Introduction

Non-profit organisations are founded to make positive impacts on their communities through schools, mission-oriented charities, and members-only organisations. Though they may operate similarly to businesses, nonprofits receive government and private funding to achieve their goals, adding a complicated layer to their financial operations.

Operating with a finite budget, nonprofits must manage financial operations effectively. Not doing so can have disastrous impacts on tax liability and audit judgments, leaving the organisation unable to qualify for tax credits or future funding. If not managed appropriately, a non-profit may even find itself unable to make payroll or other basic overhead obligations.

By hiring a Virtual CFO (vCFO or Interim CFO), non-profit organisations gain strategic partners with the experience necessary to accomplish their long-term goals, while managing financial operations in place currently effectively.

This article explores why Virtual CFOs are a better option to manage financial operations than in-house Chief Financial Officers for non-profits by explaining:

1. What the roles and responsibilities of a Virtual CFO are

2. What it means to manage financial operations and their importance

3. How their role impacts the long-term success of the organisation

4. How to measure the success of a Virtual CFO

5. And, how to hire a Virtual CFO.

What is a Virtual CFO?

What is the role of a virtual CFO?

A virtual CFO fulfils many of the same duties as a traditional CFO. They will assist with financial planning and ensure checks and balances are in place for long-term success. They manage financial operations such as preparing budgets, forecasting a nonprofit’s cash flow, and helping mitigate financial risk by adhering to all laws and regulations.

Virtual CFOs prepare financial documents, such as those needed for audits to ensure the future funding of non-profit organisations. They also conduct financial analysis to find missed opportunities for streamlining financial operations, and the operations of the non-profit overall.

From this analysis, policies and procedures are refined for more efficiency as well as to close potential loopholes where financial misconduct could occur.

New Zealand, Australia, the United Kingdom and the United States of America have strict guidelines for nonprofit funding and tax compliance.

An Interim CFO will help the organisation stay ahead of changing rules and regulations, along with any beneficial tax credits. Virtual CFOs will also prepare all tax documents, ensuring they’re filed correctly and that any penalties or taxes due are paid on time.

How a virtual CFO differs from a traditional CFO

Virtual CFOs, while having the same responsibilities as traditional CFOs, do differ in a few ways. Traditional CFOs are full-time employees in their organisation, be it in the non-profit or private sector. A virtual CFO, however, contracts on an hourly or otherwise agreed basis. As a result, they may work with multiple organisations at one time to fulfil their needs and calendars. Because they’re only paid for time spent actively working with an organisation, virtual CFOs offer significant cost savings to nonprofits with smaller budgets.

Why virtual CFOs are becoming popular

Virtual CFOs have bloomed in popularity alongside the rise of remote work. Non-profit Directors or Board members set the expectation for time worked and scope of work by vCFOs, freeing up their own time to focus on the organisations’ operations, mission, and day-to-day activities.

If a non-profit is expanding its reach or preparing for a new program or office, vCFOs can focus on the immediate project, without sacrificing usual duties. Virtual CFOs are becoming popular due to the overwhelming benefits vCFOs offer over traditional ones.

The benefits of hiring a virtual CFO for non-profit organisations

Cost savings compared to hiring a traditional CFO

As discussed earlier, vCFOs are not fully employed by nonprofits. Because they work in a fractional capacity, vCFOS offer tremendous cost-savings to non-profit organisations in the following ways:

– vCFOs are remote workers, so non-profits aren’t paying for office space or equipment for them to use.

– As contract workers, vCFOs are not entitled to any benefits paid by the non-profit organisation and are responsible for their own taxes.

– vCFOs often turn to their work after years of working in a full-time capacity in a number of niches. They bring a wide range of expertise and beneficial network connections to the non-profit they are partnered with.

Access to highly skilled financial professionals

Non-profit organisations hoping for long-term success benefit from the skills and experience a vCFO brings to the table. A full-time CFO would come with a significant price tag that’s not possible for some non-profits. Hiring vCFOs gives nonprofits access to expertise that will create long-term financial success.

Flexibility in working hours and hours worked

For CFOs coming from the private sector, the flexibility of a vCFO role is very attractive. C-Suite roles, while well-compensated, come with long work hours and little flexibility. They’re often looking to scale back and experience better work-life balance, despite the lower paycheck.

This creates a unique opportunity for non-profit organisations to hire someone well-qualified to effectively manage financial operations who might otherwise have been out of their budget. Being a remote role, non-profits also have access to vCFOs that aren’t living in their backyard. If hiring for a project basis, this may be preferable depending on the location of either the project or the vCFO.

Ability to focus on core non-profit tasks

Funding non-profits is one of the highest-priority tasks a virtual CFO can support in their role. vCFOs support nonprofit staff who apply for government grants for future funding.

As that funding grows and the non-profit expands its reach, a vCFO will manage financial operations to ensure the organisation is continuing to operate in good financial health. By developing a healthy budget, the organisation will continue to grow and use funding wisely.

Hiring a vCFO should be done well in advance of large changes to the organisation, strategically planning to aid in managing financial operations.

When managing financial operations of a large non-profit organisation, vCFOs will implement strategies and provide actionable advice for the non-profit directors and managers. These strategies are designed to ensure good financial practices, including the proper use of governmental funding.

As nonprofits are regularly audited, a vCFO will be responsible for preparing financial disclosure documents for the auditor. Not-for-profit auditors, as part of their role, act as another strategic partner to vCFOs. They may make recommendations and find gaps in financial policies that can lead to misuse of funds.

How CFOs Manage Financial Operations

What are Financial Operations?

Financial Operations combines the budgeting, forecasting, and cash flow management of nonprofit organisations, with new technologies designed to increase efficiency.

By using cloud-based and automation tools, Financial Operations Managers (FOMs) can look for inefficiencies and find additional opportunities for growth within their organisation. FOMs apply these tools, along with a discerning eye, to understand:

1. What is driving costs

2. Where to better allocate resources

3. Redundancies caused by outdated policies

4. How public funds are being used by the organisation

5. And ultimately, create a more stable financial future for nonprofits.

Financial Operations Managers translate financial information into actionable advice for the organisation.

The Effect of Financial Operations on Nonprofit Organisations

Managing financial operations effectively has a massive effect on non-profit organisations. Ensuring that budgets are effectively used is an obvious benefit. Nonprofit organisations that don’t manage financial operations effectively will quickly find themselves out of money – and out of options.

Funding nonprofits through government sources requires regular audits to ensure that public funds are being used as promised. Depending on the funding source, those funds must directly correlate to a program’s outcomes.

The ability to favourably pass a not-for-profit audit has a lasting legacy. Nonprofits who manage financial operations effectively, open up their books, and receive reasonable judgments from auditors are more likely to receive future funding.

By extension, nonprofits are well-served to find a competent Virtual CFO with nonprofit experience to achieve their funding goals and manage financial operations.

The Difference Between a Financial Operations Manager and a Virtual CFO

While the work of FOMs is somewhat similar to a Virtual CFO, the two roles differ in important ways.

1. vCFOs create a strategic vision and implement it across the entire organisation, managing financial operations from a holistic perspective, with long-term success at the forefront.

2. vCFOs may have additional responsibilities, like tax and audit preparation, that a FOM isn’t educated or properly experienced to do successfully.

3. vCFOs also assist in fundraising efforts and forecasting their needs. A Financial Operations Manager would analyse the effectiveness of the funding itself, but not have the strategic understanding to see months or years in advance that additional funding will be needed.

4. Finally, a Virtual CFO has years’ more experience in managing financial operations and developing strategies for long-term success. FOM roles are often part of the career path to becoming a CFO and often report directly to the CFO.

Finding the right virtual CFO for your organisation

Virtual CFOs collaborate at a high level across the entire organisation and with outside partners. Selecting the right person to manage financial operations requires diligence throughout the recruiting and hiring process.

Roles and Responsibilities of a Virtual CFO

Whether virtual or in-house, CFOs are strategic financial partners within the organisation. More than just accounting or bookkeeping, a vCFO will create a long-term strategy to manage financial operations through the following activities:

– Creating budgets and financial forecasts.

– Analysing operations to look for debt-reduction strategies and ways to remove redundancies.

– Review finances to provide deep insights into the well-being of the organisation and create plans for improvement.

– Ensure funding is used appropriately to reduce financial and legal liability.

– Identify opportunities for growth and resource reallocation within the organisation.

– Manage financial operations of the non-profit by developing cash flow projections and models.

– Prepare quarterly and year-end financial documents and disclosures.

– Aid auditors to complete a speedy and smooth audit.

– Ensure the longevity of the operation by working with their auditor to remove inefficiencies.

– Offer insight and guidance on financial decisions.

Qualifications to Look for in a Virtual CFO

Nonprofits looking to hire a virtual CFO will be looking for someone with a mixture of the right education and experience in the field. A CFO role will come after years of experience managing financial operations, but will start with an educational background in finance or accounting.

Education

There are several relevant Bachelor’s degrees for aspiring CFOs. A Bachelors in finance or accounting is the most popular. However, economics is another common choice.

Additional courses in risk management, managing financial operations, compliance management, and business management are also helpful. These will help future CFOs gain a deeper understanding of analysis, budgeting, and risk management as they take on their first roles managing financial operations.

Beyond a Bachelors in a relevant field, a Master of Professional Accountancy is a natural choice for post-baccalaureate education. Most CFOs will pursue a Masters prior to moving on to the professional world.

Professional Certifications

After completing a Bachelor’s degree, professional certifications must be sought in order to gain the work experience necessary to eventually become a CFO. Certified Public Accountant or Certified Practising Accountant (CPA) are the most recognised of these certifications.

Joining professional organisations lends access to networking opportunities as well as increased credibility throughout a financial operations career. The largest professional accounting body in New Zealand and Australia is CPA Australia.

Aurora Financials is proud to be a Recognised Employer Partner CPA Australia.

Career Path to CFO

Once the requisite education and certifications are in place, individuals can take several paths through financial operations roles to become a CFO. They may hold roles such as Controller, Internal Audit Manager, Financial Operations Manager, or Director of Finance for many years before becoming a first-time CFO.

While the successful candidate will have vast experience in managing financial operations, the roles should show progressive responsibility. Prospective CFOs should have experience overseeing multiple departments or disciplines.

The Importance of Nonprofit Experience

When looking for a virtual CFO, nonprofits should specifically look for those with experience managing financial operations in the nonprofit sector. As a small community, it will be easier to vet a prospective vCFO with nonprofit experience. By leaning on referrals, nonprofits can have ease of mind that the candidate has been proven trustworthy by a peer.

Beyond the benefits of professional networking and referrals, the practical realities of managing financial operations in a nonprofit make it preferable to hire a virtual CFO with nonprofit experience.

For those involved in managing financial operations in nonprofits, there are additional rules and regulations for gathering and using funding. Virtual CFOs with nonprofit experience will be well-versed in these already, reducing potential liability on the part of the organisation while the new vCFO gets up to speed.

Further, when it’s time for a nonprofit audit, managers will be happy to be working with a virtual CFO who knows the ropes and expectations, as well as how to get on well with the auditor. The audit process and its outcome have a massive impact on future funding and confidence in a nonprofit. It is important that a vCFO can be a strategic partner to the auditor, and assist their partners within the organisation to complete a speedy and favourable audit.

Aurora Financials has earned multiple awards. Their experience with nonprofits makes them an excellent choice for virtual CFO services.

How to Find Your Virtual CFO

Nonprofits interested in bringing a vCFO on board should follow the same steps as hiring an in-house CFO. The impact on the financial well-being of the organisation is the same, and hiring managers should be just as discerning.

Optimise the Job Description

Ensure the day-to-day activities paint an accurate picture of the expectations of the new vCFO. If hiring on a project basis, predict the length of the project as accurately as possible to ensure candidates are available for the entire length of the project. The project’s scope should also be clearly defined to attract candidates with the desired experience.

Get Referrals

Virtual CFO candidates can be sourced through referrals and traditional job postings. This is an excellent option for nonprofits, as the community is small and reputations tend to precede candidates. Using referrals to hire a new vCFO may also lessen the cost of hiring. Better still, a referral will have direct insight as to how the candidate manages financial operations, rather than relying on the candidates’ CV. Contracting a recruiter can be pricey and may even be out of budget, depending on the organisation.

Interview Effectively

To vet candidates more thoroughly, hiring managers should ask specific questions about the candidates’ experience managing financial operations for nonprofits.

Here’s a non-exhaustive list of questions for vCFO candidates:

– How long have you been managing financial operations for non-profits?

– Describe that experience: tell a “success story” where you’ve made a positive or lasting impact on an organisation.

– What methods/ systems/ best practices have you built when creating financial forecasts?

– What additional services can you offer our organisation as a vCFO?

– How often can we expect updates from you when preparing (as an example) tax filings?

– What payment structure works best for you?

The interview process is a two-way street. Hiring managers should expect to answer in-depth questions about the organisations’ mission, culture, and long-term plans for the vCFO (if not hiring for a specific project or contract period).

Create a Great Working Relationship with Your Virtual CFO

Once a vCFO has been selected and accepted the job offer, business partners within the non-profit can create a successful relationship from the beginning by keeping the following in mind.

Setting Clear Expectations and Trust

Setting clear expectations is the first step to creating a fruitful relationship with any new team member, especially one working remotely. HR Professional organisation SHRM shared these tips for setting clear expectations with employees:

– Hiring a vCFO whose values align with the organisation removes some of the initial friction of onboarding. Team members who are engaged in the mission will almost always perform better than those who are a “job description fit.”

– Clear objectives and measures for success set the tone for great performance. They also show vCFOs how to self-measure progress in their role and throughout various projects.

– Accountability is important for any team member, but especially for ones with the impact vCFOs have on the wellbeing of nonprofits. Expecting to receive feedback on performance throughout their term will make those conversations easier to have as they arise.

– Giving meaningful and actionable feedback if expectations aren’t met allows the virtual CFO to course correct and understand where things went wrong. Vague feedback cannot be acted upon, and it creates an environment for misinterpretation.

– Setting deadlines for projects or deliverables gives all team members a clear understanding of what’s expected and when. When dealing with financial disclosures and quarterly or yearly filings, it is especially important to work proactively.

Maintaining Communication and Trust

Creating trust within the organisation is crucial to creating a culture where people feel valued. Even team members in the field or at entry level should feel like their concerns will be freely heard.

Open-door policies allow teams to voice issues without fear of retaliation. These should be backed up by robust anti-retaliation policies that are strictly adhered to. Encouraging two-way feedback creates an environment where working relationships can be constantly improved.

Regular touch bases where deadlines and projects can be dissected, establish an expectation that work product and performance will be regularly evaluated. Team members shouldn’t be surprised when difficult feedback comes if expectations have been made clear and regularly followed up on.

How a Virtual CFO Can Help with Fundraising Efforts and Grant Applications

Virtual CFOs act as a partner with the Fundraising department. In creating effective financial forecasts, vCFOS will be able to predict the need for additional funding. That need, when communicated in advance, can then be fulfilled by the fundraising department.

Examining the success of fundraising events is another task that virtual CFOs take on. If an event isn’t raising the funds needed, the marketing and fundraising efforts should be reevaluated and possibly redirected to more successful ones.

Measuring Success and Impact of Financial Management

Nonprofits should look for ways to measure their financial health as a means of evaluating their virtual CFOs effectiveness. When financial operations are managed effectively, the organisation can meet its obligations, of course, but the impact of financial operations management is further-reaching than that.

Metrics That Spell “Success”

Numbers are the first place an organisation should look to determine if their vCFO is effective. Some key metrics to consider are:

– Staff management

– Cash flow and forecasting

– Long-term tax and funding strategy

– Lowered tax liability since their takeover

– Increased funding, either from private or public sources

– Financial policies that decrease inefficiency and increase profitability

– Audit results and the number or strength of the auditors’ recommendations

Measuring Success Beyond the Numbers

While financial management is often measured by a series of metrics, it is important to remember that a Virtual CFO is a strategic partner. As such, their performance must be measured holistically and take into account a number of other factors.

– How has decision-making improved under their tenure?

– How are they developing and mentoring their team?

– Have the terms of financial agreements been improved and made more beneficial to the organisation?

– Does the vCFO communicate clearly with other partners?

– What platforms or technology has been implemented to improve efficiency?

– What operational changes have been made as a result of their feedback? What has the impact been?

– Have funding sources been expanded?

– What strategies have been developed to ensure long-term success?

By measuring more than metrics, nonprofits can ensure that their Virtual CFO is creating a lasting legacy. Fostering a well-developed and mentored team, creating positive changes, and initiating new systems to increase efficiency and optimise the overall operation, show that a vCFO is truly an asset to the organisation.

Aurora Financials: The Natural Choice for Your Nonprofit Virtual CFO

Non-profit organisations operate with strict budgets and lofty missions. An experienced Virtual Chief Financial Officer is a great tool to effectively manage financial operations. Acting as a strategic partner across the organisation, the vCFO will create budgets and forecasts, and predict the need for future funding to act as a partner in fundraising. They take the lead in preparing tax filings and financial disclosures when it is time for an audit.

A vCFO is responsible for managing financial operations effectively, and leaves a lasting legacy on the nonprofits’ financial future. The policies and strategies they implement, along with their ability to analyse the organisations’ use of funds, determines whether the nonprofit will remain financially healthy and able to function.

Aurora Financials is committed to the success of our non-profit clients.

An award-winning accounting consultancy, Aurora Financials offers Virtual CFO services to clients around the world.

Contact Us Today to secure your non-profit organisations’ financial future.

FAQ

How does a Virtual CEO differ from an in-house CFO?

vCFOs have all the same roles and responsibilities when it comes to managing financial operations as a traditional, in-house Chief Financial Officer. As remote work has become the norm over the last several years, they’ve grown in popularity against traditional CFO hires for both companies and candidates.

Why would an organisation select a vCFO over in-house?

Because they work on a contract basis, vCFOs present significant cost savings to budget-conscious non-profit organisations. They work remotely and without office or equipment overhead. They’re also hired on a project, contract, or hourly basis. In-house CFOs in Australia, New Zealand, the United Kingdom and the United States of America can earn well over $200,000 per year. This is a significant cost of a non-profit organisation.

What benefits does nonprofit financial operations experience present?

Nonprofits are subject to a number of rules and regulations, along with regular audits – and the rules are always changing. A vCFO experienced in managing financial operations in nonprofits is well-equipped to navigate those changes and yield favourable outcomes, securing the organisation’s future funding and financial wellbeing.

What’s the difference between a Financial Operations Manager and a CFO?

Financial Operations Managers report to the CFO/ vCFO, and may be on their way to a role as a Chief Financial Officer in due time. CFOs and vCFOS manage financial operations, but also have the strategic vision necessary to both forecast financial needs and create organisation-wide change based on their findings.

How do I know someone is well-qualified to be a Virtual CFO?

Look for the requisite education, followed by several years of progressively responsible experience managing financial operations in nonprofits. Top candidates will hold professional certifications, such as a CPA, and be part of professional organisations like CPA Australia.

What questions should I ask a Virtual CFO in an interview?

Ask specific questions about their experience managing financial operations in nonprofits. Probe for answers about how they’ve implemented new funding, programs, and changes – along with the impact each of those has had.

How do I know if a Virtual CFO is performing?

Nonprofits should measure success both in numerical and intangible ways. While managing financial operations is a long-game, culture fit and impact will be felt early. Evaluate both the financial circumstances of the organisation as well as the legacy your vCFO is building through policy and contract changes, mentorship and teambuilding, and how they’re creating new strategies for long-term success.