Does Your Nonprofit Need Outside Financial Support? Signs It’s Time to Bring in Help

When donors contribute to your nonprofit, you want to honor their contribution and your mission by stewarding it responsibly. However, nonprofit financial management can be challenging, especially if your team currently lacks the bandwidth or expertise to complete the many associated duties effectively.

From determining a budget and navigating legal requirements to implementing financial sustainability practices like setting up an endowment fund or investing operating reserves,

the financial demands on a nonprofit can grow quickly, sometimes faster than your internal team can keep up with. Even if you feel like your nonprofit’s finances are under control at the moment, it’s worth asking whether you have the right partners in place to support your next stage of growth.

Outside financial support comes in several forms. Fractional CFOs support organizations with financial strategy and operations on a part-time or as-needed basis. Nonprofit investment advisors help organizations build and manage investment portfolios, endowments, and reserve funds in a way that aligns with their mission. And there are other specialists, from nonprofit bookkeepers, audit firms, and planned giving consultants, who can fill specific gaps as your organization grows.

In this guide, we’ll walk through the signs that your nonprofit may benefit from outside financial support, the different types of partners available, and what to look for when you’re ready to bring someone in.

Signs Your Nonprofit Could Benefit From Outside Financial Support

Many nonprofits reach an inflection point where their financial needs outpace what their current team can effectively manage. The challenge is recognizing that moment before it creates problems. Here are some of the clearest signals that outside support may be warranted.

Ask yourself:

• Are our financial reports helping leadership and the board make strategic decisions, or just tracking what already happened?
• Are we managing multiple funding sources, such as grants, endowments, programs, investments, that require more sophisticated oversight?
• Is our executive director or development team spending too much time trying to manage financial strategy instead of advancing the mission?
• Are we preparing for a major milestone, such as launching an endowment, a capital campaign, or significant organizational growth?
• Do we need stronger budgeting, forecasting, or cash flow planning?
• Would our board benefit from clearer financial reporting and guidance during meetings?
• Do we hold invested assets (an endowment, quasi-endowment, or investment reserve) without a formal investment policy or dedicated guidance?
• Are we receiving gifts of appreciated stock, real estate, or other non-cash assets without a clear process for handling them?

If several of these questions resonate, your organization has likely outgrown what an internal generalist can handle on their own. The good news is that you don’t have to hire a full-time executive to get the expertise you need. The right outside partner depends on the specific gaps you’re trying to fill.

What Does a Fractional CFO Do?

A fractional CFO is a contractor who works part-time with your nonprofit to provide financial services, which may vary based on your nonprofit’s size and financial situation.

We will break down financial activities that a fractional CFO might help with into three categories. Depending on who your nonprofit contracts with and what assistance you need, these services may be different, but it’s important to address how each activity will be accomplished at your nonprofit.

Bookkeeping

Nonprofit bookkeeping is primarily concerned with recording and reporting transactions. These activities are your nonprofit’s financial foundation. In this category, a fractional CFO (or an outsourced bookkeeper who works alongside them) might provide services to manage:

• Monthly Bookkeeping and Reconciliations: Bookkeepers ensure that all income and expenses are correctly recorded and check that invoices, giving receipts for cash and non-cash donations (e.g. stock gifts), and other external financial records match the nonprofit’s internal ledger.
• Restricted Fund Tracking: Designated by the donor for a specific purpose, restricted funding has to be allocated based on that intention, which your financial professionals will ensure as they keep records for your organization.
• Charitable Solicitation Registration & Renewals: The majority of states require nonprofits and other organizations to register prior to engaging in any sort of fundraising activities. A fractional CFO or bookkeeper can submit this on your nonprofit’s behalf and also manage the renewal process when the original registration is set to expire.

Financial Strategy

A CFO’s main role is determining an organization’s financial and operational strategy. By analyzing financial records prepared by bookkeepers, a CFO makes decisions about the best path forward for the nonprofit and develops plans to achieve it. When nonprofits seek out a fractional CFO, it’s often these sorts of tasks that they need support and guidance with.

These activities fall under the financial strategy umbrella:

• Budgeting: CFO Leverage defines a nonprofit budget as “a financial planning document that projects your organization’s spending and revenue generation for a specified period of time.” A budget is a roadmap for how your nonprofit will accomplish its mission in a fiscal sense. A fractional CFO who has the expertise to translate your goals into numbers can create that roadmap for you.
• Cash Flow Management: While the numbers may all add up in your nonprofit’s budget, your nonprofit needs to make sure you have the money on hand for bills at the correct time. Working with a fractional CFO for cash flow management means they’ll oversee the day-to-day allocation of assets to meet liquidity needs.
• Board Reporting: Compiling financial reports and executive summaries for your board is vital to ensure board members can make informed decisions about your nonprofit’s future. A fractional CFO will present your board with an accurate, holistic picture of your organization’s finances.
• Capital Expenditure Planning: If your nonprofit is planning a major capital investment in a new building, equipment, or technology, it’s best to consult a financial professional. To properly forecast the asset’s financial value and lifetime, from purchase price to depreciation, working with a fractional CFO will set your nonprofit up for success.

Ad Hoc Activities

Depending on your nonprofit’s situation and capacity, you may require additional support from a fractional CFO. A fractional CFO can step in when things are too complicated for your team to handle.

For example, you may find that with headcount growth at your nonprofit, it’s no longer feasible to manage payroll in-house. Additionally, for revenue streams that call for reporting, like grants, it may make sense for a fractional CFO to manage them since they take care of other financial reporting and planning tasks.

Alongside fractional CFO services, also consider what other financial support your nonprofit needs, like working with an investment advisor to design an investment strategy that will support your nonprofit’s financial sustainability.

What Should Your Nonprofit Look for in a Fractional CFO?

Once your nonprofit has identified gaps in its current financial management that require support, it’s time to research different fractional CFO firms. You should prioritize firms with nonprofit-specific expertise. Nonprofit finances are unique, and your nonprofit should work with someone who can apply the right methods to protect your nonprofit from legal consequences and loss of donor trust due to mismanagement.

A few other questions to ask when considering fractional CFOs are:

1. What kind of reporting do you provide and how frequently? Any fractional CFO you employ should prepare internal and external reports, but you should determine when they would be delivered and what sort of explanatory context would also be provided.
2. What type of support (phone, email, virtual meetings) will be available to my nonprofit? Weigh what level of availability you’ll need from your fractional CFO, and ensure they’ll be there for your nonprofit when and how you need them to be.
3. Can we scale our contract as our nonprofit grows? Keep your nonprofit’s future in mind. This is why selecting a firm where you can graduate to strategic services in the future and maintain your successful working relationship will eliminate growing pains, even if you just need bookkeeping support now.

When to Bring in a Nonprofit Investment Advisor

A fractional CFO can bring tremendous value to your day-to-day financial management, but investment management is a specialized discipline that typically sits outside their scope. If your nonprofit holds an endowment, quasi-endowment, operating reserve, or other invested assets, a dedicated nonprofit investment advisor may be he right partner for you.

Here’s where an investment advisor becomes especially important:

1. You’ve established an endowment or quasi-endowment. Once your organization is holding long-term invested assets, you need an Investment Policy Statement (IPS), a clear spending policy, and a disciplined investment strategy. All areas where a specialized advisor can provide structure and accountability.
2. Your organization receives gifts of appreciated stock or complex assets. Liquidating donated securities, managing the proceeds, and integrating those funds into your investment strategy requires coordination that goes beyond what a bookkeeper or CFO typically handles.
3. Your board is asking questions about investment performance and fiduciary responsibility. Board members have a fiduciary duty to oversee organizational assets. An investment advisor who works exclusively with nonprofits can present performance reports in a format your board can understand and act on, and can help your investment committee fulfill its governance responsibilities.
4. Your investment returns are funding operations or grants. If your organization depends on investment income to fund programs or distributions, the stakes of portfolio management are high. A nonprofit-focused advisor can help you set a sustainable spending rate and build a portfolio designed to support it over the long term.
5. You want to align your investments with your mission. Many nonprofits are interested in socially responsible or mission-aligned investing. A specialized advisor can help you evaluate those options and determine whether they’re appropriate for your portfolio, without sacrificing return objectives.

When evaluating investment advisors, look for firms that work specifically with nonprofit organizations and understand the unique regulatory, governance, and reporting requirements that come with the territory.

Other Outside Partners Worth Knowing About

Depending on your organization’s stage and needs, there are a few other types of outside specialists that nonprofit leaders frequently turn to:

1. Nonprofit Audit Firms: If your organization is required to conduct an annual audit (typically required above certain revenue thresholds or by grant funders), working with an audit firm that specializes in nonprofits can help ensure you meet compliance requirements and get meaningful feedback on your financial controls.
2. Planned Giving Consultants: For nonprofits with active major gift programs, a planned giving consultant can help your development team structure bequests, charitable gift annuities, and other deferred giving vehicles, and help donors understand how those gifts work.
3. Grant Management Professionals: If your nonprofit relies heavily on grant funding, a grant writer or grants manager can help you identify funding opportunities, manage application timelines, and maintain the compliance reporting required by funders.
4. Nonprofit Legal Counsel: From reviewing gift acceptance policies to navigating governance questions, a nonprofit attorney can be a valuable periodic resource, especially as your organization grows or takes on more complex giving arrangements.

Not every organization will need all of these at once. The goal is to assess your current gaps honestly and bring in the right expertise at the right time.

Building the Right Financial Team for Your Nonprofit

There’s no one-size-fits-all answer to when or how your nonprofit should bring in outside financial support. What matters most is an honest assessment of where your current gaps are, and a willingness to seek the right expertise before those gaps become problems.

For many nonprofits, a fractional CFO is the right starting point for financial operations and strategy. As your organization grows and begins holding invested assets, adding a nonprofit investment advisor to your team becomes just as important.

Carnegie’s nonprofit investment team works with nonprofit organizations and serves as a fiduciary, meaning we’re legally required to act in your organization’s best interest. If you’d like to talk through what an investment partnership could look like for your nonprofit, we’d welcome the conversation.