Passion builds nonprofits. Strategy makes them successful. You need to know how to best use your resources and not squander your hard-won dollars. That’s where your CFO comes in. The CFO is like the co-pilot of your flight: You’ve got the dream destination and the plane to get there, but your co-pilot knows how much fuel you need to make the trip, where you’ll encounter turbulence, and when it’s time to change course.
A high-performing finance function is essential to the success of every nonprofit. A bad hire can leave you scrambling to understand your budget, unable to provide accurate grant reporting, and stuck with poor records that turn away prospective donors. But a great hire can give you the confidence to pursue bigger goals, assurance that you can take on challenges, and help your organization navigate challenging headwinds.
Key Takeaways:
When You Might Need a Director of Finance or a CFO
You may not need a co-pilot for your short domestic flight, but when you’re getting ready to fly across the ocean, you’ll want someone who has made that trip before.
As your organization grows beyond a few simple grants and programs, it may be time to consider looking for your co-pilot CFO.
Below are some signals that you may be approaching the point of benefiting from more strategic financial leadership.
Program Expansions
This means new budgets, new reporting requirements, and even new funders. What worked when you were running two programs may not cleanly scale to five.
Diversification of Revenue Streams
Each new stream comes with its own rules, restrictions, and reporting demands. Managing restricted grants, earned income, and major gifts simultaneously requires a level of financial oversight that a bookkeeper or part-time role isn’t built for.
Increased Funding, Especially if Federally Granted
Federal funding triggers a separate compliance framework entirely. And getting it wrong doesn’t just create audit findings; it can jeopardize the funding itself.
Growing Complexity in Budgeting and Financial Reporting
When your board starts asking questions your current finance staff can’t answer, or when your budget process takes months and still doesn’t give leadership a clear picture, that’s a signal. Complexity that outpaces your financial function doesn’t just slow things down. It creates blind spots at exactly the moment you need more clarity.
All these qualities are signs of a healthy, growing organization, but they can quickly turn from a blessing to a burden if not managed well.
Finding a nonprofit CFO to assist with these new challenges is more than just someone to manage the books. You need someone who can do more than look back on what has already happened. You need a person who can move you forward.
A CFO brings:
- A strategic, high-level perspective on your organization’s financial needs and risks.
- The expertise to build on your organization’s existing foundation and manage the increasing complexity that comes with growth.
- A long-term-view on sustainability, not just keeping the books balanced today, but ensuring the organization can deliver on its mission for years to come.
- A strategic counterpart to your Executive Director and senior team, aligning financial strategy with the big-picture goals of your organization.
Before You Post the Job
It’s important to understand precisely what you need out of your new finance hire before you post the job. Failing to align your hiring title with the actual scope of the role you are hiring for can lead to overpaying for that role or hiring an overqualified individual who moves on quickly. The size and budget of your organization will often dictate the role you need, and taking time to define the role precisely can save significant time and money. Consider the following differences in the scope of responsibilities of two common finance roles.
Director of Finance
For smaller nonprofits that have steady growth, a stable donor base, and established program models. These organizations are not making acquisitions, expanding their mission, or growing geographically.
- Oversees day-to-day financial management and reporting
- Manages accounting and internal controls
- Leads audit process and ensures compliance
- Prepares financial reports for leadership and board
- Manages cash flow and budget management
- Often supervises accounting staff
- Reports to ED or COO
Chief Financial Officer
- All Director of Finance responsibilities
- Decision-maker
- Drives long term financial strategy and sustainability planning
- Advises board and committee
- Leads financial planning, forecasting, and scenario planning
- Weighs in on organizational growth, mergers, or capital decisions
- Often serves as a thought partner to the ED on mission-level decisions
- May oversee other non-finance functions
Determining the scope and budget for this role is the critical first step in finding the correct fit for your organization. Start with a clear sense of what you need this hire to accomplish and what that expertise costs in today’s job market.
You may find those two things don’t align: You need CFO-level expertise, but the budget says otherwise. That’s where a fractional or outsourced CFO becomes worth a serious look. For nonprofits in a growth stage, this can be a particularly compelling option. It’s worth understanding the full picture of both paths before you commit to either one.
Internal Hire or Outsource the Financial Role?
While both paths can work, the better fit depends on your organization’s size, budget, complexity of operations, and day-to-day needs.
Here is a brief comparison to consider when deciding which is a better fit:
Hiring internally
- Pros:
- Dedicated presence (integrated into team, physically closer to the organization/mission)
- Relationship building
- Available for staff meetings, spontaneous questions
- Cons:
- Salary, benefits, turnover risk, training, HR, management time
- Skill ceiling/education can stall
- Harder to keep/fit if the organization shrinks
Outsourcing
- Pros:
- Access to a team
- Senior expertise
- Scalability and flexibility
- No HR burden
- No coverage gaps
- Cross-sector knowledge through a broader team
- Faster to start than a lengthy hiring process
- Cons:
- Less physically embedded in organization
- Response time can vary
- Divided attention across clients
Neither path is universally right. If your organization needs heavy day-to-day involvement, an internal hire may serve you better. If you are looking to grow your organization and take on some major grants or projects, an outsourced CFO with a clear scope of work can offer senior expertise faster and be more cost efficient. With outsourcing, you also get the added advantage of a full team and a broader knowledge of the nonprofit landscape.
Once you’ve decided on your approach, you’ll need to know what to look for in a qualified candidate.
Screening Candidates
Nonprofits face many unique challenges, and the accounting framework for nonprofits differs substantially from for-profit accounting. A quality nonprofit finance candidate will:
- Have a strong understanding of how to manage grant accounting and compliance
- Understand the implications of restricted revenue
- Know how to navigate program growth compliantly
Any weaknesses in grant compliance or financial records can have serious consequences: loss of trust from your donor base, difficulty securing new grant funding, or, in the worst chronic cases, jeopardizing your 501(c)(3) status.
When reviewing your candidate pool, look for a candidate who specifically has nonprofit experience, is familiar with your accounting software, and ideally holds a CPA license. Red flags include experience only in for-profit accounting, no experience managing audits, no grant accounting experience, and no familiarity with Form 990. The scope of a candidate’s prior experience also matters: a CFO of a small $3M organization has vastly different experience from the CFO of a $30M organization.
Interviewing and What to Listen For
A resume tells you where someone has been, but the interview tells you how they think. The right questions will reveal whether a candidate is proactive or reactive, collaborative or siloed, technically sharp or just technically familiar. Here are a few examples of questions that can shed light on the precise qualities of a candidate and what to listen for.
“Walk me through how you’ve managed the annual audit process.”
Listen for ownership of the audit process, not just responding to requests. Look for a relationship with auditors, involvement in planning and preparation, and a proactive approach to avoiding last-minute surprises.
“How have you handled a situation where a grant was at risk of being out of compliance?”
Listen for early detection, quick communication with program staff, and a corrective action plan in place before the situation became a crisis.
“Describe how you’ve presented financial information to a non-financial board.”
Knowing the numbers is only half the battle. Strong candidates understand the importance of communicating clearly to a less technical audience and can explain what deserves attention and why it matters for decision-making.
“What does your month-end close process look like?”
Listen for a detailed walkthrough of a real timeline with clear reconciliation habits, not a vague answer about getting things done in a timely manner.
“How do you build trust with program staff who see finance as a barrier?”
Look for someone who sees themselves as a resource to program staff, not a gatekeeper. The best finance leaders are allies who help program teams achieve their goals rather than just the person to approve expense reports.
“What nonprofit accounting standards or updates are you currently tracking?”
Listen for specific concepts: ASC 958 (the accounting guidance for nonprofit accounting), revenue recognition practices for contributions versus exchange transactions, and OMB Uniform Guidance (federal regulations governing grant compliance) thresholds and requirements for federal grants.
Interview red flags to watch for: unfamiliarity with generally accepted accounting principles (GAAP) or nonprofit-specific accounting topics, poor communication habits, no prior audit management experience, or resistance to learning new software and systems required for the role.
Reference Check Questions
After carefully reviewing resumes and completing interviews, it can be tempting to consider the process done. But checking in with references is one more step that can give you a clearer picture of how a candidate leads, communicates, and handles pressure.
Consider asking:
- “How would you describe this person’s relationship with auditors?”
- “How did they handle a budget shortfall or cash flow crisis?”
- “Would you rehire them in a finance leadership role?”
- “How would you describe their communication style?
- “How did they deliver and receive feedback?”
This final step can give you confidence in a complete picture before you make your decision.
Making the Hire or Making the Call
Understanding what role your organization needs and can realistically afford is not a matter of preference. It requires an honest assessment of where you are today and where you want to be in the next few years. Your pace of growth, market conditions, and revenue composition can all be extremely influential in determining the appropriate level of support required, whether that’s an internal hire or an outsourced CFO. Following the steps in this guide can help you make that decision with confidence and eliminate the guesswork.
Whether you’re ready to hire or still mapping your options, Chazin can help you assess what level of financial leadership your organization actually needs. Talk through your options with us.
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Chazin
With over 20 years working exclusively with nonprofits, we pride ourselves in having a unique understanding of nonprofit accounting needs. We believe that nonprofits deserve personalized, quality service and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual and customized solution that is not only cost-effective but also strengthens your accounting function. We offer a team of industry experts at your disposal to provide advice, leading technology, and to supplement existing staff to improve efficiency and compliance.