Nonprofit organizations are facing a rapidly evolving environment where funding uncertainties, increased service demands, and staffing challenges intersect.
In light of these trends, BTQ Financial surveyed over 100 nonprofit leaders on the top finance challenges they face, and the strategies that can help address them.
BTQ’s Andrew S. Perumal, Partner and Director of Client Operations, and Sisil John, Senior VP of Finance, sat down to discuss the survey’s findings and highlight how BTQ is working with nonprofits to address and reduce those challenges.
Survey Scope
Nonprofit leaders including CEOs, executive directors, founders, and COOs contributed their insights on critical financial challenges. Annual budgets represented in the survey ranged from $3 million to $200 million.
The survey captured feedback from a diverse range of nonprofits, from small community-based organizations to large national providers.
Despite organizational differences, leaders reported a common set of financial management issues.
The Nonprofit Landscape
Today’s nonprofits navigate a “perfect storm” of rising service demands, funding complexities, and political uncertainties.
For many, maintaining financial health is a balancing act of mission delivery and risk management.
Key Statistics
- Essential Services: 83% of Americans consider nonprofit services—such as social services, education, and housing—to be essential.
- Financial Risk: Between 60%–80% of nonprofits could face serious financial danger if federal grants are disrupted.
- Policy & Funding Concerns: 70% of nonprofit leaders worry that the current political climate will negatively affect their organizations.
It’s clear these programs aren’t just “nice-to-have”, they serve an essential role in their communities. However, the hard truth is that a majority of nonprofits could find themselves at serious financial risk.
Major Financial Management Challenges
Six critical themes emerged from the survey regarding the top financial management hurdles:
- Financial Sustainability & Risk Management: Leaders need better tools and bandwidth to proactively plan.
- Accurate & Timely Financial Reporting: Multiple funding sources and reporting requirements cause complexity.
- Audit Readiness & Regulatory Compliance: Ongoing prep is needed year-round, not just during audit season.
- Scaling Finance as Organizations Grow: Systems and processes often fail to keep up with rapid changes.
- Consistent Financial Processes: High staff turnover or remote setups can lead to inconsistent record-keeping.
- Low Operating Reserves: Many nonprofits run with limited or nonexistent reserves, leaving no margin for error.
“Many leaders are actively trying to assess their financial sustainability and manage risk, but often without the tools or bandwidth to do it in a proactive way,” observed Perumal.
Hiring and Turnover in Finance
High turnover in finance roles disrupts operations, causing knowledge loss and delays. According to the survey, only 28% of respondents reported that turnover in the finance function was “rare,” whereas the majority deal with frequent or occasional staffing gaps.
Key Takeaways
- Frequent Turnover: 72% of organizations noted occasional, frequent, or very frequent staff turnover in finance roles.
- Continuity Gaps: Finance staff turnover can lead to inconsistent reporting processes and institutional knowledge loss.
- Leadership Strain: Executive directors and CEOs often step in to fill finance roles during vacancies, detracting from strategic tasks.
- Compliance Risks: Delays in audit preparation and compliance efforts become more likely when teams are short-staffed.
Systemic Issues in Nonprofit Finance
While turnover is a major concern, the survey data reveals deeper underlying challenges, ranging from lengthy monthly closes to frequent budget reforecasts, that suggest process or infrastructure gaps.
“It’s not just a hiring challenge… these challenges reflect something more foundational—nonprofits need more scalable, strategic finance operations.”
Key Findings
- Longer Month-End Closings: An average of 19 days to close the books, with some organizations taking 30+ days.
- Frequent Cash Flow Problems: 74% of leaders experience cash flow issues, underscoring the need for stronger financial planning.
- Budget Reforecasts: Over half of organizations reforecast frequently, highlighting the difficulty in maintaining stable financial projections.
“An average of 19 days to close the books isn’t just a staffing lag—it’s a sign that processes and systems may not be fully optimized or resilient.”
Outsourcing Finance: A Growing Solution
Although 100% of surveyed nonprofits outsource at least one function (e.g., IT, legal), only 30% currently outsource finance – despite the many benefits a specialized finance partner can provide.
Outsourced Finance Benefits
- Strategic Expertise: Access to professionals skilled in FP&A, grants management, and compliance.
- Reduced Burden on Leadership: Leaders can refocus on mission-driven activities.
- Systems Optimization: Finance partners often streamline or provide their own financial tools and technologies.
- Scalability: Partners can help organizations effectively manage growth or navigate sudden funding cuts.
“Working with a strategic finance partner, if it’s done right, delivers the structure, visibility, and capacity nonprofits need… without burning out their teams.”
Top Reasons Nonprofits Use Finance Partners
Among the organizations currently working with a third-party finance partner, the survey responses highlighted the most common motivations:
- Leadership Focus: More time for executives to handle mission-driven work.
- Streamlined Processes: Partners help establish consistent, effective accounting workflows.
- Timely & Accurate Reporting: Critical for compliance, audit prep, and strategic decision-making.
- Specialized Expertise: Access to experts in grants, audits, revenue recognition, and more.
- Cost Savings: Outsourcing can reduce overall finance function expenses (including systems and staffing).
“One of the biggest reasons is more time for leadership to focus on mission-driven activities… It’s really not just about the numbers.”
BTQ’s Finance as a Service (FaaS) Model
BTQ specializes in providing comprehensive Finance as a Service (FaaS) tailored for nonprofits.
The comprehensive approach extends beyond typical accounting support, providing strategic insights and continuous operational improvement.
Their support spans from day-to-day transactions and reporting to strategic analysis, grants management, and even medical billing.
- Customizable Support Models: Full-service finance or stand-alone options
- Core Service Areas: Day-to-day accounting and transaction support, strategic CFO-level guidance, grants and contracts management, and medical billing (revenue cycle management).
- Long-Term Partnerships: 86% of BTQ clients have been with the firm for 5 years or more.
- Proactive Finance: Emphasizes forward-looking strategy and risk mitigation.
- Scalable Solutions: Clients range from $1 million to $200 million in annual budgets.
As Perumal says, “BTQ’s motto is: it’s your mission to create a better world, and ours is to help.”
Key Takeaways for Nonprofit Leaders
Nonprofits must address systemic challenges, both operational and staffing-related, to remain resilient.
Reflecting on the broader themes, these core insights capture the essence of the challenges and opportunities identified:
- More Than a Hiring Issue: Financial struggles often point to deeper process and infrastructure gaps that require a strategic solution.
- Partnerships Provide Stability: A trusted finance partner can bring stability, expertise, and structure, freeing leadership to focus on mission.
- Readiness for Growth or Change: Building scalable processes ensures nonprofits are prepared for funding fluctuations and expansion.
- Added Value of Specialized Teams: Fractional CFOs and dedicated finance experts can bolster compliance, audits, and strategic planning.
- Underused Outsourcing: Despite outsourcing in IT or legal, many nonprofits still overlook finance outsourcing—even though it can significantly boost organizational capacity.
“Now more than ever, nonprofits really need a strong financial and accounting partner in their corner… people that understand the landscape and can help build flexibility and planning.”
When Should You Consider Bringing in a Finance Partner?
For nonprofits unsure about outsourcing and the ideal timing for bringing in a finance partner, many of BTQ’s clients “come to us at a critical inflection point—when they experience issues with cash flow, internal crises, or leadership changes.”
If your organization struggles with timely closes, ever-changing compliance rules, or staff turnover, consider exploring a finance partnership with BTQ.
We have tailored and scalable solutions to help strengthen operational efficiency and mitigate risk, so you can focus on what truly matters: advancing the mission and serving your communities.