pic from radio active girl

Each nonprofit wants you to think of them.  How to decide.

What is the market penetration that the donor wishes to achieve?  Currently, half of the non-profit organizations belong to various trade associations.  Because the providers view each other as competitors, the trade associations have been unable to compel the providers to pool their resources.  However, a donor whom recognizes and understand the competitive nature of the non-profit world can take the leadership in an area.  For this reason, we do not expect our nonprofits to “pool” their money, but the donor can indirectly pool it.  The donor invites a selected group of nonprofits and/or government agencies to participate in their choice for an initiative.  

It is the intent of the donor to fund a cause where there will be a return to society.  The success ultimately depends on the success of the nonprofits and/or government entities for the most impact.  Nonprofits automatically think of making the most cash available for direct services.  It is important to convey the outcome to the nonprofits and what amount of cash return will the nonprofit see from joining the funding choices the donor made and when will the begin to see that return. 

The first risk factor is to look at whether to set up your organization, use a fiscal intermediary, or a project manager with funding going to the nonprofits as they reach certain outcomes.  The idea is somewhat more like the construction industry.  In order to distinguish the initiative a web presence helps in managing a project if the donor is going to be less dependent with on site project management.

The second major risk identified is peoples’ inherent reluctance to relinquish control of a project to another entity, especially if it requires any of their funds.  It is certainly understandable why some nonprofits will hesitate to jump at a donors funding choice.  However, there are so many nonprofits and government type entities in any state that reaching the level of projected change the donor initiative wants to make should be doable.   Once the market was determined the donor can assume the penetration rate for each targeted market.  The penetration rates for each market are assumed to change each year, in response to the increase in available products, the increasing popularity of the service and economies of scale due to increases in infrastructure and staffing. 
 

Pic from Hiking Artist

Below are my top six areas for Donors to consider to fund.  Relax and dream a little.  Rushing the decision does not necessarily create the best results.

Education:  Choose a local public or charter school.  Require parent involvement and matching programs for funds.  Let volunteer time equal the same matching as funds.  Even incentives and make the volunteer hours worth more.  Make sure the match is at least the living wage of a family in the area being served.  Student enrichment programs are shown to increase the success of students. 

Environment:  Choose to become Carbon imprint neutral. “A Penny A Mile” is a new nonprofit established to have individual or company reduce their impact by funding the conversion of government and nonprofit facilities to green environments.  Use their roofs for solar electrical and heating and geothermal for cooling. 

Choose to adopt a Park:  Reduce the use of government funds and its inconsistency to private funding and endowments to make a difference.  Once endowment reached for ongoing maintenance then capital campaigns could be the next. 

Food:  Choose the creation of programs that show individual how to meet their nutrition needs that are healthy, teach individuals skills to maximize their budget and preservation of foodstuffs.  One said manner is the skill of preparing food in manners that allow them to be canned, jarred, or stored in the environment where person lives.  Very few programs process food to preserve it.  Thereby, the shelf life of many items is deteriorating as the food nonprofit waits to distribute it.  Looks good on paper that they distributed some much in food stuffs, but was the person able to use it before it perished? 

Affordable Housing:  Choose environmental sound choices to use the environment to cool the house from heat.   For instance, build a house where the cooler part built under ground is cool all summer such as finished walkout basements.   Make affordable housing base on a living wage of the geographic area the funding initiative choice.

Transportation:  Choose the reduction of gasoline costs and increase the use of inefficient vehicles.    These increased costs adversely hurt those just making the living wage then those above the living wage.
 
Utilities:  Choose the reduction of fuel costs for heating or electrically cost for staying cool.  Family day care providers is a good place to start since they are self employed and many serve government funded childcare recipients especially in poverty based areas.   The utility costs are a factor that any donor has the choice to affect many lives and improve the environment.  

In the selection of a nonprofit for the funding initiative you as the donor have chosen, plan on competing a full financial assessment of any non-profit before approaching them.  From the public records of a nonprofit you can already determine the nonprofits financial well-being and how you wish to have the nonprofit participate.  This helps the donor in two ways.  First, the donor choices avoid potential pitfalls, those being agreements with organizations that could not possibly succeed under any possible scenario.  Secondly the donor focus their energy into developing a specialize plan geared toward each nonprofit. 

pic from Spear

Nonprofits or a business at times are in a moment of excitement or caught up in the excitement of others or the reaction of others and make choices base on external influences.  A nonprofit should always wait a day before jumping into a decision that has not been vented internally with the pros and cons.  The organization may be excited today about a decision and everyone feels good but tomorrow will always come.  Tomorrow ultimately brings the reality of the decision to make everyone feel good as a having been the right or wrong choice for the strength of the organization. 

Nonprofits in the last two years have struggled between using cash reserves, furloughing people or laying people off.  I remind nonprofits that using cash means that the organization is deciding to reduce their ability to have a back up plan if things got worst.  While reducing staff hours or lay staff off is a hard emotional action an organizations viability has to be decided first.  It is better to be able to increase hours or hire people back or new employees than to go out of business.

In the moment of government cutting or donors reducing their giving there is the clamor that there are to many small nonprofits.  I promote the opposite should happen to really obtain the biggest impact of each dollar.  I think there are too many large nonprofits. 

Small for profit businesses are the strength of the US economy and the thousands of small nonprofits I place under the same umbrella.  The $100,000 plus salaries of larger nonprofits reduces the impact they have on the economy.  Each $100,000 can employ at least three individuals to provide much needed services and bring the money directly back into the economy. 

 pic from Spear

The one thing I hope nonprofits have begun to take away the recession of 2008-2009 is that diverse funding sources is critical to their long term viability.  Nonprofits that have taken the long term view to evolve their business model in ways to be more efficient and measurable.  To be able to self financed a base amount of programming.  The nonprofit industry has reached an evolutionary milestone in the business model.  History shows that a particular model business must evolve beginning around its 30th year in order to stay viable.  I would state that the current models of 501 c 3’s are celebrating their 35th year.  As the original team retires from these nonprofits, the board should take a very logical long view of the future of the organization.  Where does the organization want to be 5 years from now or 10 years from now?  If the board wants a new leader to figure that out that is fine too, but it needs to be clear when making that critical hire.

pic from Spear.  Check out his pics.

The beginning of a nonprofit is starts with a grassroots effort to build adequate support or an overwhelming amount of support that needs to be organized.  It is the same for creating any business model.  The biggest mistake is not taking the time to develop a business plan and a strategic plan to implement the business plan. 

There are many benefits to starting the effort of a business out of ones home but eventually there is a need to balance the success of the business and ones personal life.  It also takes a well organized disciplined individual to accomplish work at home. 

The creation of a nonprofit board that is involved in providing priorities and direction can help in the measuring of whether the individual is disciplined enough to balance a work at home effort and the goals of the organization. 

The best resources for a donor to utilize to help make the donating experience enjoyable, focused and take up the least amount of time are Guidestar and the National Center for Charitable Statistics.  The higher the dollar value of the donation, the more variables the donor may wish to utilize under Guidestar.  The higher subscription fee is worth it.  

In my recent analysis of Massachusetts human services nonprofits I found that capping the administrative costs of an organization resulted in savings of a minimum of eighteen million for nonprofits under two and half million dollars and one hundred and forty-three million for nonprofits over two and half million dollars in revenue.  If funding a nonprofit is going to be decided based on administrative costs, then restrict your donation to not be used for administrative costs or to a specific amount. 

Rather than lower its spending in the weak economy, government has leveled off the amount of money allocated for nonprofits.  Because of this level funding combined with an ever-increasing population, government has been forced to favor the more established institutional organization structures. 

pic from Graela

Just like the seriousness one takes in selecting a job applicant, information is key to decision making.   

I would like to convey to donors to fund and support smaller nonprofits because it is better.  I would even advocate further that any nonprofits that outsource would increase this impact even more.  The more that the administrative functions such as accounting, human resources, and grant writing are outsourced, the more likely that administrative costs can be controlled and capped.  The use of funds can be better spent on the mission of the nonprofit.  Smaller nonprofits tend to be more passionate about reaching outcomes and utilizing volunteers.  Smaller nonprofits are more able to provide for a more equitable system of impacting more geographic locations, more people, more causes and creating more self-sustaining networks at lower costs.  The concept that bigger is better is only best when it comes to standardization.  Government and donors can set the standard for all nonprofits.  Setting the bar higher as in the case of requiring audits that are extremely costly and then knocking the small nonprofit for a high administrative cost is one disconnect.  Most small organizations make a real difference in their community and reporting on the 990 and to state regulators is completed appropriately.  Costs of audits have gone up tremendously and have harmed the bottom line of all nonprofits who must do them. 

pic from Gregg from Gridd

The President of the United States is the highest CEO in the country.  With the address to the country, will anger grow, or leadership prevail?  For nonprofit organizations, leadership and passion are key to accomplishing one’s mission.  The other key is bringing donors to want to be part of the mission to resolve the current problems of today.  

Whether the donor is funding a cause, a need or supporting the efforts of a nonprofit to succeed in its goals and objectives, people directly or indirectly need to be supported.  As an employee or people in need of services the basic survival life services are food (including water) shelter (housing), and clothing.  To provide employees or people with sustainability means that with the three basic survival services comes the need for funds.  In most societies that would mean using cash.  The cash is obtained from employment or another source such as the government.  To some degree, some societies use a barter system when cash is scarce. 

Therefore, the first goal of nonprofits should be to adequately support the living wage of the society in which they are geographically helping.  The salary of the highest paid employee should be proportional to the lowest paid salary.  Donors should look to see if a nonprofit takes such a view as they consider funding a nonprofit.  The more the question is asked the more it will become a standard.  In the Northeast of the USA below is a sample budget to consider for deciding whether a nonprofit is paying a living wage. 

 Two Living Wage samples are presented below: 

40 hour job at $11 an hour wage vs $16 an hour wage           
       
What can a wage support per month?       
 Individual     Family of 4  
 $22,880        $33,280  
 Mthly $11 hrly Yearly Costs   Mthly $16 hrly Yearly Costs
 $1,906.67 /$22,880.00           $2,773.33/$33,280.00
            
Expenses:  Individual vs Family

Housing 45% $850.00/$10,200.00    45% $1,236.36/$14,836.36
Health Ins $480 ind $780 fam (80%/20% split) 5% $96.00/$1,152.00     6% $156.00/$1,872.00
Food $11 day ind $77 wk (fam x 2) 16% $308.00/$3,696.00     22% $616.00/$7,392.00
Transportation ($35 wk gas & maint) 7% $140.00/$1,680.00     5% $140.00/$1,680.00
Clothing 5% $100.00/$1,200.00     7% $200.00/$2,400.00
Utilities (phone,heat,electric) 13% $240.00/$2,880.00     9% $240.00/$2,880.00
Taxes state/city/federal/sales 6% $111.54/$1,338.48     6% $162.24/$1,946.88
Subtotal 97% $1,845.54/$22,146.48     99% $2,750.60/$33,007.24
Net for savings/flex spending 3% $61.13/$733.52     1% $22.73/$272.76

The reality of the chart is to show a donor whether it is realistic for nonprofits or any employer to pay a certain wage and expect that the individual or family will not need government or a nonprofit’s assistance to live and participate in the society.  The chart further highlights that many people could be at a margin where any factor could suddenly cause them to need assistance.   A small amount of a donor’s funding can make the difference for thousands of people.  The increased cost of winter fuel, gasoline or a health premium changes everything.  

pic from Johnalanbirch

The use of outsourcing companies or consultants does not mean the management team or the board are no longer responsible.  However, make sure the contracts are clear that the outsourcing is found to be at fault and that they cover the costs of any penalty and must document the reason for the error.  Nonprofits should think of the outsourcing operation as an element that must report to the designated management team member.  This team member is then evaluated based on how they would manage any employee or project.  

If administrative costs are above 12% a nonprofit should seriously consider outsourcing administrative functions.  In 1994, the state of Massachusetts signed approximately $20 Billion worth of program services and contracts with nonprofits across the state.  In 2001, the state signed approximately $29 Billion worth of the same contracts, meaning that overall, state spending increased a little more than 30% over those seven years.  Over that same time period, the number of nonprofits contracted by the state increased from approximately 6,400 to 8,600, a 25% increase.  It was during this time period when the government increased spending at a faster pace than industry growth that providers were not forced to be as efficient as possible.  In the years between 2000 and 2001, the economy began to decline.  There is a 7.5% increase in nonprofits, but only a 3% increase in government spending.  The explanation is that social service and nonprofit advocates are pushing for greater, more focused quality care and/or outcomes, and thereby encouraging the opening of new, community focused non-profits.  Meanwhile the state is seeing cuts in revenue.  The end result is a squeeze on the industry forcing non-profits to operate as efficiently as possible.  Nonprofits need to set a ceiling on their administrative expenses to compete better.  Outsourcing provides the means to control administrative expenses easier.  

pic from natabramble

The “Day Job Syndrome” represents the fact that the day to day operations of the nonprofit prevents most senior management and Board members from adequately developing and implementing strategic plans.  It is especially in this area that outsourcing the facilitation and leadership of a 3-5 year strategic plan that consultants can best help.  These business advisory services to nonprofits on an ad-hoc basis can be:  business development, strategic planning, internal reviews, system design, procedural protocols business plan, capital structure, mergers & acquisitions services, and fundraising. 

Another aspect to outsourcing is to access the professionals to help with regulatory services, especially in the area of government compliance.  The one aspect to compliance is to standardize financial reporting and operations of nonprofits through its required reporting which complies with GAAP, federal and state requirements.