Connections for Success

 

06.25.15

The Real Costs of a Not-For-Profit
Harry Fox

You have got it all figured out – after hours and hours of time spent planning, you are ready to start the perfect not-for-profit. You have a great mission statement that provides focus for your efforts, an eager staff of volunteers ready to get the word out, and the perfect plan to really serve the community. As you sit back and dream of future success, it suddenly hits you. What is this going to cost me?

What Am I Paying For?

There are three main types of expenses that not-for-profits encounter:

Program Costs
These are the first costs that jump to mind when thinking about a not-for-profit. These costs include all expenses directly related to your mission, such as the cost of providing vaccinations in a poor neighborhood or the cost of an actor to put on a dramatic play. As these are the first costs that come to mind, they are usually the easiest to determine.

Fundraising Costs
You have to spend a dollar to make a dollar. These are the costs related to obtaining revenues, such as employing a Development Director.

Administrative/Overhead
These are the backbone of the organization, the costs that it takes to keep a not-for-profit up and running. Expenses such as rent, utilities or an accounting staff may not be the first thing on a not-for-profit’s mind, but these costs are some of the most important ones a not-for-profit must understand. These administrative costs are the real costs.

The Need for Real Costs

Administrative costs have gotten a bad reputation over the years. These expenses are incorrectly viewed as expendable and unnecessary as they do not directly further the organization’s mission. However, without these real costs, a not-for-profit cannot maximize its mission. For example, as a not-for-profit grows, it will need a home, which means paying rent, utilities and other costs associated with a physical location. Office supplies, computers, a telephone and email system; all of these items are needed to keep a not-for-profit up and running. Most importantly, a strong accounting department is necessary for a healthy not-for-profit. Having a strong accounting department will help provide the best financial information to decision makers in the organization, such as management and the board of directors.

Identifying the real costs it takes to run a not-for-profit is only the first step, however. Just as important is the need to fundraise for these costs. Many donors only look at the mission of the organization and therefore will only provide contributions that are restricted for use only for that mission. While these contributions are helpful to a not-for-profit, obtaining contributions that are free from restrictions, or unrestricted contributions, will give a not-for-profit more flexibility to manage operations. Therefore, educating donors on the need for real costs is key in sustaining a healthy not-for-profit organization.

If you have any questions regarding real costs and how they relate to your organization, contact Harry Fox at hfox@orba.com or 312.670.7444. Visit orba.com to learn more about our Not-For-Profit Group.

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