Running your organization like a for-profit business and investing in nonprofit overhead reaps rewards.
This calls for not-for-profits to use for-profit business practices and invest in overhead.
In the past, charities were expected to keep their overhead costs below 25% of total expenses. If overhead was too high, they were criticized. Consequently, a lack of overhead resources make it difficult to carry out the mission.
Four Key Ingredients
This brings us to a new way of viewing a pie chart for nonprofits. It includes three main functional areas of expenses:
- program and support services
- administration
- fundraising
Under this model, overhead is an essential piece of the pie. Support services hold the pie together. Without overhead, there is nothing to keep the programs operating.
Below are four key ingredients to form the pie crust:
- Strategic investment in diverse funding sources
- Proper fiscal management
- Transparency
- Cultivation of a strong infrastructure
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Core Mission Support Services
Here are some ways your nonprofit can build long-term growth for your organization:
- Hire a competent executive team
- Promote sound fiscal management
- Implement proper accounting procedures
- Invest in a dedicated and well-compensated staff
- Build a culture inclusive of both mission and support services
In order to remain compliant with the IRS Form 990, nonprofits must track functional expenses separately.
Management might consider investing in the following overhead:
- Direct program expenses
- Direct expenses shared by programs
- Core mission support, including finance, executive, and fundraising
In most cases, core mission support services are watched closely. Unfortunately, without shared expenses, fulfilling your mission becomes more challenging.
Positive Impact
Nonprofits must raise funds for program support services, salaries for executives, finance, human resources, and development. These funds have a positive impact on the organization. The days of frugal spending are coming to an end. Now, donors want to see a measurable return on their investment.
Nonprofit leaders must get away from old-school thinking of overhead as a bad use of spending. More importantly, the growth and effectiveness of the nonprofit relies implementing a plan for funding core expenses. In this way, investment in overhead holds the key to survival.
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Bottom Line
The common goal for most nonprofits is achieving its mission with the fund provided. To this end, leadership must provide education about nonprofit overhead spending.
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