Not-for-profits who invest in their nonprofit overhead can reap benefits that far outweigh financial rewards.
Successful not-for-profits run their organizations like a for-profit business. In order to achieve a true measure of success, they focus on how their mission is fulfilled rather than how much is spent on overhead. To help organizations effectively execute programs, leadership must communicate the importance of investing in their infrastructure.
In the past, charities were expected to keep their overhead costs below 25% of their total expenditures and have been criticized for high overhead costs. This creates a dangerous practice since not-for-profits are so concerned with limiting their overhead, they lack the resources to carry out their mission.
Four Key Ingredients
We need a new way of analyzing the traditional pie chart. One that slices three main functional area expenses into program and support services, including administration and fundraising. In this new paradigm, nonprofit overhead is an essential piece of the pie. Support services can be viewed as pie crust that holds the pie together. Without the crust, there is nothing that keeps programs and mission operating. Below are four key ingredients that form the pie crust:
- Strategic investment in diverse funding sources
- Proper fiscal management
- Transparency
- Cultivation of a strong infrastructure
Core Mission Support Services
A well-rounded organization embraces a multitude of components. These need to work together in harmony to maintain healthy growth and sustainability. Here’s what you need to build sustainable growth for your organization:
- Competent executive team
- Sound fiscal management
- Proper accounting procedures
- Dedicated and well-compensated staff
- Culture of building a whole organization, inclusive of both mission and support services
While functional expenses must be tracked separately to be compliant with Financial Accounting Standards Board (FASB) and IRS Form 990 reports, management must consider additional resources required to achieve program goals. These include:
- Direct program expenses
- Direct expenses shared by programs
- Core mission support, including finance, executive, and fundraising
Typically, these core mission support services (overhead) are closely scrutinized. But, without shared overhead expenses, execution of its mission is not possible.
Positive Impact
Funding should be secured for program support services, which include salaries for executives, finance, human resources, and development. This spending results in a positive impact on the organization. The days of frugal spending may be coming end. Savvy donors are interested in donating money used for making a measurable return on their investment.
Nonprofit leaders should get away from traditional thinking of overhead as a bad use of spending. The growth and effectiveness of nonprofits rely on having a plan for funding core expenses. Investment in infrastructure is vital for their survival.
Final Thoughts
Success for nonprofits is not measured in their bottom line. Success is measured in the delivery of its intended mission with the resources provided. More measurable results come from more spending. Therefore, nonprofit overhead spending is necessary to fulfill its mission. An investment in overhead is essential for your nonprofit to survive and serve the community. Donors, grants, and the community all want nonprofits to thrive. It is up to nonprofit leadership to educate them about what infrastructure is needed for nonprofits to be successful and, sustainable.
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