Understanding the Divergent Views and Finding Common Ground
As a nonprofit chief executive, how many times have you been in meetings where the development director says they raised $X amount of dollars this year, yet the finance director insists it is $Y? The discrepancy in numbers often sparks confusion and tension. However, despite the conflicting data, both professionals could be correct from their respective viewpoints. Understanding the motivations and imperatives that drive each professional’s perspective is key to resolving these discrepancies.
The Perspective of the Development Professional
Development professionals are primarily focused on achieving fundraising goals. Their mission is to secure the necessary funds to support the nonprofit’s programs and initiatives. In their quest to meet these targets, development professionals might count funds based on pledges, multi-year grants, and commitments made within the current fiscal year. For instance, if they secure a multi-year grant from a foundation, they may count the current year portion of the grant towards their annual goal. This method helps them to demonstrate progress and success in their fundraising efforts.
From the development professional’s viewpoint, it is imperative to illustrate the momentum and effectiveness of their strategies. They often track funds based on commitments and pledges, as these show the promise of future funding and help inspire confidence in their work.
The Perspective of the Finance Professional
On the other hand, finance professionals operate under strict accounting principles and guidelines. Their responsibility is to present an accurate and comprehensive financial picture of the organization. According to accounting standards, any unconditional promises to give must be booked as revenue on the income statement in the current year, regardless of when the funds are actually received. This approach ensures that the nonprofit’s financial statements reflect all secured revenues and liabilities.
Finance professionals are driven by the need to maintain transparency and accountability. They adhere to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), which mandate that all financial transactions be recorded in the period they occur. This stringent adherence to accounting rules is crucial for audits, financial reporting, and maintaining the trust of stakeholders.
The Discrepancy and Its Implications
The discrepancy between the development and finance professionals’ numbers can cause misunderstandings and friction within the organization. While the development professional may report a promising financial outlook based on pledges and commitments, the finance professional might present a more conservative view, focusing on the actual revenue recorded.
This divergence can lead to confusion among management, the finance committee, the fundraising committee, and the board of directors. It is essential for these professionals to come together and align their reporting methods to provide a coherent financial narrative.
Creating a Crosswalk: Bridging the Gap
To reconcile these differences, it is crucial for development and finance professionals to collaborate and prepare a crosswalk. A crosswalk is a tool that maps the differences between the two sets of numbers and explains the rationale behind each perspective. This document should outline:
- The total amount of funds pledged or committed by donors.
- The portion of multi-year grants attributable to the current fiscal year.
- The accounting treatment of pledges and promises to give according to GAAP or IFRS.
- A clear explanation of how and when these funds will be recognized as revenue.
By creating a crosswalk, both professionals can present a unified financial picture to the management and volunteer leaders. This transparency fosters understanding and trust, allowing the organization to make informed decisions.
The Role of Communication and Education
Effective communication and education are vital in bridging the gap between development and finance. Regular meetings and open dialogues can help both parties understand each other’s methodologies and constraints. Training sessions on accounting principles for development professionals and insights into fundraising strategies for finance professionals can also enhance mutual understanding.
Moreover, it is beneficial to involve key stakeholders, such as the finance committee, fundraising committee, and board of directors, in these discussions. Educating them on the differences in reporting and the reasons behind these discrepancies can lead to more informed decision-making and support for both departments.
Best Practices for Harmonizing Development and Finance
To ensure a harmonious relationship between development and finance, nonprofits can adopt the following best practices:
- Establish Clear Guidelines
Develop clear guidelines and policies for reporting fundraising activities and financial transactions. This includes defining what constitutes a commitment, pledge, or revenue and how each should be reported. - Regular Reconciliation
Conduct regular reconciliation meetings between development and finance teams to review and adjust the reported numbers. This helps to identify and resolve discrepancies promptly. - Integrated Software Systems
Utilize integrated software systems that allow seamless data sharing between the development and finance departments. This reduces the risk of discrepancies and ensures consistency in reporting. - Foster a Collaborative Culture
Encourage a collaborative culture where both departments work together towards the common goal of the organization’s financial health. This can be achieved through joint projects, team-building activities, and shared performance metrics. - Transparent Reporting
Ensure transparent and consistent reporting to all stakeholders, including management, committees, and the board. Provide comprehensive explanations of any differences in reported figures and the methods used to calculate them.
Conclusion
While development and finance professionals may have different perspectives on reporting fundraising achievements, both play critical roles in the nonprofit’s success. By understanding each other’s motivations and constraints, collaborating on a crosswalk, and adopting best practices, nonprofits can bridge the gap between these two vital functions. This alignment not only enhances financial transparency but also fosters a cohesive and effective organizational strategy. Ultimately, the goal is to present a unified financial narrative that supports the nonprofit’s mission and inspires confidence among all stakeholders.
Building Confidence and Competence in Financial Management
For nonprofit leaders, building confidence and competence in financial management is imperative. This can be achieved through continuous learning, seeking mentorship, and leveraging financial management tools. By enhancing their financial acumen, leaders can make more informed decisions, optimize resource allocation, and ensure the long-term viability of their organizations.
For those nonprofit CEOs who find financial management issues such as the one described in this narrative daunting, there is help available. Nonprofit Financial Acumen aims to demystify crucial aspects of leadership. Recognizing that many CEOs might lack formal training in finance, the organization offers tailored resources and guidance to bridge this knowledge gap.
Nonprofit Financial Acumen focuses on educating chief executives of small to mid-sized nonprofit organizations. With four decades of hands-on experience in financial management and fourteen years of graduate-level teaching, the company has developed a comprehensive methodology to help leaders navigate the complexities of nonprofit finance.
Our flagship offering, Navigating Nonprofit Finance: A Course for Leaders, is a ten-module, self-directed course that gradually layers financial concepts. It provides a thorough understanding of nonprofit finance, equipping CEOs with the knowledge and skills needed to manage their organizations’ finances effectively and sustainably.
