In our useful one-pager on “Becoming Loan Ready”, we list factors that lenders look for when they evaluate non-profits. These include:
- Financial Strength
- Management & Governance
- Planning & Reporting
- Reliable Repayment Sources
Nowhere among these will you see the phrase “low overhead costs” as essential to obtaining finances. This isn’t to say that lenders scorn responsible administrative spending and getting the most possible out of every dollar; on the contrary, those are foundational principles of good business. But when experts consider whether powerhouse corporations like Apple or GE have had a successful quarter, they don’t focus exclusively on their overhead if the bottom line is healthy, so why is it that non-profits feel it’s necessary to emphasize their low overhead costs to potential donors more than their outcomes and impacts?
The question is somewhat rhetorical of course; donors like to feel that their contributions are going directly to those most in need, so when a non-profit is able to boast that only a small percentage of each dollar goes to overhead, donors feel more secure about giving. But this pie chart mindset can be misleading. Three major charity watchdog groups (the Better Business Bureau, Charity Navigator and GuideStar) have partnered to launch The Overhead Myth campaign, which seeks to educate non-profits and the public about what overhead costs entail, and how to promote better ways of evaluating a non-profit’s success.
Investing a significant portion of capital into programs is necessary, but how well can these programs be delivered if the charity is handcuffed from spending on training, recruitment and internal evaluation? Non-profits combat complex issues, and have equally complex organizational needs and capacities; the communities they exist to aid will be done a great disservice if non-profit employees are not supported enough to handle these tasks.
At the Community Forward Fund, our staff and investors understand that how a dollar is divided is a less important data point than how each dollar is multiplied; socially, environmentally, profitably. Overhead is just one factor taken in the context of overall performance. We make our decisions based on the results non-profits achieve for their most important stakeholders: their communities.
Whether your organization is seeking public donations or demonstrating to financiers that it is loan ready, do not emphasize how little it spends, but how many it saves! After all, there is no arguing with results.
Check out The Overhead Myth’s “Letter to Donors”