To all those who have been fighting this battle from the trenches – keep hope!
In an article published in The Chronicle of Philanthropy last week (click here for the article), the biggest challenge for non-profit success has been acknowledged by those who have the capacity to make a change. For decades, foundations, corporations, trusts, governments, and even individuals have focused solely on the program costs of a non-profit when considering a funding request.
There has been a stigma attached to the Management & General and Fundraising costs, driving non-profits to be creative in assigning some of those costs directly to programs in order for them to be considered for funding. This has resulted in a disconnect between how expenses are captured for grant reporting and how they must be reflected for financial reporting. Furthermore, if a funder did allow for an overhead allocation, the percentage permitted would be distressingly low. Once upon a time, the United Way was held out as the great example of an “efficient” non-profit with an overhead cost of 10%, but that has changed as well, as anecdotal evidence suggests the “overhead rate” for United Way has increased to nearly 20% in recent years.
The reality of any business model, whether for-profit or non-profit, is that costs are either fixed or variable. There is a basic cost simply to exist for any organization. Is there a physical presence? If so, there are occupancy expenses, such as rent or mortgage payments, property insurance, or utilities. Does the organization have a core staff dedicated to daily operations? Add in payroll and related expenses, such as employer taxes and benefits, for an Executive and support personnel. Does the organization operate using an outsource model for key functions like accounting, marketing, or event planning? Now layer on consultants and professional service fees. These are costs which must be incurred before ANY programs are undertaken. It is true that there may be an incremental increase in core costs with the addition of programs, but the vast majority of these are fixed. And they aren’t appealing to most funders. Who wants their name attached to the light bill? That’s what we tell ourselves anyway.
As stated very gently but eloquently in the comments by patnichols, perhaps the failing has been on our part. Have we been telling ourselves a story about what a funder does and does not want to pay for? In some cases, I would say not, but not in all. We all know that the development effort for any non-profit is about relationship building. Relationships – GOOD relationships – are built on trust, and the foundation of trust is honesty.
Honesty, however, means not only being honest with funders about our needs but also being honest with ourselves about how we are operating. Most people who find careers in non-profit management do so because they are passionate about being a positive force in the world. We want to help, never hurt, and that desire impacts the decisions we make about our operations. Are we appropriately staffed? Are our staff and consultants performing at the level we need to succeed as an organization? Are they doing what we need them to do? These are very difficult conversations, but critical to the health of our organizations. With respect to our staff, we do them a disservice by not providing an opportunity for open dialogue about performance and job satisfaction in a safe environment.
Keep fighting the good fight!
Brenda L. Malottke
Senior Manager – NonProfit Accounting