In the not-so-distant past, charity watchdog groups such as GuideStar, Charity Navigator and the Better Business Bureau\u2019s Wise Giving Alliance were notorious for giving overhead ratios significant weightings in their rankings of not-for-profits. While such a practice can help potential donors weed out spendthrift organizations, it also tends to unfairly penalize nonprofits making reasonable expenditures for current needs and strategic investments for the future.<\/p>\n
In recent years, nonprofits have been urged to put more focus on transparency, governance, leadership and results. For many nonprofits, funders and watchdog groups, \u201cimpact\u201d is now the primary measure of an organization\u2019s effectiveness. If it hasn\u2019t already, your nonprofit needs to ensure that it has made the necessary cultural changes and communicated the importance of impact to its supporters.<\/p>\n
Possible challenges<\/p>\n
\u201cImpact\u201d generally is defined as the long-term or indirect effects of measurable outcomes (such as the number or percentage of individuals served). It typically refers to broader societal change and can be much less predictable than outcomes.<\/p>\n
Hopefully, most of your donors may now use such impact-based yardsticks as \u201cWhat difference does this organization make in our community?\u201d But. while such a shift of perspective is good news, it may mean that your nonprofit needs to make some cultural changes \u2014 including at the board level. For example, you might have to convince your board that spending more on such items as executive salaries and marketing programs will produce better outcomes and broader reach over time.<\/p>\n
Communicating with stakeholders<\/p>\n
Although there\u2019s no proven relationship between overhead and a nonprofit\u2019s effectiveness, some donors, funders and members of the public continue to use nonprofit expense ratios to compare organizations. Communicating the value of impact can be challenging.<\/p>\n
One practical solution is to revise such publications as your annual report. Compliance with Generally Accepted Accounting Principles requires nonprofits to report costs in one of three functional categories \u2014 program services, general and administrative, and fundraising. But there\u2019s no reason why you can\u2019t provide supplemental financial statements or break out administrative items to tell how they were used to enhance programs and ultimately affect lives.<\/p>\n
Advice for change<\/p>\n
If you\u2019re unsure about how much your nonprofit should spend on overhead and how it can best deploy resources for meaningful impact, contact us. Times are changing \u2014 for the better \u2014 and your organization needs to change with them.<\/p>\n
\u00a9 2018<\/p>\n","protected":false},"excerpt":{"rendered":"
In the not-so-distant past, charity watchdog groups such as GuideStar, Charity Navigator and the Better Business Bureau\u2019s Wise Giving Alliance were notorious for giving overhead ratios significant weightings in their rankings of not-for-profits. While such a practice can help potential donors weed out spendthrift organizations, it also tends to unfairly penalize nonprofits making reasonable expenditures … <\/p>\n