We need to encourage program managers to “ask for what they need”. This comment came from the mouth of a nonprofit Executive Director who was part of a financial strategies panel which took place at New York Nonprofit Media’s 3rd Annual Nonprofit OpCon, held on June 15. The event is a convening of New York’s leaders in nonprofits to share information and educate one another on best practices for operational and financial success. During this particular panel, nonprofit leaders shared their thoughts and opinions about how budgeting choices can ultimately impact financial results.
What does “asking for what you need” mean and how does it impact financial results?
It means first estimating the full cost of running a program. That includes program costs, management and general and fundraising costs. If the full costs of running a program are not incorporated in the budget, then a nonprofit runs the risk of program deficits or faces tough decisions to curtail program services or other costs or quickly raise funds. Furthermore, ongoing deficits, without supporting strategies to offset them, can have a negative effect on long term organizational financial sustainability, depending on the degree to which these deficits eat away at net assets.
It is important to be up front with funders about what it truly costs to run a program. Funders should ask and grantees should tell. How do we all get comfortable talking about overhead with our board, staff and funders?
I am reminded of two videos which, I think, demystify and simplify the concept of overhead costs, yet communicate their importance. “Overhead Ratios: How to Answer Your Donors’ Questions”, by Peter Drury, Director, Corporate & Foundation Relations, Seattle Children’s Hospital, articulates, in a positive way, how to talk about donor dollars going to overhead. Another video, “If We Want Our Funding to Change the World”, produced by The Donors Forum, Bridgespan and The National Council of Nonprofits, explains why we can’t possibly change the world unless we change the way we think about funding—it’s not just for supporting program costs. A third, recent video called Outcomes Matter created by the Nonprofit Finance Fund, goes further into discussing how the sector needs to overhaul how it thinks about funding in order to produce real change or outcomes.
Asking for what you need is one of the golden rules for not only creating change in the nonprofit sector but also building organizational financial health. What has been your experience with asking for what you need? Is the dialogue between grantees and funders changing? I’d love for you to share your thoughts, comments and experiences, whether grantee or grantor.