CFOs at nonprofit organizations generally make less money, work more hours, and have fewer resources than their counterparts who work in the profit-making sector. But they’re not complaining. Many finance chiefs who have made the leap to tax-exempt companies say they are involved in an avocation, where traditional career metrics—such as salary increases and bonuses—don’t tell the whole story.
“Working at a nonprofit is a lifestyle. It’s not a job or a career,” says Michael L. Campbell, executive director and chief financial officer of the Hartford Children’s Theatre Inc. Indeed, if the drawbacks don’t make you skittish, and the idea of being caretaker to a mission, rather than profit margins, appeals to you, then you may be in luck. The non-profit job market is expanding.
Over the next decade, nonprofit organizations will need to attract 640,000 new “senior leaders,” according to advisory and executive search firm Bridgestar. That total is equal to about 2.4 times the number of executives currently working in the non-profit sector today, says the group.
The proliferation of job openings is not a sudden swell, however, but rather a trend that has been developing steadily over the past decade. Between 1994 and 2004, the number of U.S.-based nonprofit organizations increased by 27 percent, while the number of public charities jumped by 65 percent, according to the 2007 Nonprofit Almanac. Furthermore, all three major financial metrics used to measure the success of nonprofits—revenues, expenses and assets—grew by at least 56 percent, during that time period.
Several factors have pushed up the number of non-profits over the last decade, says a recent report issued by The Conference Board. They include an increase in donations as baby boomers age, a greater emphasis on social entrepreneurship and corporate social responsibility—in general—and the government’s increased reliance on nonprofits to deliver public services. But don’t be too quick to take a job at the museum you visited as a kid. Making the transition from a profit-making corporation to a non-profit organization is not easy, say those who already have made the trek. Indeed, if you don’t have a passion for the mission, nonprofits don’t want you.
Of CFOs and Gutters
Before making the switch to a nonprofit, it’s best to take stock of what kind of impact you can make on the organization, and what—if any— decision-making authority you’ll have as finance chief. One newly minted nonprofit CFO only lasted four months at a $30 million (in revenue) organization because he realized early on that he wasn’t going to fit with the institution’s financial style, says Karen DeMay, regional director of talent and recruiting for Bridgestar. (The CFO was not a Bridgestar client.) “It’s really important to know how financially savvy the staff is,” says DeMay.
That is, many nonprofit employees don’t have formal business training, and that means CFOs may spend a good deal of time explaining the tenets of corporate finance, and working toward mutual agreement, more often than they did while in the private sector. And while cash is king at any organization, CFOs at nonprofits devote more of their time monitoring the cash flow statement and juggling working capital than other duties. “The most difficult thing that I’ve dealt with in a nonprofit is the cash flow,” says Jeff Zotter, director of finance and administration at Sequoia Community Initiatives in New Jersey, an organization that runs transitional homeless shelters for the mentally ill.
The main reason for the cash consternation is that resources are tight. So aside from keeping a keen eye on the cash flow statements, the CFO—as well as other executives—are called on to wear multiple hats. CFOs generally forgo the trappings of the corporate position—like a company car and driver and stock options—and operate in a more egalitarian environment. In other words, egos have to be checked at the door. “I’ve been known to clean the gutters at a facility before [an] event … [and] I get our company vehicle serviced,” says Campbell. “I’ll do that, and I’ll come back and work out a large, multi-year funding program with a corporate sponsor.”
You’ll also be required to learn new office skills, the ones you left to deputies and assistants in the profit-making sector. “You may be getting a lesson on Outlook from an administrative assistant,” warns Kathleen Yazbak, a managing director at Bridgestar. More important, barking at subordinates won’t cut it at a nonprofit. “If I were a skilled finance professional who didn’t have a big heart, I never would have made it here,” says Christy Lueders, senior vice president and CFO of the YMCA of Greater Seattle. “The process is just as important as the outcome. If you ran roughshod over people, [it] would just not be acceptable.”
Board meetings take on a different dynamic too. Large, national nonprofits will likely have more directors with business backgrounds. (A directorship at a nonprofit is a good place for a private-sector CFO to gain exposure to the non-profit world.) But at smaller nonprofits, the CFO works with a volunteer board. In most cases, the directors are donating their expertise, contributing financially, and raising money for the organization. Cindy Scherer, director of finance for the Trust for Public Land, a national organization committed to preserving land for recreational use, says she’s amazed by the time and effort her board invests in the organization. “I have to remind myself that they’re not getting paid,” she says.
You Can’t Hide from Sarbox
In general, CFOs say there is more government oversight and regulation at a nonprofit, especially since the passage of the Sarbanes-Oxley Act in 2002. Although the law governs only public corporations, the increased disclosure and control requirements have become best practices for filing Form 990s, the income tax statement of nonprofits that are part of the public record.
Despite the differences between the two sectors, certain corporate finance skills are transferable, including building spreadsheets, return-on-investment analysis, cash-management, budgeting, and short-term investing. Scherer claims that she uses all of the skills she honed in Corporate America, but notes that her focus has changed to a broader look at the businesses, with a tighter focus on accounting. “I really enjoy being [directly] involved in [accounting] and seeing how all the puzzle pieces fit together to make the whole picture,” she says.
Most nonprofit CFOs use certified nonprofit accounting principles (CNAP), while a handful stick to generally accepted accounting principles (GAAP). Either way, the bookkeeping includes accounting for how the organization uses grant money and other donations, which is reported in the Form 990.
Similar to the private sector, the Financial Accounting Standards Board is the main standard-setter for nonprofits, but its guidance remains limited. Meanwhile, the American Institute of Certified Public Accountants publishes what is considered the primary guide to GAAP for nonprofits, and the U.S. Federal Office of Management and Budget provides its own standards and guidelines for nonprofits that receive federal grants. A relatively quick training course in nonprofit accounting — usually through a continuing education program—is all that is necessary to make the transition, said several sources.
The approach to nonprofit finance may seem unusual to private-sector CFOs because perpetual money-losing project are tolerated, and sometimes nurtured. That’s because fulfilling the mission is as important as breaking even, and in some cases the organization subsidizes a loss leader because the program is valuable to clients. “You’re always weighing financial decisions with the organization’s mission,” says Mike Dunn, vice president and CFO of Outward Bound.
For example, the programs run by Hartford Children’s Theatre are subsidized by grants, as well as private and corporate donations. However, some programs, such as those serving inner-city children, lose money in spite of outside support. Campbell says he’ll continue to run those programs and cover the loss with excess revenue from another projects because they are an investment in the community—and the theater. Invariably, the children in the audience become participants in the programs, and their parents become volunteers or donors. “I’ll do that at a loss and make up for it another way, just because of the impact it’s going to have on children’s lives,” asserts Campbell.
Some non-profit CFOs say that a focus beyond the bottom line is a refreshing change. Lueders, from the YMCA, regularly visits programs. “You can go out and spend an hour and get that warm fuzzy [feeling] about why you’re doing what you do,” she says.
Not Much Brass in Pocket
The extra gratification is important, as salaries tend to be 5 percent to 20 percent less than comparable positions at for-profits. But CFOs say that the lower stress level compensates for the salary drop. “You do have the stress of making everything work, trying to do a lot with a very lean staff … [but] it’s the kind of stress where it’s still invigorating and you feel like you’re doing some good,” explains Lueders.
The salary cut doesn’t come with a shortened work week, however. CFOs entering the non-profit sector should anticipate being on the job between 45 hours and 60 hours a week, on average, with seasonal peaks. Further, nonprofits may not offer executives the same workplace flexibility as their for-profit counterparts, notes The Conference Board report. However, that doesn’t seem to always hold true. Dunn, the father of two, says he enjoys being able to leave early to attend his kids’ soccer games. “I may work on the weekends, but I’m working at home at my dining room table,” insists the Outward Bound finance chief.
Benefits aren’t standard across non-profits either. Health and retirement benefits are all over the map, depending on the organization. Some CFOs report receiving benefits that are comparable to the private sector, while other say they loose in the benefits arena.
Melinda Tuan, a special advisor with Bridgestar, thinks it takes a resilient finance chief to make the jump to the non-profit sector. She co-wrote Bridgestar’s new research report, “CFO Fitness Quiz: Are You Tough Enough for the Caring Sector?” which is a survey based on interviews with 25 nonprofit CFOs and 15 nonprofit executives. “It’s not just the shareholder report that’s at stake here,” says Tuan. “It’s lives. It’s the environment. It’s things that really matter.”