Career crossroads

By Michael F. Cade, CPA, CGMA  

Professionals in nearly every industry will sometimes reach a point where they begin looking for deeper meaning in their work. For many, including CPAs, a transition to the nonprofit sector, to a mission-focused organization, provides a sense of purpose and an opportunity to give back. 

Opting for a career in the nonprofit sector is a bold choice for those who have already worked in for-profit entities. The differences are considerable, and making the change means preparing for unfamiliar challenges that run the gamut from operating priorities to corporate culture. However, the sector has many interesting opportunities for those looking to find work with “greater purpose.” 

This feature describes what to expect when transitioning from a for-profit company to a nonprofit so that you can make an informed decision. It will explore some nonprofit myths, review a series of financial topics specific to the sector, and provide steps to consider when making a move. 

Myth busting 

Weighing the pros and cons of a move to the nonprofit sector first requires the separation of myth from reality. There are many broadly accepted “facts” about the sector that are untrue. 

Myth: Nonprofits are simple. It is commonly held that for-profit businesses are far more complex and harder to manage than nonprofit organizations. While some for-profits have to deal with U.S. Securities and Exchange Commission requirements or must strictly adhere to certain regulations, nonprofit organizations also have regulatory and operational complications. 

From an operations perspective, for-profits and nonprofits have their share of complexity, but nonprofits have the extra burdens of fund-raising and often providing services in challenging or unsafe environments. Many nonprofits also have dual management responsibilities over staff and volunteers. 

Nonprofits are not simple, so if you are looking to move to the sector to lighten your workload, you will be unpleasantly surprised. 

Myth: Most nonprofits have few or no employees. While nonprofits can have mostly volunteer workforces, once an organization reaches a certain size it transitions to a mix of staff and volunteers. Some have no volunteers, aside from board members, and some have paid board members similar to for-profit organizations. 

The nonprofit sector employs about 10 percent of the workforce in the United States. Some larger organizations can provide a long-term career path for finance professionals, but you must do your research since some have small finance functions. 

Myth: Nonprofits should not make money. Inside and outside of the sector, this is one of the most damaging myths about nonprofit organizations. It is so widely accepted, and deeply ingrained in some nonprofits and their funders, that it causes many systemic problems. 

Nonprofits are operating entities. To continue to deliver on their missions, they must have financial resources beyond current expenses. These organizations face the same challenges as for-profits in that they deal with business cycles, funding limitations and economy-governed performance levels. Regarding the effects of the economy, nonprofits may have it even tougher because the need for their services often increases as the economy slows down and as clients’ or funders’ ability to pay declines. 

Nonprofits need to make money to establish reserves; they must generate net positive margins on some portion of their services. Doing this enables them to proactively prepare for changes in their client communities and to weather tough times when they are needed most. 

Nonprofit facts 

Before making any career move, you need to dig deep into what you can expect when it comes to working in a typical nonprofit. To help, here are several topics you should prepare yourself to deal with as a CPA and financial leader within a nonprofit. 

Limited budgets — Nonprofit organizations are notorious for spending as little as possible and budgeting to spend even less. As a CPA, you will be responsible for producing a budget with at least a zero or a slightly positive bottom line when the organization’s program budgets often are neutral or negative. Your job will be to help the organization understand its cost structure and identify a nominal or sustainable cost level to ensure that the organization will be able to deliver on its mission. 

Your budget responsibilities will require that you gain a thorough understanding of the nonprofit’s operations and capital requirements. In addition, you will need to understand its funding sources as well as its development costs and performance. 

Liquidity: The cash-flow cliff — Nonprofits are dissimilar from most for-profit businesses because the service provided to the client is often partially or fully paid by someone else, such as a government agency, foundation, members or donors. This disconnect between service provision and payment can result in cash flow issues. Services are required immediately, but funders pay slowly and sometimes unreliably. Consider this: a portion of funds for many nonprofits comes from state government; if the state does not pass its budget on time, disbursements are delayed. 

As a CPA working in the sector, your responsibilities will include learning about your organization’s liquidity situation and working with management to identify ways to back the nonprofit away from the cash flow cliff. 

In addition, you should be reading up on recent Federal Accounting Standards Board changes regarding nonprofit financial statement liquidity disclosures. 

Tempering soft hearts — As a lead financial professional, a CPA working in the nonprofit sector must encourage fiscal responsibility in organizations that focus on mission delivery above all else. This means finding ways to educate leaders and colleagues on the consequences of trying to do too much or overextending through projects that simply deplete resources. 

The CPA must be part of the leadership structure — a respected and trusted resource for sound decision-making. The challenge is finding ways to say “yes” to marginal projects, and even the occasional negative margin program, if there is good reason. To do this, you will need to have a sound knowledge of the organization’s operations and funding sources, as well as a tight handle on the current budget so you can find trade-offs or opportunities to offset short-term negative impacts. Finding the path to “yes” won’t always be possible, but if you are someone who is willing to roll up your sleeves and work toward a solution you can be invaluable in the sector. 

Margins and reserves — Building reserves or retained earnings in a nonprofit is challenging, but necessary. There are ways to improve financial performance in both program and back-office costs. As a nonprofit CPA, you must become an expert on cost efficiency and effectiveness: 

• Encourage sound procurement practices and look for technological solutions or outsourcing for repetitive tasks. 
• Gain an understanding of program finances and identify ways to ensure programs run efficiently. 
• Develop multilevel margin and portfolio performance reporting that provides actionable information for program leaders, management and the board. 

With leadership, develop a tactical approach to managing margins and fund-raising to build reserves over time. This will not happen quickly, so they need to happen continually to produce results. For these changes to work, cost efficiency and effectiveness need to be ingrained in the organization’s culture, so you will need to craft and execute a plan to make that happen. 

Overhead cost limitations — A large number of funders believe that “good” nonprofits have low overhead or general and administrative costs. This is reinforced by some nonprofits reporting on how many cents of every dollar is spent on programs versus how many are spent on general and administrative costs. This has driven many to severely underspend on administrative and support costs. 

As a CPA in the nonprofit sector, you need to educate organizations and funders on the damage that ignoring support infrastructure and operations will cause over time. Falling behind on systems, not being able to hire or retain the best people and not supporting new or larger programs all result from underspending on administrative and support costs. 

The U.S. Internal Revenue Service (IRS) is still a factor — Federal tax-exempt, nonprofit organizations do not stop filing tax returns, and in some cases they actually do pay taxes. As a CPA in the sector, you must master tax considerations for your organization. From understanding the reporting requirements to being able to interpret activities within the organization that can cause tax liability, you will be called on to provide critical advice to management. 

You will need to prepare or oversee the preparation of the company’s nonprofit tax return (Form 990). This complex form includes financial data as well as information about the organization’s operating and management procedures, information about funding and functional expenses. And it is a public document: the IRS provides Form 990s to data collectors. This means that your organization’s information may be scrutinized by regulators, the press, funders or individuals. 

Part of preparing Form 990 is identifying income unrelated to the core mission that may be generated by the nonprofit. This income is taxed via the Unrelated Business Income Tax. It is a complicated area of taxation. As a nonprofit CPA, you should be able to identify potential tax issues for current and future business operations and opportunities. 

Old tech (no tech) — Nonprofit organizations often forego investments in technology due to tight budgets or program priorities. It is possible that you will find seriously outdated systems in the organization you may be considering. It is also common that small to midsize nonprofits will have no internal IT resources, as some tend to outsource or depend on volunteer support. You may need to champion investments in financial and nonfinancial systems. To do this, you should educate yourself on software services that support the sector. 

Bringing knowledge about technology and associated risks such as cybersecurity is a significant value-add that you can provide. Take the time to keep current on technological developments through webinars, demonstrations and professional organizations. 

Limited financial acumen on the board and among management — For-profit boards consist primarily of business leaders, such as CEOs, well-versed in financial fundamentals and concepts. Nonprofit boards have a different makeup, tending to include community representatives, program experts, fundraisers and people who care deeply about the mission. As a result, nonprofit boards often do not have a large proportion of members with financial backgrounds or exposure to financial matters gained from leading a business. Nonprofit senior managers also tend to have little financial training aside from program-level performance metrics or budget oversight. 

In many nonprofit organizations, a CPA will be the most knowledgeable financial resource. You may need to assume the role of financial adviser to management and possibly the board. To build accountability for results, the CPA must also become the nonprofit’s financial educator to help management and board members understand complex financial topics. 

Making the move 

You have now learned more about some of the challenges you may face. You are more confident than ever that you have what it takes to transition to a mission-focused organization, and you are ready to tackle some of the issues reviewed here. Where do you go next? 

Deciding your priority — There are more than 1.5 million nonprofit charity or 501(c)3 organizations registered in the United States. They vary in size, focus and sophistication; each has its own particular benefits, challenges and culture. An important early step is determining your own set of priorities for the type of organization you want to work for. You may want to focus on the size of the organization to ensure that you will have an internal career path; perhaps you have a specific segment that you are most interested in, such as performing arts or education. Other considerations include geographic area, broad or narrow community focus, financial condition and the level of controversy the organization tends to generate. 

Research and engage with the sector — Once you have a general idea of the type of nonprofit that you want to work for, you will need to do your homework to focus your search. There are plenty of resources available to research organizations, from internet nonprofit data accumulators such as GuideStar to local organizations such as the Chamber of Commerce. Most organizations have social media sites that provide detailed information about their mission and services. There are also a number of service organizations that support the nonprofit sector, such as the Society for Nonprofits and the La Salle Nonprofit Center, as well as publications such as The Chronicle of Philanthropy and Nonprofit Quarterly. 

In addition to research, take the opportunity to get engaged in conversations about issues impacting the sector. Speak at conferences or contribute to comments on articles and blog posts to gain a deeper understanding of all sides on topics impacting the sector. Listen for themes and trends so you can continue to build your knowledge base and be prepared to add value to the organizations you choose. 

Volunteer — If you are considering a transition to the nonprofit sector, it is safe to assume that you have already done some volunteering in the past. As you work toward taking on a role in the sector, you should use your volunteering as a tool for gathering cultural and operational insight about the organizations you are considering. Engage in projects that have a broader impact so you interact with staff members in various parts of the organization. 

Even after you are working in the sector, continue to find organizations that interest you and volunteer. This will help keep your perspective broad, uncover some best practices that you can bring back to your organization or lead to other career opportunities or board participation. 

Networking — As with any transition into a new or unfamiliar industry, successfully building a network of contacts and colleagues within the sector will help you find and secure a position with the type of organization you desire. Transition networking is a long process, so begin as soon as you decide you might make a move. Expect to put a good amount of effort into helping others before you expect returns. 

The first step in nonprofit networking is exploring your existing network of contacts, colleagues, friends and classmates. Look for contacts with experiences within the sector or who actively volunteer, especially in segments that are interesting to you. 

Get the word out to your network that you are considering a move, and ask for their thoughts, suggestions or guidance. Also, keep in mind that although people working in the sector are incredibly busy, they are also likely to want to help someone looking to join. 

Building a nonprofit career trajectory 

Once you have established yourself in an organization and gotten past the initial challenges of any new position, you should turn your focus to building a career plan within the nonprofit sector. Relatively few organizations are large enough to provide a long-term career path in the finance function. There are typically only a few layers between clerk and finance leader, so you may need to move to other organizations to take on progressively challenging roles. 

Become a value accumulator — Within the finance function, there are four broad levels of activity associated with adding value: 

• The lowest value-add is transaction processing. While these tasks need to be performed, they are typically automated or outsourced.  
• The next level is analysis — taking data produced by transaction processing and interpreting it into information. The processing adds value (if done well) and allows for better decision-making at management levels. 
• The third value-add level is advisory. This is taking the information from analysis, interpreting it further, and making recommendations for specific actions to be taken. This is the level that most CPAs reach. 
• The final level of value-add is strategic planning and execution. This is moving from making recommendations to utilizing analysis, interpretation and broad perspective to plan future actions and execute on those plans. 

Moving from level one to level three requires expanding your education and experience. Making the jump to the fourth level requires broad perspective and leadership skills; in this case, that means gaining a real understanding of operations and other nonfinance functions. 

In the nonprofit sector, limited staffing often results in mid- and senior-level leaders taking on responsibilities outside of the normal functional lanes. So, as you look to develop your career, take advantage of assignments or projects that broaden your experiences outside of finance. Develop your leadership style by looking for projects that engage all parts of the organization; bring your financial expertise, but be sure to listen and look for solutions regardless of functional area. 

Find your voice — As your career develops, be the “can-do” resource that is willing to balance short-term needs with long-term thinking. Nonprofits can rarely survive finance folks with a simplistic “no” attitude. As discussed earlier, these organizations think with their hearts; your value will diminish if the only option you present is what is best for the bottom line today. Your job is to ensure the financial stability of the organization, but sometimes that means doing something negative in the short term to open good opportunities in the long term. There are also times in a nonprofit when a critical short-term need arises and must be addressed, so you need to find and walk the line. Don’t be a member of the budget police; be creative and look for solutions. 

Don’t burn out — One serious concern is overworked staff. This can be common in the nonprofit sector because there are often much bigger needs than resources, a situation that can continue for a considerable time. Since many of the staff are driven by the mission, they try to make up for the lack of resources by taking huge volumes of work onto themselves. Sometimes this continues until the person literally cannot work any longer. Here are a few tips to avoid job fatigue: 

• Be mindful of your own limitations. 
• Look for ways to avoid overwhelming workloads for yourself and your staff. 
• Observe and interact with peers and colleagues to make sure they are not getting burned out. 
• Intervene when necessary. 

Bottom line 

If you are considering transitioning from the for-profit sector to the nonprofit sector, kudos to you! The sector needs skilled financial professionals who are ready to roll up their sleeves and aid in the successful delivery of countless missions. Nonprofits are not easy, but there is great personal satisfaction in working for the good of others. 

Before you make your decision, get to know the sector, warts and all. When you do decide to make the move, you will be embarking on a career, not a short-term visit. And you will need to develop your new career by continuing to gain relevant education and experiences, broadening your perspectives, and growing your personal value-add. 

The nonprofit sector really is a two-way street. You will get back from it what you put into it, but the added bonus is that you are doing good for others along the way.
 

Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at [email protected] or on Twitter @mfccoach. 

Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.”