Has your NFP outgrown its finance function?

Yet there is one part of an organisation that doesn’t always grow at the same pace: the finance function. The systems that worked perfectly well when you had 10 employees gradually become antiquated. Often, there isn’t a particular day when somebody announces, “We’ve outgrown our financial systems.“

Instead, things simply start getting harder.

A small NFP with around 10 employees is usually a dynamic alliance of passionate individuals. The CEO probably knows everyone personally and has a good understanding of what each person is working on. There may be one or two major programs and a relatively small number of funding sources.

The CEO approves the most significant expenditures. Bookkeeping, payroll and reporting can potentially be handled by one person, whether internally or externally. Information flows relatively easily, and often people wear multiple hats.

If something unexpected happens, the CEO usually hears about it. If a program needs additional resources, everyone probably knows. When somebody wants to recruit, it is likely discussed directly with the CEO. There is a lot of organisational knowledge sitting inside people’s heads

The week runs at warp speed for 2-3 days, then slows to a crawl for the remainder. That can work remarkably well until the organisation grows.

20 employees? Organisational functions change quickly. There are program managers or team leaders. Different people are responsible for budgets and spending decisions. Payroll has become a much larger monthly commitment.

Funding is more complicated. Instead of relying on one or two major funding sources, the organisation could manage government contracts, grants, donations, fundraising, and fee-for-service income simultaneously.

The CEO can’t be involved in every decision anymore. That’s an important stage in an organisation’s development. Structured financial reporting needs to replace some of the informal knowledge the leadership team previously relied upon.

Knowing how much money is in the bank isn’t enough.
Leaders need to understand where money has been allocated, how individual programs are performing, future cash requirements and whether the organisation is tracking against its budget and funding agreements.

By the time an NFP reaches 30, 40 or 50 employees, the complexity increases considerably.

There are several managers controlling budgets, multiple programs and funding agreements, more sophisticated payroll requirements and a board expecting increasingly detailed information. One decision can also have much larger consequences.

Recruiting five additional employees might be necessary to deliver a new program, for example. But what happens when the initial funding period ends? Can the organisation sustain those positions? What happens if funding is delayed or costs increase?

These aren’t simply accounting questions. They are strategic questions. And that’s where many growing NFPs discover a gap.

Their bookkeeping and accounting may be perfectly competent, but the leadership team increasingly needs someone who looks ahead rather than simply reports what has already happened.

A key question for an NFP leader is: If our organisation has doubled in size, has our financial governance capability doubled with it?

It doesn’t necessarily mean employing more people. It means considering whether your CEO, leadership team, and board are receiving the financial information and guidance they now need to make informed, strategic decisions.

Can managers understand their budgets? Can you accurately forecast cash flow? Do you understand the true cost of delivering individual programs? Can the board quickly understand your financial position? Can you model what happens if funding increases, decreases or arrives late?

If answering those questions is becoming increasingly difficult, your organisation may have outgrown its existing finance function.

Regardless of size, growing NFP organisations may need CFO-level financial expertise without requiring, or being able to justify, the full-time employment of a senior finance executive. This is where an outsourced CFO becomes increasingly valuable.

At Accounting For Good, our outsourced NFP CFOs work alongside CEOs, leadership teams, and boards to turn financial information into decision-ready insights.

That can include forecasting, budgeting, cash flow management, scenario planning, board reporting and helping leaders understand the financial implications of their strategic choices.

Growth should be celebrated, but the finance function that helped your organisation succeed with 10 employees may not be the one you need when you reach 30.

Recognising that change and building the financial capability to support it can help ensure your organisation’s growth translates into sustainable impact.