In part 1 of this blog we discussed a high level overview of The Non-Profit Starvation Cycle, and in part 2 we discussed Step 1: Unrealistic Expectations of Overhead Costs. In this post we’ll discuss Step 2: Pressure to Conform to Expectations.
As we discussed previously, the average non-profit will spend about 25% of its budget on overhead costs – but the problem arises when funders express guidelines to only spend 15%. If this disconnect isn’t addressed in Step 1, it results in overwhelming pressure for the non-profits to conform to funder’s expectations.
When organizations are forced to cut overhead costs one of the first things they’ll cut back on is software upgrades. Two key pieces of software for non-profits are Customer Relationship Management (CRM) software and Financial Management software (FMS).
CRM software is very important for non-profits as it allows them to manage all of their contacts (whether donors, volunteers, members, etc.) in one database. There are lots of different CRM solutions out there and they are typically designed to suit a certain organization size (i.e. small, medium, enterprise). As organizations go through growth spurts they’ll start to outgrow their current CRM software. When this happens, organizations realize very quickly that their data system is inadequate and isn’t capable of accommodating more contacts. However, because of the pressure to conform to reduced overhead spending, instead of doing a software upgrade staff will typically have to take on more manual processes. This eats up a lot of their time and takes away from what really matters, helping the community.
This process also occurs for Accounting and Financial Management software. As organizations grow the amount of financial reports, purchases, etc. will also grow. A low cost, basic accounting package works fine when the organization is small but will not be sufficient as the needs and demands of it expand. This will put more demand on the financial solution and just like with CRM it will become inadequate with the new demands and result in the staff having to put more time and effort into manual processes.
Many organizations know, understand and live with this problem. They have become accustomed to living with no software upgrade funds. One of the main issues that organizations face is the expectation from most funders to show a strong program outcome before they provide any funds. As organization-wide software upgrades can get expensive and be long processes, this is an unrealistic approach in this situation.
Stopping The Starvation Cycle at this step becomes difficult, expectations have already been set in Step 1 and now funders expect to see the reported results that match their guidelines. This pressure results in organizations cutting even more overhead costs and often results in underreported expenditures – which brings us into Step 3 – which we’ll discuss in Part 4 of this blog series.