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non-profits and charities - finding the right balance for success

Non-profit and charitable organizations typically rely on donations from individuals and businesses to carry out their work. However, when donors suggest that high overhead costs are due to wasteful spending or bad management, it puts the non-profit in a difficult position.

Non-profits have to work extra hard to manage public perception because several facets contribute to how the general public sees them. Although it's a daunting task, non-profits can take steps to mitigate these difficulties. However, they sometimes misstep and take the wrong approach entirely.

Firstly, non-profits may be too focused on their mission and instead need to focus more on generating income. Organizations that spend too little on their overhead may pay low, uncompetitive salaries, use volunteers instead of paid staff, and have outdated facilities and equipment.

Furthermore, some organizations may inflate how they report spending to ensure their donors stay happy. Donors want to see their money used efficiently, but at the same time, organizations need to ensure they're spending enough to be effective. Finding the right balance can take time and effort.

Many expenses go into ensuring the day-to-day function of the organization as well as keeping up with administrative tasks. And while it is important to be mindful of spending, skimping on certain expenses can sometimes do more harm than good. On the one hand, the non-profit needs to keep its costs low to be efficient and effective. On the other hand, it also needs to make those necessary investments in program development and fundraising to be successful. Investing in those areas can significantly impact their ability to carry out their mission.

While it may seem counterintuitive, non-profits that invest more in facilities, equipment, information technology, and staff training are apt to be more successful than those that cut back on these expenses. Investing in these areas from the start saves money in the long run. Doing so helps ensure the charity can operate at its best and make the most positive impact in the community. Non-profits need to be wise with spending, but there are better ways to save money than cutting corners on essential expenses. In other words, while investing in these areas may cost more upfront, doing so will eventually pay off.

So how much should an organization set aside for overhead and expenses?

A study by Hala Altamimi and Qiaozhen Liu entitled "The Nonprofit Starvation Cycle: Does Overhead Spending Really Impact Program Outcomes?" determined that roughly thirty-five percent of the budget is the sweet spot for spending on overhead. This view is not a one-size-fits-all but instead serves as a general guideline for most non-profits.

Of course, every organization is different, and there is no magic number regarding how much each one should spend on overhead. While non-profits need to spend their money wisely, it is also essential to understand that different charities have different overhead expenses. Some may have little in the way of overhead expenses, while others may have higher costs due to the nature of their work. For example, a non-profit that works with children might have higher expenses for administration and fundraising than one that provides food for the homeless. As a result, it is worth looking at each charity to see how it operates before making a judgement about its spending.

Some non-profit experts argue that the focus should not be on the percentage of the budget spent on overhead but on how effectively the organization uses its resources. In other words, it is better to have a high overhead percentage if it results in a more effective and efficient organization than a low overhead percentage.

It can be challenging for charities to find the right balance between investing in necessary overhead costs and convincing donors that their money is being put to good use. However, non-profits must remember that these investments will pay off in the long run. Donors want to see their money going to a well-run and impactful organization, and investing in overhead costs is one way to achieve this.

The end goal, of course, is to educate donors that a certain amount of money has to be spent on the actual functioning of the non-profit for it to succeed. This doesn't mean that every donor will agree, but hopefully, with the right information, they can make an informed decision about whether or not to support a particular organization.

The bottom line is that charities and non-profits should invest in overhead expenses boldly, as doing so can lead to increased success and impact. Donors need to be educated on this, as many still believe all charitable organizations should have meagre overhead costs. By investing in overhead, non-profits can become more efficient and effective, leading to greater impact.