The Cost of Running a Non Profit
There has long been a common belief that charities should spend every penny they raise on the programs and services they deliver. Maybe a better word is fantasy because no organization can survive without overhead – you have to pay your staff, you need space to operate, computers and phones, supplies, and the occasional training or seminar. So does that mean if every penny doesn’t go into programs that the charity is 'wasting' your donation? Absolutely not, in fact, spending a realistic amount on infrastructure and operations probably makes them better stewards of your money than you might think.
Consider this – if a nonprofit is spending every penny they raise on programs, how are they operating on a daily basis? A nonprofit can cut corners and eliminate the non-essentials – run the nonprofit out of a room in the Executive Director’s house to save rent, use donated desks, old computers and even pens from the local bank. And everyone involved in the nonprofit can be a volunteer...for a while at least. At some point, a nonprofit, like any for profit business reaches a tipping point in their growth. There are two things that cause this; the NPO incurs a major jump in the costs of providing services making it impossible to continue to serve the same number of people in the community or, the need for the services the nonprofit provides increases beyond projected expectations and there are no funds for additional clients. In both cases, a small nonprofit can end up closing its doors -- no matter how dedicated, committed and selfless the Executive Director and staff are.
You should look for efficient nonprofits with a reasonable amount of overhead. In reality, devoting at least 75% of the budget to providing programs and services is reasonable, according to Charity Navigator®. You can use one of their metrics – Program Expense Metric to see exactly how much a specific charity spends on programs and service delivery.
So knowing that a reasonable amount of overhead is realistic, how do you ensure your contributions are going where you intended? The easiest way is to ASK. Any donor can call a charity to ask exactly how their donation is being used. It’s possible they’ll have an Annual Report they can send you which will provide a breakdown of programs and funding.
But remember that whatever small percentage of your donation may be directed towards overhead and operating expenses – those are part of delivering the services and programs you support. So when you can be a little extra generous to help cover those operating costs!