
At the beginning of this year, I highlighted some of the lessons learned and common themes related to how nonprofits fared throughout 2013. These observations were the result of a presentation I gave to a group of nonprofit leaders at a W.K. Kellogg Foundation convening this past April. Evaluating the entire year as a composite of nonprofit decisions and behaviors further confirmed that the ongoing question nonprofit executives ask themselves about their financial leadership still burns brightly: Do I need a CPA or a CFO?
Before I address this question, allow me to briefly refresh your memory on some of the themes we observed:
Stale business models
We watched the New York City Opera suffer a lengthy demise as it ran in the red since 2003. Rather than re-examine the business model, the organization began to make dramatic cuts in payroll, season schedule and venue expenses. While the Opera’s stoic financial cuts staunched the budgetary bleeding, these decisions in isolation of a larger strategic effort were not enough. It closed last year.
Limited oversight by executive and financial staff
We were heartbroken to learn Georgetown University, AARP, New York University, Legal Aid Bureau, Youth Service America, Columbia University and the Alliance for Excellent Education were among more than 1,000 organizations reported to have experienced significant diversions from their bottom line due to a lack of executive oversight. These instances included embezzled funds, fraudulent payments and unsubstantiated spending, among others.
Lack of preparedness with new financial pressures
We empathized with the Girls Scouts as it underwent financial strain and “shrinking pains” after merging many of its councils in an effort to increase efficiencies in running its programs. The Girl Scouts’ leadership anticipated financial benefits. Instead the Girls Scouts found itself with increasing financial pressure due to growing pension liabilities, diminished cookie sales, declining donations, etc.
The burning question still burns brightly
These challenges I’ve revisited above-stale models, limited oversight and lack of preparation-are essential reminders that nonprofit CEOs must resolve the question of financial leadership with a balanced approach. Unfortunately, large organizations will often ask a CPA to fulfill the duties of a CFO to save money or simply out of a lack of knowledge. Worse yet, some CEOs will hire a CPA and not have a CFO at all. Either decision can be extremely detrimental to a nonprofit and its financial future if they have complex or fluctuating revenue programs.
Let’s take a closer look to answer the question
Understanding the quintessential differences of each position is of paramount importance in making an informed decision.
A CPA (accountant) has a background in accounting,
A CFO has a background in accounting and finance,
evaluates historical data,
develops solutions to current financial problems and helps avoid future financial challenges;
prepares taxes as his/her primary area of expertise,
obsesses over cash position;
assists in developing tax strategies,
continuously updates forecasts based on historical data, market outlook and economic changes;
conducts company audits,
evaluates the best way to meet strategic goals;
develops and enhances internal controls,
understands how to assess financial risk, manage budgets and develop fiscal performance standards;
prepares financial statements,
develops strategies to increase cash position;
and manages accounting systems.
and plans scenarios based on long-term strategic and financial projections.
Consider the positions and organizational complexity
Understanding how the positions differ above is a critical step toward answering your financial questions. Another useful exercise in evaluating the CPA-CFO question is explained by Ricky Aubry, president of Rubicon Programs Inc. Aubry says, “Four conditions interact to help you determine at what point of growth you need a CFO:
1. the organization’s size;
2. the number and different types of funding sources;
3. the activities that you engage in that require different types of financing; and
4. the strategic growth you anticipate that requires long-term financial planning and analysis.
And the answer is…
Taking the position analysis and four conditions into consideration, Execute Now!’s opinion on the answer to the CPA-CFO question is “both and it depends.” Easy answer, right? In all seriousness, we feel both competencies in the CPA and CFO realms are important if your nonprofit’s complexity warrants the oversight.
Our experience has been nonprofits too often have great books but no financial plan, both of which are important and, in a high-performing or aspirational nonprofit, work hand in hand. Additionally, our clients often realize they need the strategic thinking of a CFO in the early phase of their lifecycles but they often cannot afford it. That’s where Execute Now! can bridge the gap.
There’s too much at stake not to be strategic even when your activities are relatively static or your budget is modest. I encourage you to visit www.executenow.com for more information on why having the skills of both CPA and CFO is essential to the financial success of your organization and how we can provide affordable solutions for your nonprofit.
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