This is create the next from Pro CFO partners, where every week we explore strategies and ideas for financial management and growth to help today's businesses but their financial picture and context.

I'm Chris Bintliff here with Raji Cora from Pro CFO partners and raazi not for profits have a really interesting sort of circumstance in that sometimes How does the mission interact or engage or interface with the need to manage finances to make money? How does the leadership who are sometimes so passionate about the mission? How does that connect to the need for strong pragmatic business leadership? Give me a sense, from your perspective, with not for profits, what are some of the common consistent financial challenges that you see again and again, or that these companies consistently face?

Sure, Chris, I'd be happy to tackle that I, I think in the nonprofit space, a couple of things come to mind. One is, like you said, people are very passionate, they, you know, you're not going into this industry, because you really love finance, or you really love accounting, or, yes, you should be good at those, and you should enjoy doing them. But you really need to have alignment with the mission for the organization. And many times what I, you know, I'm a career coach on the side, what I like to tell the folks that I coach is that you have to demonstrate that that passion for the mission, as well as the competency level that you carry with you. And most people, you know, coming from the private sector often feel like they don't have the that they can't demonstrate that passion. And so I oftentimes tell them to go volunteer to tell the story, you know, that passion comes from somewhere, and a lot of times that will make or break your success in that field because of the cultural fit that either goes along with that passion, or is missing.

I think that's fascinating, because passion is obviously at the heart of any founder, or many leaders and executives are passionate what they do, but there's an emotional component to a not for profit that is unique. I think, I wonder if you agree with that.

Yeah, it because it is mission driven, and mission based. A lot of that is tied to people's emotions and sense of purpose. And so, you know, I always say skills can be taught and learned the passion, it comes from within. So you need to have that. But it's a balance, right? Because a lot of the leadership that I work with many times don't have the financial knowledge or background, they understand that finance is important, but they don't necessarily understand the finances. And so you're not only playing teacher and educator, because they need to understand their budgets, they need to understand what it means to track to a budget and what a successful audit looks like without any material weaknesses. And how do you achieve that? And why is that important? What is financial sustainability? And what does that look like? I think the one of the things we struggle with in the nonprofit space, is this desire to have a healthy reserve B to weather an economic downturn, but then showing a profit, because the private sector is so often interested in like, what are your profits? And how are you earning money, but the nonprofit space doesn't have that. But they still have that struggle, of needing to build and maintain a healthy reserve. Many times people are like, Well, whatever we raised, we should spend, just spend 100%, because it goes to the mission. And in order, like especially now during COVID, or a pandemic, or a recession, you need, many nonprofits are now struggling if they didn't have that reserve, or that cushion, to help get them through this sort of slump in donor and slump in in revenue. And a lot of the revenue, they're not selling widgets, you know, they're not, they're not manufacturing or selling products or services or products. Sometimes that's that supplements, their income, but many times, it's, you know, serving the community, and that's done for free. And so the money comes from the donations and the donors and the foundations, and that and then if it's government funded, many times government agencies don't expect you to use their money for to build a reserve. So you have to use the private dollars that you raise to build that reserve. And, and make sure that they're comfortable with it, you know, so many times they also deal with restricted money. Restrictions can really handcuff a nonprofit in many ways if it doesn't align with their mission and their purpose. So I we can talk about more about restricted dollars if you want but it's it's one of those things that are very different

to dive into that because these are such unique challenges that now for profit space, and one of the things I hear you say is, look, if I were to give one piece of key advice, it would be build a reserve, you got to have a bit of a rainy day fund. And you might have to build it in unique ways, because some of the ways that you that revenue comes in, won't allow that. Tell me more about this restricted access, though, because that's restricted finances? Because if that's one of my sort of key revenue generators, how do I start to make that meaningful inside of these other priorities that I have inside the business?

Yeah, two things, I think one is, you have to be very careful when you are accepting a restricted gift makes sure that you're not it's not creating extra work. So a restrictive gift, for example, would be a donor or foundation saying you must spend, like, say the nonprofit works on domestic violence and and services provided to to victims of domestic violence. If the this foundation says, Well, we appreciate we want to give you money towards your mission, but you have to use it in these shelters at these times are in these locations. If you don't have staff there, you're not set up to do that run that program. What is it really going to cost you? Is it beneficial to take the money at that point, you have to do that analysis. And so many times when you're growing, you're so eager to say yes, I just just need money, we'll do it we'll make it work. And

how do you turn?

Right? How do you turn away the money. And it's sometimes it's, it's really difficult to do that. But it might not be the best use of your time in order to and maybe it's better to go after other money or unrestricted dollars. You know, a lot of donors, like I give to a lot of environmental nonprofits, because that's where my passion is. And I just give unrestricted dollars. As soon as I donate, I'm not saying use it, these funds for this purpose, or in this timeframe, I'm just giving a donation. And those can be used. However the nonprofit really needs or wants it. They're the donors basically saying, I trust you, I believe in your mission, go spend this how you see fit, to better and serve your community and your and your clients. And if it's if it is restricted, and it does align to your mission, then you have to there's a lot of times reporting requirements that go along with it. So it's not, maybe it's not worth it to do it for a couple thousand dollars, because the reporting requirements and the time spent on reporting isn't worth it either. And then other times, if it's the majority of Yes, I'm getting government grants, and it's restricted. Let me try and diversify because that may go away, that may not be there the next time or the next year, it may not renew every year. So let me take the opportunity to invest in what we call development or fundraising. And that has a long lead time as well. Like, as you can imagine, if I'm a high net worth individual, and I have a passion for environmental conservation, I will do my due diligence, and it's according, you know, process of like, well, I might be able to give a few thousand dollars, but what they really want from me is a six, seven figure gift. And I'm not ready to commit that much money to you because I don't know you that well yet. So let's build that relationship. And those longer term relationships lead to bigger gifts, but it takes a while. It doesn't you know, you can't just hire a fundraising person and expect loads of revenue to come in that first year. It you know, it's a it's sort of a sunk cost that first year, and then going forward, you're starting to see the benefit of that higher

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expectation management sounds like it's at the heart of some what you're sharing, which, as a Marketing Pro, I really this resonates with me in the way that we have to build a relationship. And sometimes it takes a long time before we can really reap the larger benefits of that relationship. But especially not for profit, where Timing is everything and where we don't know what the next quarter brings, or what the next year brings in. And I'm so passionate and energized by this need. And the need is now and we have to do it. Now. I hear you saying it can be so difficult to turn away a gift or to turn away an opportunity or to not analyze it from all these perspectives to see if it's the right thing for me. And I think that's one of the things that a CFO should an organization should feel very comfortable that their CFO can help them steer in that direction. I think it's another place Tell me if you agree, or not for profits running very lean, maybe aren't seeking the financial insight and advice they could be, and trying to do it all themselves or rely on their history or knowledge or experience with the private sector, which is only sometimes or in certain ways relevant? are they building the team that they need to around them as often as you think that they should be relying on that pro CFO who can say, look, this is great. But hold on, let's examine this from all these different options before we decide what to do with it, or is that an area that needs more improvement or more focus,

a lot of what I will call back office support, because finance gets grouped into that along with operations is behind, there's a lag, they hire six months after they needed someone. Because they're, they're running and they're so passionate, they're just trying to throw money at their their mission, they don't take the time to set up the infrastructure and the systems and the processes needed to really scale and grow efficiently. And then as they start to do that organically, they're like, Oh, wait, maybe we need a CFO, maybe we need an operations director, maybe we need you know, an accountant of a real like CPA accountant. And so actually, every Funny you should say that every position I've ever held in the as a full time person, I've been the first of that position at that nonprofit, the first director of finance the first CFO, the first coo the first, because they recognized the need and then tried to step and hire for it. Yes, backwards. It's backwards for like startup in the private sector. So in the startup in the private sector, you are stuffing at the top first and then getting everyone else maybe you have an admin or any a on the side, but that everyone else is like all the sea level people you get first the strategy that you know. And in the nonprofit space, that's rarely if you know the case, because they're not running it like a business until they need to run it like a business,

you find too, that there can be an over reliance on personal relationships of the network. And they bring in the wrong kind of person, like, oh, I've got a cousin who can manage the books or something where they it's all well meaning but in an effort to maybe save money, they're just wasting a lot of that because they don't getting professional, they're confusing CFO with something else that is just ticking boxes, rather than providing guidance and strategy that as you're describing is pretty necessary for me to understand how I'm going to turn this not for profit into something really meaningful three, four or five years down the road, and not just in the next six weeks, as these opportunities come up.

I think what happens most often is maybe there is some like of that community, like let me bring in this person I know who did this for my, for this other company or this personally. And that does happen. But I think a lot of times, it's the people who have grown with the organization who were hired in the beginning, who don't necessarily who had the skills that were needed up front for the small sort of task oriented job that it was, but they're not that strategic thinker. They don't have those long term planning and infrastructure, you know, skills to really say, Okay, what do I need to do now, to get this to the next level? What does the staffing need to look like? So they end up, they learn a lot on the job, but sometimes they learn the wrong things, or they're doing it in a way that they know, that's not necessarily the best way to do it. And so it's breaking them of habits. And but they formed, and also, it's a lot of education, even sometimes in the finance department, if I if you want to call it that. And many times, it's just one or two people who are sort of going through what they've learned and going through the processes. Oh, I know how to do a bank rec on QuickBooks because it walks me through this, you know, but not really understanding the behind the scenes accounting needs. So you're not, they're not going to come to you and say, Oh, I think we need this journal entry. I think we need to adjust this because we're ending the year this way. Or let's, you know, a lot of times, timing is a big, big thing. And in the nonprofit space, say I'm a donor and I grant an award of $100,000. And I don't give the cheque until six months later, but if I give you an award letter, you have to recognize that revenue when the award letter is received. And so it's it can be a disadvantage, but it can also be used to your advantage. So say someone is struggling at the end of the year to make ends meet. They have a cash reserve, but they need to show more revenue that year. We could potentially go after donors who aren't quite ready to like pay but are committed to make to make a payment and make a donation. So we could say Would you mind? our fiscal year ends June 30. And I know you're going to pay in August, but could you apply it to last year for us like our last fiscal year? So we there's a lot of this like, sort of, it's a dance to tie in, not only plan long term, but if someone's really struggling try to manage the cash flow and the finances in the reporting in the in the near term. And we all in the best practice is accrual based accounting. So we have the flexibility to do that, especially as folks are saying, you know, we need 5000 more dollars just or whatever the case may be for for this year or for this campaign, can we apply it to this gala? Can we apply your to this? And then there's other times where we don't want the gift? Or, you know, our fiscal year starts on sep tember one and we got an A gift August 31. That doesn't help my maybe it doesn't help me that last year, can you restrict it to the future year. But we still have to recognize it in August. So there's that whole going back to that restricted? There's, there are gifts that can also be time restricted. So it's like taking a job work for the whole year, and then I'll pay you with the year. You know, so in my in my book, I'm equating it to that. I'm like, Well, how do you pay your bills, you know, if you're, you're you're expecting me to have money saved from other jobs, when you give me a grant or a gift like that just one

of the many challenges that nonprofits face. I think you've given us so many really great kind of practical, tactical, tangible things to think about. If I'm a leader, or or an organizer inside of a not for profit, there's so many great kind of nuggets you've given us to really think about, and I really appreciate that. And I feel like we've only scratched the surface. So I hope you'll come back and talk with us again sometime.

Great. I'm looking forward to it.

Thank you, Raji. Appreciate your time today. Talk to you soon.

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