Is Your Finance Function Built to Support Your Mission?

Five strategic questions for leaders of arts and cultural nonprofits to assess the effectiveness of their financial operations in supporting 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.

1. Does our budget actually reflect our strategic priorities?

A lot of organizations put real effort into their strategic plan and then build a budget that looks a lot like last year's budget. The strategic priorities end up in one document, and the money ends up in another, and they don't have much to do with each other. That makes it harder to hold programs accountable, harder to make tradeoff decisions, and harder to show funders that you're allocating resources intentionally.

We look at whether your budget is organized in a way that connects to your programs and goals, whether the numbers reflect conscious choices or just historical patterns, and whether leadership has the variance reporting it needs to track how the year is actually going versus how it was planned. For organizations thinking about a capital campaign, a program expansion, or a shift in revenue mix, that foundation matters a lot.

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 staying on top of grant compliance and restricted fund tracking?

Grant compliance tends to get treated as paperwork until something goes wrong, and then it becomes a much bigger deal very quickly. An expense coded to the wrong grant, a report that slipped past its deadline, a restricted fund that got used to cover an operating gap: any of these can damage a funder relationship that took years to build. With government arts funding under pressure and more organizations competing for foundation dollars, those relationships are worth protecting carefully.

Beyond individual grants, compliance also means keeping your Form 990 and state registrations current, having a real conflict-of-interest policy, and making sure expense approvals are documented. We look at how restricted funds are tracked in your accounting system and whether your compliance practices have kept up as your funding portfolio has grown.

Areas We Review

Current grant contracts, the last two years of audited financials, your accounting policy manual if you have one, and how restricted funds are categorized and tracked in your system. While some organizations are grant-dependent, others have a high volume of contributions both with and without donor restrictions.  We evaluate how the organization is accounting for contributions.

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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Why Charles River CFO is the Partner You Need

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

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Discover how Charles River CFO can support your organization's financial needs. Visit www.crcfo.com to learn more about our services and to get in touch with us to schedule a consultation.