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Wednesday, August 31, 2016

Armanino Nonprofit Symposium: Why Nonprofits Hire an Outsourced CFO

Posted by Armanino Nonprofit Team

Organizations choose to outsource their CFO for a number of different reasons. Some of these are easy to measure, but others are more intangible, according to panelists at the recent Armanino Nonprofit Symposium.

Regina Birdsell, president and CEO of the Center for Nonprofit Management, said that as nonprofits try to get the most out of every dollar, some are outsourcing their finance functions so they can focus on serving their mission. “We’ve been seeing organizations really looking at investing in program staff and then thinking about that sort of (finance) infrastructure as an outsourced opportunity,” said Birdsell. “It keeps you nimble and lets you get a potentially higher quality of help than some of the organizations can afford (as) full-time employees plus benefits.”

This flexibility makes an outside CFO a top choice for startups, which may need to shift direction quickly, said Ana LaDou, executive director of the Alliance for Nonprofit Management. Outsourcing is also a good fit if your organization is going through a system transition, because it enables you to make the change in one fell swoop. This may mean a big front-end investment in outsourced help, but when the heavy lifting is done, the outside person can hands the reins to a staff CFO—often, someone they’ve helped hire and train.

Outsourcing also isn’t just for small nonprofits. Yes, it makes clear economic sense for smaller organizations that only need a part-time finance chief, but it also can also work well for larger entities, who may need specialized expertise for a strategic issue or a technology upgrade, for example. LaDou said she’s seen outsourced finance roles at $20 million organizations on down to $200,000 organizations.

If you’re considering the cost benefit of outsourcing versus a full-time staff position, you shouldn’t view it as an apples-to-apples comparison. It’s more intangible, according to LaDou, because an outsourced CFO generally has a deeper skillset and is able to provide strategic advice that can save the organization money down the road. “It’s not always just a straight line-item comparison, and this is something that has to be explained to the board,” she said.

Another consideration that’s hard to quantify is the value of having an outsider’s perspective. An outsourced expert brings a fresh approach to problems and can take the steps needed to fix them, without worrying about internal politics or their job. “(Outsourced experts) don’t have the same sort of skin in the game, they just bring their best thinking,” Birdsell said.

There’s also the issue of public perception, and the validation that comes from having outside eyes watching the books. This has become increasingly important to individual donors and foundations in the wake of the recession, according to Birdsell. “People are much more careful with their money, and across the board, they like to see that outside expert,” she said.

Dan Sy, VP of finance at public radio station KCRW, brings in an outside CFO on a quarterly basis to examine the books and help safeguard his organization’s reputation. “I manage not only the money, but one of the main things I’m trying to protect is the brand,” Sy said. “We report the news―I want to make sure that we are not part of the news.”

One thing to keep in mind is that an outside finance expert is likely to have other clients besides you, said Bern Galvin, outsourced CFO at The Center for the Partially Sighted. So it’s important to discuss work turnaround times before you bring someone in. Once these parameters are established, turnaround often isn’t a problem. “It’s not necessarily that big of an issue, particularly if you’re willing to move to web-based systems,” he said.

If you missed the panel discussion and would like to listen to the full recording, you can access it on the Armanino Nonprofit Symposium website here.

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