The understandable desire for funds to “help more” has resulted in a shortest-route- between-two-points mentality – a straight line, or direct route, to the constituents through the programs developed to help them. This shortest distance between fund and type of expenditure has created, for many nonprofits a gap or shortfall in funding overhead costs.
Curtis Klotz, CPA in his article “A Graphic Re-visioning of Nonprofit Overhead” puts it this way, “Most nonprofit leaders agree that we need a new way to communicate about the true costs of our programs and the vital importance of strong organizational infrastructure. But we have not yet developed a simple, consistent message when sharing our view with potential supporters and investors. We are stuck with old terms and old images.”
Klotz recommends retiring “the old pie chart.” The old pie chart is zero-sum and one-dimensional. For example, if programs get 80% of the pie, and a nonprofit wants to increase investment in the 20% slice that contains Administration and Fundraising expenditures – the old perspective dictates that a 2% increase in nonprofit administration and fundraising means a 2% decrease in programs.
The problem with this old view is that program effectiveness will suffer at some point without the proper investment in Administrative, and for many nonprofits Fundraising, infrastructure. Within those functions are the very critical functions of core mission support. Klotz identifies four “necessary, vital and integral” core mission support functions:
- Strong, strategic finance and accounting
- Progressive human resources practices
- Capable, responsive board governance
- Talented and engaged development staff
If we retire the old pie chart, what would be the new image that better depicts the relationship between program, administration, and fundraising costs? Klotz recommends this more accurate and improved view of the organization, where core mission support is placed at the very center of the design.
At the center of the diagram is the fundraising and partnerships that contribute to core mission support. The next layer finds the necessary elements of finance, human resources, and board governance that comprise core mission support.
This depiction of the relationship between the areas of expenditure is far more accurate than the old pie chart. If there is weakness or worse, a collapse of the core, there is a ripple effect that adversely impacts the entire nonprofit organization.
Core Mission Support Fundraising and Partners
Funding through donors and strong partnerships with grant funders, foundations, and other partnerships that enable the nonprofit to maintain programs and serve constituents and the mission – are undeniable necessities.
Moving to the next ring of core mission support (an area where there is too frequent neglect) are the core mission support areas that contribute to the efficiency and effectiveness of the nonprofit organization’s resources.
Core Mission Support – Nonprofit Finance
We have written before that accountability and transparency begin with sound financials.
The most basic demonstration of strong financial management is the ability to produce accurate financial statements in a timely manner. An executive team cannot react, course correct, or effectively innovate or improve operations with stale data.
The longer you wait for nonprofit financial reporting, the more irrelevant it becomes. Donors, partners, and even constituents, work with devices (e.g. smart phones and online applications) that have given them an expectation of real-time data delivered in a few clicks.
If your most recent data is weeks or months old – you are at a disadvantage.
Another symptom of at-risk accountability is the inability to provide special requests for reports quickly to board members, donors and other funders.
Do you have instant visibility and insights to proactively manage funds and programs? Without it, current and future funding could be at risk.
Core Mission Support – Human Resources and the Board
Equally as important as financial reporting tools and resources, is the quality of your human resources and the board.
Is your organization’s financial strength adequate to recruit and hire staff with the necessary qualifications? Do they bring the expertise and ability to perform key internal functions? Do your constituent-facing employees have the optimal skill set to best represent the program and organization?
The ability to show prospective funders how critical these positions are to executing program, serving constituents and fulfilling the mission, is absolutely necessary to build a more compelling narrative to address overhead costs.
The old adage “all boats rise in the tide” comes to mind when you consider that it’s easier to recruit and benefit from dynamic, savvy, committed board members when the nonprofit core mission support house is in order. The most desirable and effective board members must be confident that the organization is fundamentally strong, accountable and transparent.
Arming the organization with a strong, capable staff and a dedicated, motivated board can take the nonprofit to new levels of mission fulfillment.
Developing a Compelling Presentation of True Program Costs
When talking with external audiences about the organization’s programs, the story must include all of the elements required for success. This requires communicating all of the resources necessary for program effectiveness and efficiency, which are the True Program Costs:
- Direct Expenses: Program-Specific
- Direct Expenses: Shared by Programs
- Core Mission Support: Finance, Human Resources, and Board
- Core Mission Support: Fundraising and Partners
Klotz depicts the True Program Costs through the following diagram:
Klotz points out that funders, supporters and investors very much want your nonprofit to succeed – they view themselves as partners in the mission. “But like us,” Klotz writes, “they may need help re-imagining the role strong infrastructure plays in amplifying program effectiveness.”
You’ve heard the phrase “a picture is worth a thousand words” and in developing these images of True Program costs, it makes it easier for our advocates and funders to support a sound, strong, professional infrastructure.
At Xanegy we’ve worked with a variety of nonprofit organizations and have seen the difference between an organization that has the right tools, processes, and resources and organizations that don’t. The contrast is dramatic – with the savvy nonprofits flourishing and expanding the scope of their mission and the remainder continuing to struggle while all the time wondering whether they will be able to sustain themselves. We are available to consult with your nonprofit to talk about where core mission support might be strengthened in your organization.