Transcript Episode 109

Episode 109 – Your Nonprofit Finance Dream Team

[00:00:00] Stephanie Skryzowski: Hey there. If you’re looking for the 100 degrees of entrepreneurship podcast, you’re in the right place after a hundred amazing episodes, we’re changing things up to serve you the most inspiring content in a fresh new way. Thanks for being here and keep listening.

Welcome to the prosperous nonprofit, the podcast for leaders who are building financially sustainable and impactful nonprofits and changing the world. I’m Stephanie Kowski, a Chief financial Officer and founder and c e o of 100 Degrees Consulting. My personal mission is to empower leaders to better understand their numbers, to grow their impact and their income.

On this show, we talk to people who are leading the nonprofit sector in new, innovative, disruptive, and entrepreneurial ways, creating organizations that fuel their lives, their hearts, and their communities. Let’s dive in.[00:01:00] 

Hey, hey. Welcome back to the prosperous nonprofit. Today we are talking about building your finance dream team. Now, I think we can all agree that having the right people on board is one of the most crucial pieces to having a prosperous nonprofit, right? We need the right people in the right seats on the bus.

Shout out to Jim Collins. Good too. Great if you’ve not read that. So today we’re gonna talk about your finance team, your nonprofit finance dream team. And why I’m talking about this, why I think this is so important is because I have seen too many organizations get burned, frankly. I have seen organizations think that they’re hiring for one role, but they’re really getting something else.

And it’s not necessarily anybody’s fault per se. It’s not like they are necessarily sold like a bill of goods, although [00:02:00] maybe they were. But it’s more that just we don’t know the right questions to ask and. We don’t know the right terminology to use and so I’m gonna break down the four finance people that you may have on your team.

And they don’t need to be all full-time people. They could be fractional as you know, like my company, 100 Degrees Consulting, we have. Fractional CFOs or bookkeepers. And so our clients can say, yes, we have a C F O. Yes, we have a bookkeeper. Just because we don’t work full-time in our organization doesn’t mean that we’re not doing the role, right?

So the fractional or full-time, that is not as important as the actual roles themselves. So let’s break it down. We’re gonna start with a bookkeeper. So your bookkeeper is the person that is in your accounting software day in, day out. They’re the ones that are entering and coding transactions. They are likely reconciling your bank [00:03:00] accounts.

They’re making sure. That every transaction in QuickBooks or whatever your accounting software is, is correct that it’s sitting in the right bucket, in the right account, and it is, it’s correct. Your bookkeeper also may be the one that is paying your bills. Maybe they’re sending invoices to your donors or to other parties that pay you.

Um, so they may be doing some of the, they probably are doing some of the day-to-day financial management and sort of financial operations. Maybe they are running payroll or paying your contractors. Um, they are really that detail oriented person. And so when you’re looking for the bookkeeper, You wanna make sure that they are very well versed in whatever accounting software you use.

If you use QuickBooks online, they should know how to use QuickBooks online. If you’re using Financial Edge, you probably want them to know Financial Edge, right? The other thing to note here, one thing [00:04:00] that I see happen a lot is nonprofits have a volunteer bookkeeper. It’s like the treasure’s, sister’s, cousin’s mom, or, oh, this lady down the street.

My neighbor, you know, is a bookkeeper and so she volunteers to do our books as well. Or you know, my personal CPA. Son who’s learning bookkeeping, so he does our books for free. That’s great, but also not, so if you’re one of those organizations that’s like, oh, we’ve had a volunteer do this, um, that can be okay.

But there are some like pretty big stipulations that I would put on this to make this actually work. Your books need to be closed by the 15th of every single month, especially if you have a volunteer bookkeeper. So if you’ve got somebody outside of your. Proverbial house who you’re not paying. So there’s like not that much accountability there.

Like those books need to be [00:05:00] closed very, very quickly every single month. Because what you don’t want, and what I can’t even tell you how many times I’ve seen this when we come into working with a new client is like we’re three months behind, then we’re four months and five and six and eight months behind in our bookkeeping because.

We have this volunteer bookkeeper that we can’t really hold accountable because they’re, you know, donating generously their time. And so we don’t have accurate, timely financial data. Right? And so, If your organization has any revenue whatsoever, I highly recommend you just pay a bookkeeper, right? It does not need to be expensive.

It can be a few hundred dollars a month to pay a professional bookkeeper that understands nonprofit accounting, um, to do your books. So that’s like slight soapbox here. Slight soapbox. But first I wanted to explain what the bookkeeper does and just you. If we want to uplevel the way that we run and [00:06:00] the professionalism of our organization and the impact that we have, we need to act like it.

Right? And so you don’t see very successful corporations have volunteers in essential roles. Right? And I know that our resources are not the same. I understand that, but it is not very expensive to have a professional bookkeeper. So that’s the bookkeeper’s role. That’s my soapbox about having volunteer bookkeepers.

The importance of having a professional on your team to do this very, very important role. Cuz the other thing I’ll say is that, um, the bookkeeper, a good bookkeeper who pays attention to detail, who really does everything the right way and hands you financial statements every month, that then you can use to understand what’s going on in your organization.

They. Their weight and gold and bookkeeping is one of those things like garbage in, garbage out. We’re not able to do anything with our numbers if our bookkeeping is a hot mess, right? So we really need to make sure that we are investing properly in [00:07:00] that work in our organization because everything else stems from that, right?

Okay, the bookkeeper. So the next person you might have on your team is A C F O. And so in another episode we’ve recently just talked about the role of the nonprofit C F O. And so I go a little bit more into detail along with some questions that you can ask a potential C F O as you’re hiring for the role.

But this is really your senior most. Finance person on your team, and their job is to be able to see around the corner. They need to be able to use the numbers and use the data to understand trends and understand what has already happened, and then use that information to predict what is going to happen and help leadership make strategic decisions based on data.

So that’s the job of the cfo. F. You may have some people in between there, right? So the C F O is probably the senior most person. The [00:08:00] bookkeeper is probably the junior most person. And in between there you may have a controller, you may have an accounting director or a finance director, or an accountant, or a finance manager, right?

So there’s a lot of roles that fall in between there that probably take on, you know, more junior pieces of the CFO and more senior pieces of the bookkeeper. I’m not gonna go into all of those today because I don’t think it’s quite as essential to understand how to build out a finance team and how to have.

Like what each of those roles mean, because honestly, for every organization, a director of finance or an accounting manager means something different. So it’s most importantly, I wanted you to understand the difference between a bookkeeper and a C F O. Here’s the other thing. Often I see organizations hiring a bookkeeper and expecting to get like analysis or expecting that bookkeeper to then prepare a forecast or expecting the bookkeeper to put together the [00:09:00] board financial reports and narrative.

And frankly, that’s not a bookkeeper’s role. Now, can some bookkeepers like step up to that level and do that work of Yes, 100%. But that’s not really within a typical like bookkeeper job description, right? Maybe that title of bookkeeper is not appropriate, if that’s the work that they’re doing in addition to the bookkeeping.

So I just want to be clear, because oftentimes I, I do see this happen where we hire a bookkeeper and we’re like, okay, cool. Now where’s my forecast? Where’s my cashflow analysis? How are you gonna help me like, make decisions? Uh, yeah, I don’t do that. It’s cuz it’s not really their role. Right. So hopefully that clarifies a little bit as well.

Now the third person that is crucial to have on your nonprofit finance dream team is an accountant. And so this person is a cpa and they are outside of your organization. They do not work for you. They are not an employee. They are not like a [00:10:00] 10 99 contractor in terms of they’re working with you every single week or something.

They are, you know, likely working for an accounting firm outside of your organization. Now, if your nonprofit has an audit, then this is going to be your auditor and your audit firm, right? You probably have a team of CPAs that work on your annual audit, and what I wanna say here is, Please use your auditors for the incredible resource that they are.

Your auditors, like the first time you talked to them that year should not be like the day that you’re kicking off the audit, right? They should kind of already have an idea of what’s going on in the organization because you’ve kind of kept them in the loop throughout the year. Like I can think of three examples when I have reached out to auditors of my clients in like the last month.

The first was because we received this unprecedented giant grant. [00:11:00] Um, yay. But also sort of a counting nightmare because I’m reading through the grant agreement and I’m like, I do not know how to recognize this. I don’t know what this grant agreement is saying. I don’t know if this is conditional or if it’s unconditional.

So do I. Only the, you know, one portion of it, or do I book the entire thing as a revenue? I really didn’t know. And so I forwarded it to the auditor. I was like, can you help me interpret this? Because we’re talking like multi seven figures and what I don’t want is an adjusting journal entry at the end of the audit that’s saying, oh, you have to like reverse out 3 million in revenue cause you did this wrong.

Right? Like that is not a good. Look for anybody. And so I asked them, and I knew that they would be a resource for me because they have seen so many more grant agreements than I have, right? They have hundreds and hundreds of audit clients with hundreds and hundreds of maybe thousands of grant agreements that they looked at before.

So they could be a resource to me. So that’s huge. So when you [00:12:00] are looking for an auditor, like think about who you want to build a relationship with throughout the year, and maybe even ask them that question. They should be open to that. They should be open to wanting to talk to you throughout the year.

Because frankly, I think that makes their job easier when they come into audit. They kind of know what’s going on, if they know that things are cleaned up, if you’re not like leaving a bunch of schedules to them to do because you can’t figure it out and you decided not to ask them, right? So think about who do you wanna build a relationship with throughout the year.

The other thing I’m just thinking of like this organization that, um, merged with another organization and I wasn’t really sure how we should sort of merge the two books after one closed down. And so I reached out and asked the auditors, cause I’m like, I don’t know how y’all wanna see this and I don’t wanna do a whole bunch of work that you’re gonna then tell me in like two months that I need to undo.

Cause I did. Like wrong, not the way you wanted me to. Um, so anyway, your auditor is a great resource. They should be somebody that you can build a relationship with, that you can ask questions to [00:13:00] throughout the year that you can learn from. But again, they are outside of the organization. But if we wanna build our dream team, like we have to have a good auditor on board.

Another thing I wanna just point out, if you don’t have an auditor, because you don’t need an audit, you may have an accountant, you may have somebody outside of your organization, um, file your nine 90, prepare and file your nine 90 for you. And that’s another, another similar thing, right? We wanna have somebody that we can build a really good relationship.

We wanna have somebody that is nonprofits, that’s huge. For the most part, all of our clients work with audit firms, CPA firms that specialize in nonprofits or at least have like a massive nonprofit practice versus, um, I have in the past, not anymore, but I’ve worked with organizations that have just like some, you know, down the street CPA firm, conduct an audit on their nonprofit.

And frankly, I believe that’s a waste of money because, The auditor [00:14:00] is not gonna help you, like stay up to date on what’s happening in the nonprofit sector because they don’t really know, because that’s not their specialty. Can they technically do the audit and check the box? 100%, yes, but you’re not gonna get that sort of learning opportunity.

And, uh, like opportunity to do better. You’re not gonna get that if you are working with somebody who doesn’t understand or specialized in nonprofits.

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The last person that I would say that you probably. Need on your nonprofit finance stream team is a financial advisor. And this is mostly if you have, um, funds in investment, right? So I worked with an organization that, um, received a large unrestricted gift, which was fantastic, and they put it into, um, they invested a portion of those funds into, um, into a fund that, you know, is sort of serving as a very long-term reserve.

Even as the cfo, I’m not an investment expert. I’m not, that’s not my specialty, that’s not my training. And so they retained a. An external financial advisor to help them invest [00:16:00] those funds wisely in alignment with their goals and their values as an organization. And then, you know, helping them monitor a performance of these funds and make changes accordingly.

And this was something that was, you know, selected by the finance committee and the board. So it’s not something you probably just wanna like run out and grab a financial advisor. Something that definitely needs to include like some solid governance behind it. Um, but this person is really important again because they are probably somebody that you’re gonna be working with for a long time.

Hopefully those funds. Are invested and are growing, um, for a very long time. So you wanna make sure it’s somebody that understands your organization, that understands nonprofit, that understands like how strong our values are and how important that is, and how our mission is central to everything. Like you need somebody that understands that just because a particular.

A particular fund or like asset class has amazing returns. Maybe we don’t wanna invest in that because it’s against our, you know, it’s again, goes [00:17:00] against our core values, you know? So anyway, that’s something that you also want to, um, make sure our questions to ask when you’re hiring a financial advisor.

So also just. Be advised that your C F O should not be your financial advisor, right? Likely your C F O is not an investment professional, and so you do not really want to be going to them for investment advice. So let’s just recap a little bit your nonprofit finance dream team. You have your bookkeeper who’s in the day-to-day transactions, who’s making sure that your, uh, that your books are closed timely, and that you have really good data to analyze and to forecast from.

They are either a 10 99 contractor or W2 employee of your organization. They are not your sisters, cousin’s, moms, friends, neighbors. Volunteer, right? Then we have number two, your C F O, your Chief financial officer, and this person is your [00:18:00] eyes see around the corner, taking that data from the bookkeeper and translating it into meaningful strategy and analysis to help you as an organization make decisions to grow your impact, to grow your income.

Number three, we have your auditor or your accountant. This is the external C p A firm that’s conducting your audit. That dates a partner for you throughout the year. That’s filing your nine 90. And finally we have number four, your financial advisor, that person that’s helping you manage any funds you have that are invested.

So I hope this was helpful. I hope this was helpful. Um, actually before we. I was gonna, I was gonna end this conversation here, but I also just wanna talk about your internal finance team and how they can really help bring everybody together inside the organization. Right. I’ve sent in the episode before your finance team is really like, you know, if you think of a wheel, like the hub of that wheel, and then all of the other departments are the.

Spokes, um, kind of [00:19:00] going outside from that hub, right? Like everybody is coming into finance. Everybody needs finance. We, you know, we need budgets, we need financial reports. And finance is, is the heart of that, right? So it’s really important for your finance team to be collaborative with others inside your organization.

And so, so that’s one thing. You know as you are hiring. Anybody in your organization to, you know, ask them how will they collaborate with the development staff? How will they collaborate with, um, you know, with the program team, right? So your finance team can work with your program staff to make sure that their programs are properly budgeted, properly funded, and quote unquote profitable, right?

Like, we have the money to run this program. The finance team can help collaborate on how to stay within budget and making sure that, um, you know, that program have the right financial reports to make decisions on the work that they’re doing. So on the, the development team, [00:20:00] development team and finance, I feel like work so closely together because everything the development team is doing is flowing into the revenue budget, the revenue strategy, the plan for how are we bringing money into this organization, right?

So I feel like those two departments should be very, very closely aligned. Um, I think another really fun. Y’all are like, yeah, fun. Um, another fun thing is to look at what’s our fundraising roi. So in other words, for every dollar that we spend on fundraising activities, how many dollars do we raise? And so working really closely with development on that thinking like, Okay, if the ratio is like three to one right now for every dollar we spend, we raise $3.

How can we increase that? Like what can we do together to figure out how to grow that ratio? Right? So that’s a really strong partnership that I think is super important. And then lastly, um, I would say with a board of directors, so often the cfo, [00:21:00] F o, is the one that is presenting the financials either to the treasurer, um, or to the finance committee, or often to the entire board.

And so again, being able to have that relationship. Being able to communicate the financials in a way that’s very clear and concise and really tells the story of the numbers and what’s going on, especially if we’re talking to non-finance people, is super, super important. And so the story that the numbers are telling that the CFO F o then communicates to the board, that is going to inform the board’s like strategic decision making, um, for the organization.

So I think that relationship and that collaboration is super important. I think all of these pieces together make up a very healthy finance team and a very healthy finance department and finance function within your organization. So, okay. This is kind of turning into a long episode because I feel like I could go on and on about this and I just think we don’t spend enough [00:22:00] time thinking about your finance dream team.

Right. I hope this was helpful. I hope you have at least one little takeaway that you’re gonna bring back to your organization and maybe you can assess the finance team that you have in place right now. If you’re the leader of the organization. Do we have the right people in the right seats on the bus right now to really manage our finances well and give us the information that we need to make smart decisions?

If the answer is yes, amazing, that’s awesome, and I’m super happy for you. If the answer is, Well now hopefully you have the information to get the right people in the right seats on the bus, and if you don’t know what I’m talking about, check out Jim Collins. Good to great, excellent book. All right, my friends.

I’ll see you next time. Before you go, I just wanna thank you for being here. To access our show notes and bonus content, visit 100 degrees That’s 100 [00:23:00] degrees, and I’ll see you next time.