Monday, August 15, 2016

How much overhead is NOT enough?

The matter of overhead, i.e. administrative costs,  is still and will probably always be a big deal for nonprofits.
   
The idea of keeping overhead really low is baked into the psyche of nonprofit organizations, the public and donors alike.

Still, it does cost money to be in business.

Thankfully, more donors are beginning to recognize that for a charity to serve the community, it has to stay in existence.

The standard for overhead spending right now seems to be in the 20% to 25% range, certainly no more than 35%.

Truthfully, there is no single "right" ratio.

Some charities have substantial indirect costs. Others can and do survive nicely on 15% or less.
The right amount is the no-frills amount that you need to keep your doors open.

For instance, food-based charities may spend quite bit on utilities, storage space, racking and material handling equipment.

Another that is based on volunteer staffed community outreach regarding education might need no more than a phone and a website.

Recently I had a nonprofit that wanted a press release written to tell the community that they were shutting down. Their main source of income was fees for services, but they simply didn't have enough clients to cover their operating costs.

One fact  I learned was that they had kept overhead to 7.5% of donations. There was no set budget for non-program costs.

One of the casualties of that approach was that they did not advertise beyond having a  website.

I did the press release and two weeks later, I got another call.  Could I do a press release retracting the closing?

When the first press release ran, they got over 70 calls wanting their services.

Up to that point, it seems hardly anyone knew they existed.

I'm happy to report that they remained in business, and have since created a budget for marketing.

Don't get hung up on meeting some artificial figure that doesn't work for your business or charity.

Sit down, develop a realistic organizational budget and stick to it.

To serve others, you first have to survive.