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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. 

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.

Should nonprofit organizations take risks with their endowment or risk creating an endowment? 

Endowments are constructed to provide a predictable and stable set of returns that will provide additional funds for operating expenses and preserve the purchasing power of the organization’s funds on an annual basis.  The approved wealth management company should provide custom portfolio management to the nonprofit through the procured money management service based on the risk/return profile of the client.  The portfolio should focus on asset allocation and risk-adjusted market performance that protects the principle and grows the assets.

The wealth management company may be able to set up or connect the nonprofit to a sister company to set up retirement plans for the employees.  In the process the wealth management company can manage these assets as well. 

Instead of fighting over what resources to allocate to any one core function consider outsourcing.  Time management can be well served with the right contracted services. 

With the intention of funders and donors to have 501 c 3 nonprofits be as effective and efficient as possible it is important to have the right infrastructure in place.  Those nonprofits that can clearly show that they meet the mission of their 501 c 3 status will match the economic climate where government is looking for more for less. 

To help level the playing field for non-profit 501 c 3 organizations outsourcing achieves the economies of scale larger organizations already realize without taking away the quality achieved in the existing small, specifically focused operation. 

A 501 c 3 nonprofit should have the core services:  payroll, accounts management, general accounting, bids, contracting, pricing, purchasing, and cost analysis.  These core services will provide the 501 c 3 organization with most of their day-to-day and strategic planning.  At the end of each year, the organization should develop the next year’s budget and will be able to plan labor and resources accordingly.  The core administrative services are to help plan the resources, providing estimates based on the organization’s historical data.  On a weekly basis, the 501 c 3 organization will be able to see how they are performing budget versus actual and month to date.  For the longer term, the core services should provide quarterly and annual planning and will provide longer-term analysis for resource and labor management.

While the core administrative services should provide the 501 c 3 management and Board the data necessary to manage the organization, the data must create certain reports pertaining to cash management, employment taxes and employee benefits.  The cash management should show what it takes to reach levels of 30 day, 45 day and 90 day cash flow.  The purpose of cash reserves is to enable the non-profit to have the ability to react to emergencies and growth without affecting day-to-day operations.

403B or 401K plans allow non-profit organizations to provide defined benefit pension plans to their employees, often with tax advantages to the employees and employer. 

The current economic outlook focus is to decrease the growth of government spending across the board, which means cutting funding to specific programs run by non-profits and the consolidation of others.  In order to maximize the money allocated to direct care/project results, government is forced to concede the benefits realized through a larger number of small, specialized non-profits and purchase services from larger organizations with an expectation of more efficiency.  In addition to this, larger organizations are able to weather a reduction in funding by diversifying the type of programs they offer and having larger credit lines, larger fund balances and assets that can be leveraged to offset deficiencies. 

The nonprofit industry covers many types of organization but it is the 501 c 3’s that are primarily financed through two main sources; government agencies and the private sector philanthropy.  Both sources are heavily tied to the health of the economy, with the private sector being more closely tied to the performance of investment securities.  With both the economy and the major aggregate indexes (equity and fixed income) having suffered declines in the past few years, nonprofit 501 c 3  funding has leveled off and the competition for funds among non-profits has become much more fierce.  Both government agencies and philanthropic organizations are becoming more selective in distributing funds, looking for nonprofit 501 c 3 organizations providing a more effective use of its funds.

Regardless of size, every non-profit organization needs the ability to do some basic administrative functions, such as human resources, accounting, purchasing, and auditing.  Larger non-profit organizations (defined by us as having greater than $3.5 million in revenue) are able to achieve economies of scale in many of these areas, allowing them to spend a smaller percentage of their overall income on administration and more on direct care.  Non-profits generally begin to gain this benefit by expanding to offer a wider cross section of services across multiple communities.  For small non-profit organizations 501 c 3’s, they are unable to benefit from such economies of scale.  Rather, they tend to excel in treating a small, focused segment of one community very intimately.  Simply put, they subscribe to the theory of quality over quantity.

In addition, most non-profits 501 c 3’s depend on government funds to support their operations and pay for their overhead.  Government organizations which provide the funding for these non-profits are constantly struggling with the need to purchase services in the most efficient, cost effective manner possible.  Often larger non-profits are able to offer the efficiency and cost effectiveness the government is looking for, but the government is looking for more than just efficiency in the human service sector.  They are also concerned about quality of care issues and free care/services.  Small non-profits are typically focused on a small, specific segment of the population, which naturally lends itself to a high quality of care and more donated services from volunteer time.

The management of a nonprofit does not have to be difficult for any size nonprofit especially small organizations.   Asking for help from consultants is not admitting the lack of skills or defeat.   Contracted employees are the best way to manage work, with the highest credentials for the work assigned.    Nonprofits need to focus on the “day job” their mission and let others perform administrative functions.  Consultants are especially able to make a difference for the smaller nonprofits under 3.5 million dollars and start-ups.  Consultants understand that navigating the often confusing and extremely regulated world of non-profit business can be a scary prospect for many people whose main focus is to help people and enhance communities.  The right consultant will understand that the non-profit business world can be just as competitive as the for-profit business world.  The right consultant can offer an expertise in dealing with a non-profit’s finances by taking care of the finances, year end reporting, payroll, and all other administrative aspects for the nonprofit, thereby lowering the nonprofits barriers to entry, while still leaving the organization in complete control of their strategic planning.  By using an expert in the understanding of non-profit finance, development and government regulations, the right consultant cannot only help the nonprofit avoid losses, but to thrive and grow by adhering to the same business sense applied in the for-profit arena.

Seeing the potential for efficiency in the non-profit sector, the right management company can generate economies of scale and decrease the total overhead cost for a non-profit corporation.  It should be its goal to provide nonprofit entities the opportunity to devote less to administrative costs and more to direct services.  As its philanthropic mission, the management consultant company should be a socially responsible company and committed towards making a difference for the nonprofit.

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A nonprofit’s capital is its workers, cash and the in kind goods and services it receives. 

For those nonprofits who are just starting out a fiscal intermediary consulting firm may be the best option.  However, any organization should consider various degrees of the services.  The fiscal intermediary usually can provide five different lines of consulting services that will provide all the administrative services a nonprofit organization will need.  The product lines should be:  Working Capital Management, Employee Management, Treasury and Cash Management, Business Advisory Services and Regulatory Compliance Services.  Each product line’s success is to be judged by the efficiency and cost savings it produces for each nonprofit.

Working Capital Management (WCMS) should be comprised of eight main services:  payroll, accounts management, general accounting, bids, contracting, pricing, purchasing, and cost analysis.  The Employee Management System (EMS) should be packaged within the WCMS system as a list of employees that will interface against the payroll systems.  With the payroll system, simple employee considerations such as deductions, taxes and benefits should be offered. 

The Treasury and Cash Management (TCM) service line should be aimed at providing treasury management services in such areas as 90 days cash flow and cash reserves.  In addition, 403b plan management, endowment management and capital expenditure management services on behalf of the nonprofits should be considered. 

Business Advisory services are an advisory role to the nonprofit.  The ad-hoc services area are:  business development consulting, business plan consulting, capital structure consulting, M&A services and fundraising.

Regulatory Services for nonprofits are the handling of the organization’s interaction with governing bodies, government agencies and financial intermediaries that require administrative forms, records sent or financial records distributed to others.

The key to success of a nonprofit is to know when to bring consulting resources to bear to increase the likelihood of the outcome that the organization is seeking.  It is easy to incorporate but harder to run an organization.  Consulting provides the latitude to tap into the many different expertises needed but within the costs of hiring a full time employee. 

The advantages for a nonprofit’s status allow for the organization to use an incubator while the leadership completes the task of building the mission of the organization.

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Private sector philanthropic giving with a focus toward nonprofits who are grassroots is a means for knowing the donation will have local geographic reach.

The initial investment in the grassroots approach should be viewed like the planting of tree seedling.  The donor plants the seed of their idea.  The donor provides ongoing giving for a set number of years.  It should be the intent of the donor’s reasoning behind giving to be willing to be involved in the effort long enough to build strong roots for the grassroots nonprofit idea to have a foundation and the strength to grow branches.

The direction of the branches will be pruned in the direction of strengths.  The nonprofit should be open to being provided direction on prioritization and direction the donor wishes the support should grow.  The nonprofit should accept this direction especially if it falls within the mission of the organization.

Grassroots nonprofits have as a catalyst the strength of passion and volunteers.  The nonprofit with appropriate planning should be able to know strategically how their organization is to cover fixed costs, including staffing.  It should be the goal of the nonprofit to have each year an understanding of how they are going to have the funds to cover the approved budget for the year.  After five years it should be expected that the nonprofit knows how their financial support is being covered.  A nonprofit should include in its planning whether there is an opportunity to have members, user fees, a reserve or endowment to cover 75% of the expenses and fund-raise for the rest.  If there is a persistent 10-25% shortfall in spending it is usually attributed to providing raises each year to administrative staffing.  Is is with this in mind that outsourcing for nonprofits below three and a half million dollars that a donor should request the nonprofit do.

The use of the word “grassroots nonprofits” is to bring about a more powerful impact quickly to the cause at hand.  Nonprofits are created to address a cause.  The main weight for deciding a budget should be what the nonprofit can afford to do with its two main assets of cash and volunteers.

Throughout all of the nonprofit’s activities there has to be accountability.  A regulatory perspective of the nonprofits interaction with governing bodies, government agencies and financial intermediaries that require administrative forms, records sent or financial records distributed to others will fall to the designee or default to the Board officers.  The interaction requires time to contract with auditors for the annual audit of the nonprofit, and to ensure compliance with all respective laws, statutes and regulations.  The outsourcing of the service can provide an ad-hoc basis throughout the year when the Board and/or designated individual need the assistance.  A scheduling of the compliance work can be planned in order to be timely with the compliance.

Incorporating is the easy part for a nonprofit.  The hard part is annually keeping the donations from donors coming and expanding the donor base for giving.