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.  

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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.

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A nonprofit’s most important assets are its employees, cash and donor base.

For a nonprofit to adequately manage its key asset, “Employees,” it should outsource to obtain the expertise of an Employee Management System (EMS) which tracks the employees that will interface against the payroll systems.  With the outsourced payroll system, simple employee considerations such as deductions, taxes and benefits are usually included.  These employee management systems can be developed to meet the specific nonprofit’s needs.  EMS’s should provide the nonprofit a level of paperwork associated with employees online.  All data upkeep and maintenance should interface with the payroll, accounting and budgeting system.  When selecting an outsourcing organization make sure the company understands nonprofits and has supporting your mission as an important objective to the business arrangement.  The right outsourcing company will always bring forth important ideas to the nonprofit.   The sharing of information only makes the relationship stronger.

Nonprofits need not stress out over the components of the business that are not mission focused.  Bring in the experts where needed and when needed. 

pic from Fuffer

I challenge the myth of larger nonprofits being overall more efficient than the smaller organizations.  I do this to help donors better understand that statements and reality of the perception are not necessarily true.  The more something is stated and the more one remembers something does not necessarily make it true.  It is human nature to think it is true and to generalize.  The larger nonprofits would like funders and donors to believe it more.  The larger the nonprofit’s funding, the larger their ability to pay higher salaries, multiple layers of administrative costs and keep the administrative percentage lower. 

Questions a donor should ask of themselves: 

1. As a donor making choices within their day-to-day experiences what variables are important to me when making a donation? 
2. As a donor what purpose do you want my donation to serve?
3. As a donor who may donate constantly, periodically or almost never what is my motivation? 

The sample of the nonprofits below are those from the Commonwealth of Massachusetts who contracted in 2002 to provide human services and reported their full financials to the Commonwealth.

Out of a sample of 217 nonprofit providers with revenues under 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
23 providers, 25% plus admin, average revenue $701,219  
20 providers, 20% -24% admin, average revenue $1.024M
65 providers, 15% -19% admin, average revenue $1.167M
83 providers, 10%-14% admin, average revenue $1.48M
26 providers, 8%-9% admin, average revenue $1.491M

Out of a sample of 220 nonprofit providers with revenues over 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
2 providers, 25% plus admin, average revenue $8.008M 
14 providers, 20% -24% admin, average revenue $23.863M
45 providers, 15% -19% admin, average revenue $12.609M
92 providers, 10%-14% admin, average revenue $11.564M
67 providers, 8%-9% admin, average revenue $12.095M

Ask yourself what impact I as the donor would make if I required savings through outsourcing or capping administrative costs at 10%.  It was estimated that the potential savings for the entities below 2.5 million was 18 million dollars.  The potential savings for the entities over 2.5 million was 143 million dollars.  Therefore, I ask you to think about where the real savings can be realized.

Nonprofits have to think like the donor.

One’s interpretation can either result in real change or avoidance.  Those nonprofits that choose to wait for the environment around them to change or govenment to tell them what to do, are going to end up in failure.   Those nonprofits that take the moving forward attitude will survive and grow.

Depending on which camp you are in and the lifelines each campaign received there has been lots of talk.  Today showd that some lifelines had no idea what they were doing.  The results of today will leave many wondering what happened, why and how.  Today was about fundamentals.  To what degree does the voter feel that food, clothing, shelter, health care, retirement and a job are secure.  The only sure thing is that nonprofits have become the safety net for those most affected.  This time around it did not matter if you were rich or poor to be affected by the recession.  This time savings were wiped out, companies were wiped out and what seemed like good paying secure jobs are gone.  All pointing to financial institutions that are making record amounts of money while the majority are still struggling. 

The recession has been an opportunity to clearly show the value of nonprofits and the need to utilize them more in the delivery of services.  Profit taking on government funds is not the focus of nonprofits but accomplishing the outcome. 

Scott Brown began to peaked last week and continued to build while Martha Coakley was viewed as the candidate of more of the same.  She failed to reach out to individual voters and left Scott Brown unchallenged in meeting the voters.  It is a great example of getting out and meeting the people you want to serve and delivery your message.  Nonprofits should learn from the results on how to reach individuals. 

The result shows the depth of voter anger and that voters view Washington as a place not producing results. 

When will the candidates be honest in their dialogue and mission?  At least nonprofits have a clear mission even if government has a hard time functioning on behalf of those it is to serve.  This is one reason the number of nonprofits will continue to grow.