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Judging a Nonprofit’s Worthiness

Historically, donors have been told to judge the success or worthiness of a nonprofit based upon the percentage of its budget that is spent on overhead.

Whether overhead is a valid way to judge the worthiness of your nonprofit is entirely up to your nonprofit’s board.  There are a variety of standards that are used to determine if overhead is too high and there are just as many definitions of what should be included in overhead.  Therefore, your board controls the narrative about the worthiness of your nonprofit.

You want your donors to invest in your mission rather than your nonprofit.

If your donors are investing in your nonprofit, they should examine the financials and determine if every penny is being spent in the most efficient way possible.  The financials should prove that your overhead is extremely low.  Essentially, the donors are giving so that your nonprofit can continue to operate.  The message is that your nonprofit’s mission is far less important than how well your financials are managed.  It is unlikely that your clients choose your nonprofit because of how well it is run.  It is also doubtful that any of your staff members, volunteers, or board members are as enthusiastic about good management as they are about helping your clients.  However, without intending to, your board may be asking all of your supporters to judge your nonprofit based upon the quality of its management.

If your donors are giving to your mission, they should care about the change your mission is making in your community.  In this case, the financials are important only to the finance committee, executive, and the accounting office.  They must pay close attention to the financials because the financials predict the health of your nonprofit.  Keeping your nonprofit healthy is the responsibility of the board and the executive.  Making the community healthier is the promise of your mission.

If you want your donors to give to your mission, you must provide the donors with a clear understanding of the meaningful, measurable, and durable changes your mission is making in the community.  The donors’ understanding must be developed through the use of anecdotes (emotional connection to the results) and data (evidence of the results).  The change must be presented in two parts.  One is the immediate change (result) that happens in the client’s life and the community when the client completes your program.  The second is the life altering changes (outcomes) that take place in the client’s life and the community long after the client completes your program.

If your nonprofit is focused on providing meaningful, measurable, and durable changes but donors still ask for overhead ratios, the problem is easy to solve.  You need to provide the donors with more compelling anecdotes and evidence.  Perhaps the anecdotes and evidence would be more compelling if presented in a different way.  Perhaps better evidence or anecdotes are needed.  Perhaps you need to ask your donors what they would find compelling.

Changing people’s lives (effective mission and programing) moves people’s hearts.  Very few hearts are moved by financial reports and good management.  Supporters are generous and loyal when you capture and hold their hearts. Your donors emotional connection to your nonprofit is more important to your nonprofit’s sustainability than the donor’s satisfaction with your financial management.

Next Step:

Determine if your messages to your donors are inviting them to give to your mission or your nonprofit

Establish benchmarks that will demonstrate that your mission is creating a meaningful, measureable, and durable change in your clients and community that your donors want

Ask your staff to collect the anecdotes and data that demonstrate your mission is reaching, or making progress toward, its benchmarks

Be brave and set a lofty goal.  Donors like lofty goals.  The donors will support the goals if you have the evidence and the plans that instill confidence that your programing can deliver with adequate support from the donors.

When your donors are contributing to the changes your mission will make in lives and the community, the sustainability of your mission will increase, and by extension, your nonprofit will have increased financial support.  The operating ratios and overhead expenditures will become unimportant to the donors. In addition, financial management will be less stressful.

In days of old, nonprofit boards promised much and delivered little.  In reaction to that, donors started asking for overhead information in the hopes of limiting the waste and improving the outcomes.  In the end, all the donors wanted was better outcomes.

Focus on your outcomes and your donors will ignore your overhead.  When they see the outcomes they want, they have no need to audit your board or executive’s management skills.

Take It Further:

Review all of your nonprofit’s goals and success measures to ensure they focus on what is important to your stakeholders rather than an artificial standards (financial performance for instance) that was created to solve a problem that exists in some other nonprofit

Trust that focusing on the mission, clients, and community impact will produce the support needed to have a healthy nonprofit (financially strong)

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