Finance and accounting departments often find themselves in an unenviable position as the proverbial “Department of no”, at both nonprofit and for-profit organizations. Because they are in charge of managing assets in a way that both satisfies short term and long term organizational goals, this balancing act can lead them to sometimes be forced to throw cold water on new ideas or projects, or remind other teams of their financial limits. This is felt acutely at nonprofits, which rarely are able to depend on consistent streams of funding and often have to err on the side of frugality.
As a nonprofit leader, you are probably already preparing for the coming year and the changes it could bring. Throughout the nonprofit world, CFOs are taking a close look at the many directions their organizations could go in 2025, and are working to budget accordingly. Many of the transformative new technologies and changes to the status quo of recruitment and retention will continue or even expand, creating greater risk and expanding the skills expected of finance professionals. However, the relative stability of the economy and the slowing of inflation could provide a stronger base of funding from small donors. Here are some of the things that your financial team will be planning for in 2025:
Digital transformation will increase, with both positive and negative outcomes
The complete shift to online platforms, automated data collection and storage, and even small-scale operations and donations becoming digital transactions has reached nonprofits of every size. As financial professionals become more familiar with and dependent on this real time data collection, they will be able to harness it to easily obtain a more complete understanding of their organization’s financial health. This will also lead to a shift away from traditional methods like monthly or quarterly financial reporting, instead allowing finance departments to provide continuous transparency into the financial state of the organization.
With this added convenience and speed comes greater risk, as the lakes of data become compliance and security risks. The collection, storage, and analysis of donor data, contact information, or information related to those using the nonprofit is governed by data privacy laws like GDPR or CCPA, adding highly technical legal compliance to the list of CFO needs. Additionally, this data can prove attractive to scammers or nefarious actors, which necessitates greater digital security measures and training.
Transparency and ethics will be emphasized
Growing public interest and political attention paid to issues like sustainability, ethical hiring and organizational support, and in the details of nonprofit fundraising will push the financial department and their disclosures into the spotlight. There has been a marked decrease in trust in nonprofits and philanthropic efforts over the last couple of years, likely due to the broad mistrust of institutions in general but also due to factors like broad economic insecurity, inequality, and the proliferation of public awareness of donor networks.
Increased public awareness of the financials of each nonprofit, and the greater accessibility of this information to donors, will continue to inform how much people give, to whom, and when. Your financial team and CFO will need to go the extra mile to make sure this information is available, as donors are much more likely to donate to organizations and causes that see their donations having the greatest direct impact on the cause itself. Additionally, many potential donors or others interested in your organization will want to know more about any large-scale donations that could impact your organization’s relationship to your mission. High-profile scandals and awareness of “astroturfing” have eroded public trust for mission-driven advocacy groups, making financial transparency a much higher priority for donors.
Recruitment and retention will be a significant hurdle
Nonprofits often struggle to compete with organizations in other sectors for specialized talent. Because they don’t typically promise gaudy salaries or cushy perks, many technical or highly educated job seekers turn away from nonprofit work. This is a constant issue, and will continue to be one going forward, but other factors may make it an area of extreme difficulty for nonprofit financial teams.
The last five years have seen a massive decline in the number of CPAs across all industries, leading to a widespread shortage of qualified financial professionals and accountants. The causes for this shortage are many, including a growing attraction to other industries like financial technology (FinTech), the high barrier to entry for certifications, and the high cost of education. Some have also suggested that the increasing popularity of accounting technology tools has created a perception issue, leading many to consider accounting “replaceable”, which then leads to less people becoming accountants.
This shortage, in addition to the typical challenges that nonprofits face when filling out specialized roles, could be a potentially major hurdle for many mission-driven organizations.
Compliance with wage and tax law becomes more complex
Although the creation of plug-and-play finance platforms and tools has worked to alleviate this issue somewhat, the standardization of remote and hybrid work arrangements has created significant new challenges for finance departments. While the push and pull between those wanting a return to office and those desiring more flexibility has abated somewhat, it’s clear that remote work is popular enough that it’s likely to at least stay the same if not expand in the coming year.
For financial teams, the potential money saved can be attractive, but there are added costs as well, with additional attention needed on tax laws, labor and wage compliance, and other accounting issues. Technical fixes and financial management tools are already in place to address this issue, but it could be a continual source of issues in the coming year.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
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