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EVEN NON-PROFITS NEED TO MANAGE EXPENSES AND OVERHEAD TO ALIGN WITH THEIR INCOME.

09/14/2018 10:35 AM | Anonymous

I have gotten quite irritated lately with a few non-profit groups who are constantly asking (begging) for money from any one who will listen. I am not talking about a once every 4-5 year campaign to raise funds for good use that will make them more sustainable… I am talking about groups that want more and more money every year to feed their endless need to “grow” on the backs of their donors with no intent to run their “business” in a sustainable way. To make matters worse… it always seems they want that money right NOW and come across as desparate!

Do you think I am talking about large non-profits… maybe national charities and so forth? Nope.

I am talking here about non-profits that operate in local regions and small towns where their “client base” and donors are generally local people.

Every non-profit should be managed in a way that makes them sustainable long term. This means, it should be run like a “real” for-profit business where the overhead and budget expense line items are kept to a minimum and allow all expenses to be covered with the income generated from the operation. But it seems many organizations operate with the belief that by filing their group as a non-profit it gives them the free-pass to dream up all kinds of new money “needs” without regard to being able to pay for it.

If any business (for-profit and non-profit) fails to manage the overhead and budget expense line items by keeping them to a minimum and allow all expenses to be covered with the income generated from the operation, they will eventually fail. This is just a basic principle and no matter what the “mission” is… it will fail eventually… and they should.

Let me give you an example of what I am talking about…

Non-profit 1 (I will call it) operates in a small town. They believe they are immune from operating within a budget and because they operate under a church umbrella this gives them the permission to force people to donate to their “mission” if they ever need to raise more funds. Consider that (for the last 10 years) they have never met more than 50% of their overhead from the income their operation generates. The balance has always come from other annual donations and campaigns. They currently operate out of an older building and have effectively for many years but they now want a new bigger and better building. Not just a replacement building… they want it much bigger and better and believe if they build it more money will come in from the operation automatically. To put this into perspective… over 30 years ago they operated within a true budget (expenses were kept to a minimum and income was managed) and a group of individuals wanted to make sure they were setup for any future additional expenses they could not cover each year. So, they started a foundation that was intended to be a “once in a lifetime” campaign where donors would give a large amount of money one-time and this would be invested. The return on the foundation’s investment would be the amount “given” to the organization each year and would grow over time. It did vary year-to-year but most donors really liked the idea of not being asked for more money every year so they really did donate a lot as a collective group. The foundation worked well and the setup did provide a really good dividend (donation back to the organization) every year and it grew over time. But, after a few more years the new management determined “it just wasn’t enough cash” annually for even the basic costs and management. So, they started looking at ways to raise more money annually from donors. Sound familiar?

Within a few more years, new “annual donation campaigns” were setup to “fill the gaps” that the foundation dividend didn’t cover. A few more years and they started two additional”annual help us” campaigns and so forth. During this time, their annual budget (line items for overhead) grew and grew. When the accounting reports were reviewed, these annual campaign donations were literally covering over 50% of their basic operating costs! And, this is not a non-profit that just gives things away to people… they charge for their services from most of their users/clients on an “ability to pay scale” so they do have an income model that could work.

In the past year, they decided they want the new building to get started immediately no matter what and have started to fundraise aggressively. When donors asked to see reports on expenses/income and the balance today versus what it would be after the new building was built they were met with statements that “everything was fine and would only be better after the new building was completed” and “not to worry”. Literally, anyone who questioned the most basic expenses/income management were told “we first have to build this huge new building and it will mean more income automatically”. Oh, and “trust us…” was added for an even larger insult.

Keep in mind, they already require the annual foundation dividend (that was supposed to sustain them into the future forever), plus a big annual campaign, plus several other small campaigns just to meet the current years budget (by over 50% of the income needs). In light of this, they still want to build a new (did I mention huge) building that will exceed any other campaign requirements they have ever had by a huge margin (at least 4 times). The current sale pitch is that this new building will have no additional operating costs and not require any additional maintenance over the old building going forward (because it is new)… but there are no actual numbers available to verify this crazy assumption.

Are all non-profits operating this way? No, thankfully. I am not saying they are all doing this but many have gone crazy in their most basic business management assumptions!

There is absolutely no way, when looking at the true costs of building ownership and maintenance (of that size), that a brand new (not sure if I mentioned it was huge) building will have no additional overhead costs and that no maintenance will be needed just because the building is new. The worst part is… there is no interest by this organization in looking at the real numbers to find out.

I think they can take a lesson from applying a “tiny business view” towards their overhead and expenses and determine for real what is best for the long term sustainability of the organization. The most basic questions of what will this truly cost us?

Non-profits need to be run like any other business (for-profit or non-profit)… and manage the business overhead/expenses with the actual available income and make the expense/income sides of the balance sheet work long term. If this is ignored… they will fail when they run out of other people’s money and that is a fact.


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