69: Stephen Newland on the Intersection of Finance and Nonprofit Work
Over the past 15 years, Stephen Newland has worked in finance roles at a variety of organizations including nonprofits, startups, early-stage companies, and Fortune 500. Stephen believes in making finance simple & actionable!
When he’s not heads down in a spreadsheet, he loves to spend time with his wife and daughter at a local coffee shop or watching his favorite Cincinnati sports teams!
Connect with Stephen:
Main Quote:
Once we've got good financial information, how do we turn it into very simple and actionable insights to drive the organization forward? The foundation of that is a forecast. I'm such a believer in it because I have seen it do wonders for organizations.
Additional Quotes:
The absolute best finance people are essentially the Rosetta Stone for financial statements and they can take the financial statements and create a story with it and say, ‘here's what the organization is doing.’
Leaving well is providing the space for whoever comes behind you to step in and have the freedom and flexibility to put their spin on the organization.
Take the Transition Readiness assessment
To learn more about Leaving Well
This podcast is produced by Sarah Hartley
Transcript:
Over the past 15 years, Stephen Newland has worked in finance roles at a variety of organizations, including nonprofits, startups, early stage companies, and Fortune 500. Stephen believes in making finance simple and easy. And actionable when he's not head down in a spreadsheet. He loves to spend time with his wife and daughter at a local coffee shop or watching his favorite Cincinnati sports team.
Stephen, I'm excited to have this conversation because I think that not enough of us are in the nonprofit space talking about finance and especially like in your bio being simple and actionable. So I'd love to start out by just asking you to talk about the similarities between nonprofit finance needs and those of startups or corporate companies.
Yeah, it's a great question. I get it. I get it a lot. Um, and I feel like I've probably changed my answer on this somewhat over time. I would say for the, for the vast majority of things, it is very, very similar, but there's definitely some, some key differences. So the things that are similar is. Every organization needs a budget, you know, operates off of a budget.
Every organization needs to report to, whether it's their board or their leadership or whoever, there's some sort of reporting involved. Every nonprofit and business paid pays bills. You have to like pay staff a reasonable wage to retain them and like provide, you know, great benefits. So those are all very, very similar things that just don't change regardless of the organization.
In some senses, though, I actually think it's harder to manage non profit finances than it is in business finances. And here's a couple, a couple reasons why. There's more scrutiny around how money is spent. Oftentimes, you don't hear, yeah, uh, I mean, there's some of this out there where you might criticize, like, But like how a business might spend money, but rarely are you like, I wonder how that coffee shop down the street is really spending that money.
But you would do the same thing or you would do the exact opposite thing for a nonprofit in your area. If you knew, hey, like they're making how much money or there's, they're going out to like, This many team lunches or whatever, whatever, like insert something here. So there's a lot more scrutiny around it.
One other thing is audits happened a lot earlier, and that means there's just more administrative work to do on the organization. So I've been a part of startups and oftentimes you're not having to do an audit until, and this, this varies. So this is like a blanket statement. That's a generalization, but maybe around five to 10 million in revenue.
Well, most nonprofits are having to do an audit or starting to prepare to do an audit around 500, 000 to a million. And it's just very early in an organization. You're just trying to figure things out at that, at that level. Um, and you don't have the resources that a five or a 10 million organization has to invest in, you know, like all this finance overhead nonprofits have to track administrative and fundraising percentages and.
In fact, in startup world, it's like, Hey, we want to go spend more and more, more money on sales because we want to generate more, more revenue. Um, but that's criticized in the nonprofit world and it's in the scrutinized, but that's how we grow. So those are just a couple of things. There's, there's one or one or two other things.
I'll mention this, the, the difference between why something is called a nonprofit and a for profit. There's no owners of a nonprofit. And so, When you sell an organization, you know, the owner of a business can profit from that and there's no real owner of a nonprofit. So someone starts a nonprofit. They can't go sell this nonprofit.
And so they're building this for kind of social capital and just the ability to do to do good in the world. So those are the differences. I could go. I could go more, but I'll stop there. Well, I'm glad you said those things. I think the other thing that I would love you to talk a little bit about is that almost.
Well, I won't say almost all, but a lot of the nonprofits I work with also don't have a strong finance team, if at all, but definitely not at the beginning, and so I'd love for you to talk a little bit about that and your, the services that you offer and what you see or feel that most nonprofits need to think about when they think about their financial health.
Yeah, it's a great question. The first place I always start is just having like solid bookkeeping in place, which is not fun. It's not fun to think about. Um, but it really is like the core of everything. Just like if you're a fundraiser, like having good information on your donors, if you don't have good information on your donors, it's really hard to cultivate them and to, and to, you know, to, to lead them well.
And to try to find extra dollars there, I would say like, it's better to spend a little bit more on bookkeeping and just have that process in place because I have seen time and time again with a lot of businesses and nonprofits, they, they get down five, three, five years down the road and they felt like some of their processes and some of their financial data is just messy and it causes like so much more heartburn and headaches down the line.
They're trying to apply for grants. That grant is asking for three years of financial statements and they're like, I don't want to show year one because it looks really bad or it's really messy. And so I always say, you don't want to spend it at the time. You don't want to invest in that at the time, but it's so worth it.
Um, so that's like, first don't overlook the foundation. Um, and then I, I like, I'm like a. Evangelists for having for every nonprofit, having some sort of a forecast in place. Um, a lot of them do a budget and a budget is good, but it just get kind of gets put on a shelf a lot of the time. And we don't think about it until, you know, the board or somebody asks a question about it.
But a forecast is a living, breathing document that helps guide the organization of, Hey, if we go do this strategic hire, because things have changed and it's out June and that budget is just like kind of obsolete at this point. But if we had a forecast in place, like, and think, and we want to go make a strategic hire, that's going to tell us, Hey, are we, are we good to do that?
Or are we okay? Or it's going to put us in trouble. So those are a couple of things that come to mind. I love that. Do you see forecasts being something that EDs then bring to their board's attention on a regular basis? Or is the forecast more internal? Or just the leadership team. I've seen both, but I, how I tend to operate is I, I like to go with full transparency and I like to put it in front of the board.
So one of the reports that I always put together for organizations is a, and I call it an actuals plus forecast versus budget. And so what that means is let's say it's, it's, um, The end of September, we have nine months of actual financial data. Um, and then we might have October through December as a forecast.
So I would always show a full year actuals that, uh, we call it like a nine plus three or like nine months of actuals, three months of forecast. And I would show that versus the budget. And I would say, Hey, here's where we're trending versus where we originally had thought for the year. And then I also always share, here's how many months of cash we have on hand, um, because then that makes the board feel a little bit more at ease as they're managing the, the overall, you know, strategy and, and, um, uh, organization.
I've never heard of an actuals plus forecast. It's always actuals versus budget. And I love that. What ideas do you have for non profits to manage cash flow? And the specific part of my question is during an ED or CEO transition. So, strong financial habits, all of that. I'd just love to hear your thoughts, uh, because that's, it's one thing for people to be learning from you for things that they should have in place, and then it's another kind of scarier thing to think about.
What do you do in a transition? Yeah. I mean, that's the first thing I would say that I would do if I was, if I was entering a transition, I would want to know like, how much cash do I have on hand and what are the next three, six, nine months look like, um, you know, in, in terms of my cash. Um, because the reality is if the organization has cash, it can keep its doors open and keep serving, uh, you know, its clients and keep driving its mission forward another day.
But if that cash goes away, That, that means the mission is cut off. So that's the, that's one of the first places I would look, um, you know, just to, and it doesn't have to be some elaborate thing. I think a lot of times those finance and accounting people like way over complicate things. I say, even if it's just a very simple, like, Hey, here's how much we had in cash the end of the month.
And here's like roughly what we think is going to go out at the end of the month. It can just be like, You know, here's what, here's what the cash looks like at the end of the next month. So it can be very simple. It doesn't have to be some like overly produced thing, but I would say that's one of the first places I would look.
And here's why I think if I'm stepping into a transition, a transition, um, of an organization, I know I'm going to want to make some sort of changes. And whether that's staffing or strategic or operational, like, I Maybe I cut a program or add a program. Like all of those things had really big financial implications.
And so if I'm operating blind and I don't have a forecast in place, um, then it's hard for me to know, maybe I'm making a decision that's really going to hurt us in three months. But if I had a forecast in place and I could say, Hey, you know, uh, XYZ person, like go enter these three changes into the forecast and tell me what that does to my cash.
Like, am I going to be in an okay position? My gosh, that gives you so much more confidence to execute on your transition plan, at least it would for me. I'm a planner by nature, so that would give me a lot more confidence to say, board, I have looked at this. I've run the numbers. I fully believe that this is where we need to go as an organization.
And here's the impact financially. Um, so that's why that's that's how I would approach it. That also makes me think about the power of having that projection and that forecast. When you think about. needing, if you're listening to this podcast episode and you are facing in a transition, or if you're a board member and you, uh, even if you don't have a transition coming up, being able to think through also what is the interim needs that you might have?
Do you need to bring in a professional interim? How much is that going to cost? Is that professional interim going to come with some travel and commute costs? How much is that going to cost? And being able to look at the cash on hand now helps you plan proactively for what you might need for that transition support.
So I'm glad you mentioned that. What else have you seen strong nonprofits do during transitions or what else would you recommend if a client came to you today and they said, R. E. D. is going to retire in 6 to 12 months or in a year, a couple of years, what learning lessons could the listener pull from or what would you, what advice would you give?
I think it's always a good time if it hasn't been done in a while, just to refresh. This might sound kind of boring, but it's really important. I think, like just looking at the financial policies and procedures, and again, it's not exactly like the sexy fun stuff, but by looking at that, or even having finance committee or someone look at that and say, you know, Hey, where are there gaps, maybe, uh, the previous ed like operated in a certain way, and maybe it was just kind of like, yeah, we can kind of get by with this.
Um, because we trust there's maybe a level of trust there, or maybe it was a certain approval levels of, you know, the ED now we, we, we trust our certain staff and we have a way higher approval level, but maybe with a new one coming in, they might want to lower one, just little things like that. I would start there.
And then I would just say have other senior leaders of the organization, or if you're not comfortable with like the next level down from the ED, I would say have the board get really, really firm understanding of the financials. A lot of times I've seen it where the board just kind of like, The financial reports it says looks good.
Let's move on to the next item on the agenda. But, I mean, the reality is that is like a critical element for the board to really know and so if the board, I would, I would have the board like really deeply understand the financials. Um, so that, that would be one, one thing, um, that I would do. Yeah. I'm curious.
So I, I'm a member of a board and I have strong skills to bring them in terms of programming and in terms of staff retention, those kinds of things. So I'm guilty of exactly what you said. I look at the budget, the financials every time before a board meeting, I'm like, it looks good to me. What do you think would be the top two or three things to really focus on?
If you're the ED and you've got a bunch of board members who don't understand finances, what are the top one or two things, three things that they should be pulling out to share with board members who may not understand the nuance of finances? My kind of rule of thumb is the best and absolute best finance people are, uh, essentially like the Rosetta Stone for the financial statements.
And they can take the financial statements and create a story with it and say, here's what the organization is doing. Like, like cash. So cash position is that is probably the first thing I would look at. Because again, If the organization doesn't have cash, it's it ceases to exist. And so that is like, number one, I would look at that.
And then the second one, I mean, these are kind of basic things, but these are all like critical things that I would look at is, um, you know, kind of over time. Is the organization, um, setting more aside, uh, in reserves or are they spending out of their reserves? And so, um, if at the end of the day, the, the, the, uh, it's called the statement of activity in the non profit world, but it's a profit loss statement in the, in the for profit world, if that number is negative, And it continues to be negative and it's negative.
Sometimes it's strategic to spend down reserves, but a lot of times it's not. Um, so if that number is negative, that's that, that's where I would start to then go, I would start to dig in and say, is it a revenue problem? Are we not getting the donations we need? Or are we just spending more than kind of above our means right now?
Those are the two places I would look, but then I would say. If you're, if you're getting like very complex, uh, reports and, and it doesn't tell a story and it doesn't tell a narrative about what's going on in the organization with those reports, I would say there's definitely better, a better way out there.
And I challenge whoever's leading the finance team to pull that narrative out, um, because that will help make it easier for everybody else to, to better connect with the financials. I love that. Stephen, is there anything that you have that might feel a little controversial or something that people might be shocked to hear you say about either the non profit sector by itself or as the intersection of non profit and finance work comes together?
I had two things that, uh, come to mind. Uh, I'll start with one that might not be as, I've already kind of hit on this a little, but I'll start with it and I'll go to the other one. The first one is, I think, so I actually did some interviews, um, with, I don't know, I think it was like 10 or so non profit executive directors.
Around between about a million and 5 million. And I was surprised that the vast majority of them had no forecast in place. If you were to go ask that same thing of, uh, for profit businesses, I think it would be a much smaller percentage who did not have one in place. So that really surprised me. And the other thing I would add to that is that's probably holding nonprofits back when it comes to attracting large donors, because I'm a large donor and I got a big check, I want to know that I'm giving this to the organization that's going to steward or manage this in the best way.
And if you say, Hey, I've already got this plan in place on how I'm going to spend this in the future, and I'm not going to wait until the next budget cycle to figure that out. I inherently am going to, going to trust that organization more. So that's the first, that's the first one. The second one is maybe a little bit like nerdier and like in the weeds of the finance.
We in non profit world, we, um, you know, we oftentimes allocate how much, what percentage of our expenses go to, you know, Programs. What percentage go to admin? What percentage go to fundraising? My opinion on this is I've seen this quite a bit. Those numbers are often kind of like magic, like just kind of like rah, rah, just kind of like, uh, there's assumptions that go into that.
There's not a, those, those oftentimes are just kind of like, I'm going to say made up, but they're just kind of like, they don't really tell you a whole lot. And anytime you see an organization out there that says we only do 9 percent or 5 percent of our expenses go to admin. I would, I would ask questions and be curious as to how they're getting to that number.
Well, and, and if we had more. Nonprofits being willing and brave enough to say the truth of what they were, those numbers for admin for overhead, et cetera. Then we wouldn't maybe have to gripe so much about the fact that donors don't want to fund it spot on. Yes, but on the other thing that's interesting to me when you were talking about the number or the small number of organizations who have forecasting as part of their regular thing, I Would guess I don't know this for a fact, but I would guess that some of the windfall kind of donations think of Mackenzie, Scott, et cetera.
I would guess that they've already done their research to find out whether they have as part of their regular process, some forecasting. Um, and so I think that's That's the thing to keep in mind is your donor readiness. I'm so glad that you said that. So if someone's listening, let's imagine that someone's listening and they're like, Holy shit, I don't have my stuff in order, uh, and I need to.
Can you talk a little bit about what you offer, Stephen, and how you work with nonprofits before we go to our last final questions? Yeah, absolutely. I, um, I kind of call myself a fractional CFO. Um, there's a lot that kind of can go into that, but to boil it down, I, I like to say I kind of sit on top of the bookkeeper.
Um, so I don't do bookkeeping or anything like that, but I sit there and kind of act as another set of eyes on the bookkeeping and accounting to say, you know, make sure, Hey, are we doing this correctly? But then I go a step further and I say, okay, now that we know we've got like good, good financial information, um, How do we take this?
And how do we turn this into very simple and actionable insights to drive the organization forward? The foundation of that is, is a, is a forecast. I've probably hit on that in every question today. Um, I'm such a believer in it because I have seen it do wonders for organizations. Um, So that's, that's one thing.
And, and then like the next thing from there is just kind of overall financial strategy. And so I've got an analysis background. And so, um, looking at, you know, Hey, this particular like stream of revenue, maybe it was, Gala donors or whatever it is. Like, why didn't we raise more than we, uh, why did we raise less this year versus last year?
So like kind of going a level deeper on the finances, those are, those are kind of the, the couple of big buckets that I like to, to operate in. I do like some kind of more boring stuff. Like I do a lot of board reporting and kind of more of the administrative side of finance. Um, but that really is my value add is, is, um, the strategic advice when it comes to finances and then, um, the forecasting piece.
So when I think of my work as an interim, I'm typically with if I'm serving as an interim or in a fractional leadership role, I'm typically with an organization from 6 to 9 months. Don't typically go longer than 9 months and shorter than 3 months isn't really helpful for the organization, in my opinion.
around the executive director type role. What's your sweet spot? Um, or maybe what's like the shortest amount of time that you would recommend an organization work with you versus how long? And, and is it, do you, do you see yourself, this is a bunch of questions all in one. Do you see yourself helping an organization get to the point where they would then maybe in the future hire someone internally?
Do you work with organizations For a long time. I'm just curious about that. Yeah, I I'll do anything like I'll do pro I do where I work on a project basis. Um, so like I have an organization now that I'm, uh, working with that. They just need a complete refresh on their forecast and budget process. And so I'm going in and just kind of revamping that and then I'll turn it over to them and they'll manage it internally on their, on their side.
But then I also will do kind of an on an ongoing basis where someone's like, Hey, I don't want. To even think about like the board reporting, the forecast, the budgeting. I just want to like, know that I've got an expert. I can hand this off to, I know I'm going to get my reports every month and I can trust that it's going to be done.
And that's like one less thing off my brain. So, so I do both. What I have found most often is when nonprofits get to about, and then this is going to, this is again, as a generalization, but when they get to 5 million, maybe a little bit higher. Um, that's when it usually makes sense that you like to really start bringing in someone.
Um, it just can be like a lot more in the day to day and a lot more kind of more urgent requests that come in. So that's typically like when I, my goal is to like fire myself from a job. Cause that means the organization has grown and they're financially sustainable and they, and they're on a great path.
That's awesome. Thank you. I'm curious, uh, because a lot of my work is all around change and transition. What three words or how you would describe your own relationship to change and transition? I love change probably too much. So I would say this is two words. Uh, the first one is two words, but I say fresh start.
The next one is exciting. And then the third one is growth. Yeah, I just, I, it's an exciting time to just put a new perspective on something and see how can we make this better and how can we change it for good. I love change to, uh, and, and people always challenge me and they say, yeah, but not all change is good.
Like change. Sometimes change happens to you and it's not the greatest. And I always say, well, transitions, what we do with change. And so I don't mind it because I, I appreciate the opportunity to navigate transition. Is there anything that I haven't asked you or that you really want to make sure that the listener hears from you?
Yeah. I'm the one thing I was going to mention is I've got, if you're looking for any way to save money, I've got a free list of like, I think it's up to, I keep adding to it. It's 150 plus, uh, nonprofit discounts. There's a lot of great. Software and vendors out there who want to support nonprofits. And so I've got a full list on my website.
You can kind of sort through. Um, so, you know, if you're looking to save money and just see, maybe there's a vendor you've got already that you can get a discount with or check it out. Yeah. I have seen this discount list and it is massive and it's amazing. And it's not just little piddly discounts either.
Like there's some really, really great ones on there. So even my last question for you, as we wrap up is what does leaving well mean to you? My first thought on this one was how would I want to inherit a new role and then like, do that , but what that, I guess like practically speaking, I think what that, what, what I kind of thought through on that was providing the space for whoever comes behind me or behind you to step in and have the freedom and flexibility to put their spin on the organization.
I think, uh, it's one thing to kind of protect the turf and say, well, this is how I did it. And so this is the right, but I think creating that ability to like, Hey, I'm going to hand the baton over and I'm going to trust. That if you're the right hire for this, you're going to take this to new heights that I couldn't do or a new perspective that you're going to put your spin on it.
And I think to do that is not leaving like operational fires all around to put out. So that's why, you know, like paying attention to some of that. If there is a transition in place, I think it is like. Visiting those policies and procedures, like, like getting in the non sexy stuff, I think is like how you prep well for the next person.
I'm even just imagining as you're talking how powerful it would be for a non profit to set in place having someone like you come in for the six to nine months before a transition happens to help even just do some cleanup of that. That would be awesome. Yeah, yeah, absolutely. I mean, it just sets the next person up.
Well, yeah, really does. We'll have the link to your website as well as the specific link to your discount list in the show notes. So listener, I hope that you've taken something away from this. Check out the show notes to get access to that discount list from Stephen. Stephen, thank you so much for the work that you do to support the nonprofit impact.
And I'm glad to know you. Thanks for joining me today. Absolutely. Thank you so much for having me. If you've not yet taken the Workplace Transition Archetype Quiz to discover your natural relationship to change and transition, you can do that at NaomiHattaway.com/quiz. To learn more about living well and how you can implement and embed the framework and culture in your own life and workplace, visit NaomiHattaway.com. It's time for each of us to look ourselves in the mirror and finally admit we are playing a powerful role in the system. We can either exist outside of our power or choose to decide to shift culture and to create transformation. Until next time, I'm your host, Naomi Hattaway, and you've been listening to Leaving Well, a navigation guide for workplace transitions.