In our previous post we discussed a high level overview of The Non-Profit Starvation Cycle:
- Step 1: Unrealistic expectations of Overhead Costs
- Step 2: Pressure to Conform to Expectations
- Step 3: Cut Overhead Costs and/or Underreport Expenditures
- Step 4: Reiterate Funders Unrealistic Expectations to do more with less
- Step 5: The cycle repeats and slowly starves non-profits…
This post is going to discuss Step 1: Unrealistic Expectations of Overhead Costs. Where do these unrealistic expectations come from? How does it affect non-profits and their communities? How can we change this step?
There are power dynamics that exist between funders and grantees. Organizations rely heavily on funders and many organizations would not survive the loss of their lifeblood. This dynamic makes it almost impossible for non-profits to speak up and address this cycle head on. In reality, non-profits spend an average of 25% of total expenses on overhead costs. Yet, most funder contracts specify that grantees cannot use more the 10%-15% of the grant on overhead costs?
To meet these strict expectations organizations need to cut back – they cut back on hardware, staff training, fundraising software, accounting solutions and so on. This allows them to get as close as possible to the grant guidelines, but the organization suffers as a result. By forcing the organization to cut back on fundraising and staff training, it becomes less effective at helping the community it was developed to serve!
If funders began to set more realistic expectations about overhead expenditures, the grant money spent on overhead costs would result in a more effective organization that was better able to fundraise. This offsets the initial cost spent on overheads with the grant.
Stopping the cycle at this step would be the most effective solution. However, in order to put a stop to the cycle at this stage there would need to be a seismic shift in the non-profit sector. One organization could not push back on its funders. However, if there was a shift in the non-profit sector where everyone pushed back on its funders about the reality of overhead costs – this could result in a positive change and alleviate some of the unrealistic expectations funders put on non-profits. Effectively, resetting the bar closer to the actual 25% level.
This blog is part of a series, to read Part 3 click here.