When consumer behavior changes dramatically, businesses are often caught off guard, and chaos ensues. At such times, CFOs often need to step up to help companies remain agile, flexible, and have sufficient buffer to cope with unexpected events like the pandemic. However, nonprofit organizations face distinctly different challenges—their reliance on in-person volunteer services and events was canceled, revenue streams dried up, and they found themselves in distress. But each organization has its own characteristics, and no CFO can rely on a one-size-fits-all playbook.

"The nonprofit sector is by no means monolithic," said Andrea Wilson, managing partner of BDO's industry specialty services and co-leader of the nonprofit and education practice. "The CFO's role varies greatly depending on the organization's mission." Moreover, the term "nonprofit" is somewhat of a misnomer. "What it really means is that the organization cannot have net assets at the end of the year, so the nonprofit CFO's responsibility is to put the mission first," she added.

Balancing mission and finance

Wilson noted that in good times, the CFO acts as a financial advisor, ensuring the organization stays on track and advances strategically. But over the past year, the demands on CFOs in the nonprofit sector have increased dramatically; Wilson believes these executives have been burdened more than any sector except healthcare. "The number of beneficiaries and demand for services increased, but traditional funding sources became harder to access," she said. "Therefore, CFOs must conduct robust scenario planning to determine which services the organization can offer and to which populations."

Measuring financial success in nonprofits is not as straightforward as in for-profit businesses, John de Wet, CFO of the global anti-poverty nonprofit Evidence Action, told CFO Dive. "Metrics like return on equity or earnings per share are easy to measure; our success metric is program impact," he said. "Nevertheless, our organization is built on principles of evidence and cost-effectiveness, so achieving the lowest possible 'cost per unit of impact' is crucial."

Furthermore, de Wet said nonprofits are typically more resource-constrained, not only in cash reserves and credit lines but also in human resources; often, nonprofits operate as leanly and efficiently as possible. And when the executive team is solely mission-driven, effective financial management suffers, Raj Kapur, a nonprofit CFO with 30 years of consulting experience, told CFO Dive. "The CFO must balance the mission with thinking like running a for-profit organization, because nonprofits cannot function without funding."

Mastering the details

Kapur focuses on turning around nonprofits that have good programs but financial shortfalls. He has helped organizations manage budgets from as many as 20 different sources, including federal, state, and municipal governments, local foundations, and donors. "When you work with so many different departments, each has its own rules and regulations," he said. "If you receive funding from the federal government, you must adhere to very strict guidelines."

Mastering all the details is the nonprofit CFO's responsibility, along with understanding how government works, especially the Office of Management and Budget—which most nonprofits interact with. Kapur said CFOs with for-profit backgrounds often fail in the nonprofit sector because they fail to grasp the depth of experience required. Therefore, the best candidates for most nonprofit CFO positions are typically those who have risen through the ranks within the organization and learned the operational fundamentals firsthand.

Revenue from maintaining external funding sources can also become an issue. Take government, for example: if budget cuts occur (as in 2020), the impact inevitably cascades. "Whenever there is a change in government, the donor base also changes," Kapur emphasized the need to build sustainable reserve funds.

Leveraging CARES Act funding

Kapur said personnel compensation can account for up to 80% of a nonprofit's expenses, so when revenue or donor sources dry up, layoffs are usually the first step. During COVID-19, PPP loans helped many nonprofits stay afloat. The PPP loan Evidence Action received last spring prevented layoffs, de Wet said. Washington, D.C.-based Martha's Table, which focuses on providing educational programs and food assistance to families, received a PPP loan in August, thereby retaining its 120 employees.

"We actually expanded benefits," Bhumip Patel, CFO of Martha's Table, told CFO Dive. "We launched new professional development programs, including full in-state tuition reimbursement, and conducted a comprehensive compensation analysis. I think this truly demonstrates Martha's Table's commitment to putting its team first, and also the health of the organization."

Deconstructing the nonprofit CFO role

Kapur said large, well-supported nonprofits may hire large teams to handle administrative work. But in mid- to lower-tier nonprofits, the CFO must be hands-on and handle everything. During pandemic-related layoffs, this became more common across organizations of all sizes, with CFOs often taking on the role of accountant or controller in addition to their regular duties.

Even at Evidence Action, which retained all its employees, de Wet's responsibilities span accounting, budgeting, auditing, tax, and reporting, as well as investments, grant management, contracts, operations, IT, compliance, risk management, and legal. "As you go deeper, you find numerous responsibilities," de Wet said. "From ensuring donor funds are well managed, to providing information to leadership, to managing risk and compliance. And of course, there's the global dimension—operating in seven countries and expanding, not to mention the strategic role supporting the board, audit and finance committees, the CEO, and leadership."

Outsourcing the accounting function is a recent trend, but Kapur does not recommend it. "When an external team comes in and does the work, there's a lack of loyalty," he said. "A true CFO thinks about how to actually increase impact. External CFOs typically don't have that mindset; they're just there to get the job done."

During the pandemic, Martha's Table distributed $1.4 million in direct cash assistance to families enrolled in its educational programs, and also distributed non-cash essentials like grocery store gift cards. Developing forecasts and analyses to ensure such bold projects were feasible was the biggest challenge Patel faced; over the past year and a half, he prioritized risk management, developing financial forecasts, ensuring financial strength, and asset management.

Focusing on digitalization

Many nonprofits entered the pandemic with outdated digital infrastructure. As everything became further digitized, this became a key differentiating factor in maintaining business continuity, Wilson found. "Nonprofits also face increased cybercrime, leading to significant losses. You might think this is the CIO's domain," she said. "But in many organizations, the CFO oversees IT, and budgets are often stretched thin. Most CFOs I work with had to quickly become familiar with this critical infrastructure to avoid putting the organization at risk."

At Evidence Action, most systems were already cloud-based, and because the team is globally distributed, many employees were familiar with remote work. This meant de Wet and his team avoided disruptions in daily tasks such as payments, closing books, or generating reports. "We quickly adapted our processes, and thanks to technology, we could deposit checks via banking apps," de Wet said. "Decisions made in past years—especially building reserves and choosing cloud solutions—have paid off, which is both gratifying and puts us in a potentially better position than many other nonprofits."

"Many of my CFO peers say they need to conduct comprehensive system assessments to identify what can be digitized and improve productivity," Patel said. "In my view, the difference is that nonprofit CFOs must collaborate and communicate across the organization with diverse stakeholders: board members, community members, staff, members, funders, government funders, foundations, and more."

Patel said Martha's Table is accustomed to innovating and pivoting when necessary. So the biggest change in 2020 was digitizing systems that previously required face-to-face interaction. This turned out to be a blessing in disguise; due to program innovation and a more user-friendly experience, online donations surged. Meanwhile, volunteer numbers also increased as more people worked remotely and found time to serve their communities.

Key to success: financial prudence

During the pandemic, Evidence Action, like Martha's Table, benefited from years of prudent financial management. Similarly, Evidence Action's donors remained supportive. Although total revenue was lower than in previous years, it raised $4 million in new funds in the first six weeks of lockdowns. Evidence Action's largest program relies on a school-based delivery model, and with schools closed for much of the time in the countries it serves, program activities and spending fell by about 35%. This directly led to reduced indirect cost recovery, which is critical to program operations.

"I expect the sector will increasingly focus on building reserves to buffer future impacts, but these funds are difficult to raise," de Wet said. Going forward, he will explore how technology can improve efficiency, such as payment automation and system integration, while remaining vigilant against growing cybersecurity threats. Martha's Table's financial prudence over the past 40 years, Patel said, helped position it to "act boldly" during the pandemic.

"At least during my tenure, we have continuously worked to diversify revenue sources and ensure we maximize unrestricted funds," he said. "So even during the pandemic, we were in a strong position to take bold steps to better serve the community without having to make major adjustments on the financial side." To best serve the community, Patel said Martha's Table often tries new approaches and starts from scratch, which can be challenging for a CFO.

"CFOs want to reduce risk; that's one of the key responsibilities—managing risk," he said. "We want to maintain revenue streams, reduce costs, and increase margins. So innovation and pivoting can sometimes be difficult. But don't be afraid to innovate, pivot, listen, or take bold chances. As CFO, do your best to ensure the organization is ready for those leaps."