Administrative Costs Are Essential for Nonprofits to Achieve Their Mission!
Espace idées • Mai 17th, 2018
A survey conducted by the Muttart Foundation in 2013 found that "nearly three quarters of Canadians believed that charities spend too much on salaries and administration." Perhaps those surveyed would simply like to see zero expenditures and for all funds raised by organizations to be invested directly on programs. But is this truly realistic? We don’t think so, as administrative costs are ESSENTIAL for the fulfillment of a nonprofit organization’s mission.
A Real Investment for a Real Impact!
Organizations have no choice but to spend money to be effective and to ensure the sustainability of their work. Overhead costs are normal. Nonprofits, like businesses, have to pay for everyday expenses such as rent, electricity, computer equipment, software, salaries, travel, and so on. They need insurance, they need to have their financial statements prepared, they have to produce annual reports, recruit volunteers and more. All this to allow them to meet specific requirements and continue to offer their services to the community.
Few organizations are able to operate effectively without incurring administrative costs. Imagine Canada adds that "nonprofits that spend too little on infrastructure have more limited effectiveness than those who spend more reasonably."
In a very interesting article, Phil Communications proposes a new way of perceiving overhead costs within an organization. This social enterprise suggests that overhead costs contribute to the organization’s mission by enabling it to set up strong accounting and finances, best practices in human resources, an enlightened and efficient governance model, as well as a talented and committed staff.
Consider Other Factors
When it comes to donating to an organization, the donor should not only rely on the nonprofit’s revenue/expenditure ratio, but also consider other factors, such as good management practices, trust in the mission and the impact the organization has within its community.
Here’s a very relevant example presented by Imagine Canada: "Someone who is truly against any overhead spending is free to give money directly to a young person in need. In this scenario, there is a direct transfer of resources - no middle entity and no extra expenses - but also no value added to street youth. The same conditions that led the person to live on the street may very well be present when that donation is spent. However, it is a different situation if that money is donated to an agency that provides training, low-income housing and advocacy on behalf of youth. Yes, there are hard costs to this intervention - but ultimately, a greater chance for a better outcome for having invested the extra resources. "
Salaries Based on Skills!
The issue of overhead costs inevitably brings us to the subject of compensation for nonprofit employees. Salaries in charities should be based on the skills, experience and training needed to advance the work of the organization.
If you work for a nonprofit, you’ve probably already made the choice to sacrifice a higher salary in the private sector for the values and personal satisfaction of your work. However, underpaying employees could hinder an organization's programs if the only people willing to accept such a low salary are the ones not qualified to perform the work.
To continue having a real impact in the community, nonprofits must attract the best talent. It is also important to retain employees by investing, among other things, in the ongoing development of their skills (read our article about training), because having to constantly recruit new employees requires an extra investment.
