How to Financially Grow as a Nonprofit with Stephanie Skryzowski

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In this episode, Shannon sits down with Stephanie Skryzowski, a fractional CFO specializing in nonprofit organizations, to uncover the unique financial challenges they face. If you're considering forming a nonprofit or wish to better manage the finances of an existing one, read on for insightful highlights from their conversation.

Managing a nonprofit comes with a unique set of challenges, many of which parallel those faced by traditional businesses but with distinctive twists. One key area is financial management. As Stephanie notes, while nonprofits share some financial problems with businesses, they often encounter tougher hurdles. "Nonprofits have a responsibility to have a budget," Stephanie states. This requirement underscores the necessity of robust financial oversight, highlighting the integral role of a board of directors in maintaining fiduciary responsibility.

One common myth is that starting a nonprofit can serve as a tax shelter or a quick way to dodge taxes. Stephanie debunks this myth and explains why it’s far from the truth. "First of all, it's not an easy feat to start a 501(c)(3) nonprofit organization in the US," she says. The process involves significant paperwork, a well-defined mission, and a board of directors. Moreover, a nonprofit’s revenue should stem from a diverse range of donors. Relying solely on one source of funding can jeopardize its public charity status.

An often-overlooked responsibility of running a nonprofit is undergoing audits. Requirements for an audit vary by state, but many nonprofits will inevitably face this rigorous process. Stephanie warns, "An audit can cost anywhere from $10,000 to $50,000, depending on the size and complexity of the organization." Aside from audits, nonprofits also have to file a Form 990 tax return, a document rife with specific schedules and questions that can influence future funding opportunities. Since this information is public, it's not just a matter of compliance but also of reputational significance. Donors and potential grant-making bodies scrutinize these forms to assess a nonprofit's financial health and trustworthiness.

Cash flow is a relentless challenge for nonprofits, making rigorous financial forecasting indispensable. Shannon and Stephanie emphasize that a nonprofit must manage its cash flow meticulously to ensure sustainability. One notable distinction Stephanie draws is between pledged and collected funds. Nonprofits often report pledged donations based on GAAP (Generally Accepted Accounting Principles), yet cash might not arrive when expected, complicating real-time financial management. She underscores the importance of understanding the difference between cash and accrual accounting and preparing a cash flow forecast to navigate financial uncertainties. "In fact, we help nonprofits build a cash reserve since many operate with less than three months of cash on hand, often barely making payroll," Stephanie says.

Fundraising is another area laden with emotional and financial complexity. Nonprofits frequently hold events like galas, where high-spirited donors make generous pledges. However, not all pledged funds materialize, putting the organization at financial risk. Shannon adds, "When excitement wanes, those high-ticket pledges sometimes never come through, amplifying financial strain."

To mitigate these myriad challenges, nonprofits must adopt strategic financial planning. Stephanie advises that they need to forecast cash flow, track both cash and accrual accounts, and build a cash reserve. Beyond merely surviving the fiscal year, these steps ensure that nonprofits can consistently serve their mission and community without interruption. Stephanie’s insights illuminate that successful nonprofit management extends beyond passion and dedication. Maintaining financial health requires the same level of savvy and strategic planning seen in for-profit businesses. By acknowledging and preparing for these challenges, nonprofit leaders can create a stable foundation for their organizations, ensuring long-term impact and vitality.

Shannon and Stephanie’s discussion highlights the intricate balance of heart and head required in the nonprofit sector. While driven by noble missions, nonprofit leaders must cultivate robust financial acumen to navigate the complex terrain effectively. Understanding requirements like audits, cash flow management, and strategic financial planning are crucial steps toward sustainability and success.

If you’re considering forming a nonprofit or enhancing the financial health of an existing one, apply these insights to guide your way. Remember, as Stephanie wisely points out, the financial side of running a nonprofit, though challenging, is where the real impact begins.

Stephanie Skryzowski is a visionary Chief Financial Officer who helps nonprofit leaders better understand and use their numbers to make smart decisions to grow their bottom line and their impact. She is the Founder and CEO of 100 Degrees Consulting which provides financial strategy and bookkeeping services to nonprofits around the globe.

LinkedIn: https://www.linkedin.com/in/stephanieskryzowski/

Instagram: https://www.instagram.com/stephanie.skry

Business Instagram: https://www.instagram.com/100degreesconsulting/ 

Website: https://100degreesconsulting.com/ 

Stephanie’s forecasting template: https://100degreesconsulting.com/cash 

List of the best tools for nonprofits: https://100degreesconsulting.com/tools 

What you'll hear in this episode:

05:15 Transitioned from law to nonprofit accounting career.
07:40 Embracing change, seeing opportunities beyond comfort.
10:53 Excited to learn and debunk nonprofit myths.
14:34 Nonprofit funding often comes with restrictions.
16:33 Cash flow affects talent, mission, and survival.
20:41 Discrepancy in cash and accrual accounting explained.

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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.