Is Your Finance Function Built to Support Your Mission?

Five strategic questions for leaders of arts and cultural nonprofits to assess whether their financial operations can support their future work.

by Dorcas Riley, CPA

Nonprofit and Social Enterprise Practice Leader

We work with many arts and cultural nonprofits, and one thing we hear pretty consistently from Executive Directors is some version of this: "I know our finances aren't where they need to be, but I'm not sure exactly where the gaps are." That's a hard place to lead from. And it's more common than most people admit publicly.

A structured financial assessment addresses that uncertainty directly. Below are the five questions we ask, and why each one matters.

1.  Does our budget actually reflect our strategic priorities?

Many organizations invest significant effort in strategic planning and then build a budget that looks nearly identical to the previous year's. Strategic priorities end up in one document; the money ends up in another — and the two don't have much to do with each other.

This disconnect makes it harder to hold programs accountable, harder to make trade-off decisions, and harder to demonstrate to funders that resources are being allocated intentionally. For organizations considering a capital campaign, a program expansion, or a shift in revenue mix, a budget-strategy gap creates real risk.

Areas We Review

Your income statement and variance analysis, current budget by program or department, cash flow projections, and any strategic or operational plans, reviewed together to see how well the money follows the mission.

2.  Do we know what our cash position will look like in three months?

Arts organizations tend to have lumpy cash flow. Ticket revenue comes in waves, grant reimbursements arrive on their own schedule, and the gala happens once a year. Most leaders know roughly when the tight months are, but "roughly" isn't always enough. The organizations that handle cash flow well are usually the ones that are looking at a rolling projection regularly, not just reacting when the balance gets low.

We ask whether you have a current cash flow projection, whether it gets updated regularly, and whether the Executive Director and Board are actually reviewing it. We also look at whether you're using tools like a line of credit or controlled draw timing effectively, or whether those options haven't been fully explored yet.

Areas We Review

Your latest balance sheet, cash flow projections, bank reconciliation practices, and the financial reports going to management and the Board, with an eye toward whether the right people are seeing the right information often enough.

3. Are financials on time, and is our Board getting reports it can use?

This one comes up a lot. Board members at cultural nonprofits are often incredibly talented people who want to help govern well, but if the financial packet arrives the night before the meeting, or if the reports don't include a comparison to budget, there's not much they can do with that information. Good governance requires good data, and good data requires a finance function that's closing the books consistently and reporting in a format that makes sense.

We look at whether books are closing on the same schedule each month, whether variance analysis is included in Board reporting, and whether there are basic controls in place, like the Executive Director signing off on bank reconciliations. That last one is simple but important, and it's one of the first things we ask about.

Areas We Review

Month-end closing schedules, the last two Board meeting financial packets, your chart of accounts, and whether bank accounts are being reconciled monthly with appropriate sign-off.

4. Are we proficient in accounting for grants and contributions with donor restrictions?

Grant compliance tends to get treated as paperwork until something goes wrong, and then it becomes a much bigger deal very quickly. Donor restrictions add a layer of complexity that makes this one of the most technically demanding areas of nonprofit finance, and one where the consequences of mistakes are felt both financially and reputationally.

Donor-restricted contributions must be tracked and reported separately from unrestricted operating funds. This is a GAAP requirement under ASC 958, not just a bookkeeping preference. Most accounting systems require deliberate configuration to enforce these boundaries.

Beyond restricted fund accounting, compliance means keeping expenses attributed to the correct grant, meeting reporting deadlines, and ensuring restricted dollars are released only when conditions are genuinely satisfied. We also look at whether your Form 990 and state registrations are current, conflict-of-interest policies are functional, and expense approvals are documented in a way that would hold up to funder scrutiny.

Areas We Review

Current grant contracts and award letters, the last two years of audited financials (with attention to net asset footnote disclosures), your accounting policy manual, and how restricted funds are tracked in your system. For organizations with high contribution volume, we evaluate whether your accounting infrastructure can support the level of restriction tracking your funding portfolio requires.

5. Is the right person, or the right structure, handling our finances?

This is the question that sometimes catches people off guard, but it's usually one of the most useful conversations we have. A lot of arts organizations have a finance setup that made complete sense at an earlier stage but hasn't evolved as the organization has grown. Maybe one person is handling things that really need two. Maybe the Executive Director is doing more financial management than they should have to. Maybe an outsourced bookkeeper who was perfect five years ago isn't quite the right fit for where the organization is now.

We ask about the structure directly: who handles what, what the skills are of the current staff, and how the Executive Director honestly rates their own comfort level with financial information. We also talk to Board members and finance staff separately. The goal is just to understand what's actually happening and whether the structure supports the organization's needs, and if not, what a better fit might look like.

Areas We Review

Org charts, job descriptions, and how financial responsibilities are currently divided, combined with conversations with the Executive Director, finance staff, and Board members, to get a full picture of what's working and what isn't.

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Wondering whether a financial assessment makes sense for your organization?

We're happy to talk through what the process looks like and whether it makes sense for where your organization is right now.

LET'S HAVE A CONVERSATION

Discover how Charles River CFO can support your organization's need for flexible, expert financial support. Develop the financial information that gives you the confidence to grow your nonprofit. Visit www.crcfo.com to learn more about our services and to get in touch with us to schedule a consultation.