Part Two: Is Your Organization Thirsty for Overhead Support?

Guest post by: Erica McGeachy Crenshaw
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Are Nonprofits Funding Their Priorities - By Erica McGeachy Crenshaw

Soundly managing your hard-earned dollars involves three steps.

We discussed the first two steps in my last post and the third step is addressed below.

3) Use the knowledge gained in step two to legitimize funding for programs and overhead. Low levels of overhead funding leave nonprofits financially vulnerable. Many lack cash reserves, making it difficult for them to build a financial safety net for periods of low revenues or to deal with unexpected expenses without having to rely on credit. In other words, the highest-quality programming is directly linked to how well the indirect costs are funded.

Make a strong case

Because many nonprofits lack basic financial systems, they aren’t accurately representing their true costs. This incomplete picture nonprofits give to foundations perpetuates a negative cycle where funders consistently underestimate the cost incurred in running a nonprofit organization, which in turn, puts pressure on nonprofits to under-report their overhead costs or risk alienating their funders.

Government funders are particularly guilty of perpetuating this cycle. Sixty percent of 33,000 nonprofits surveyed by the Urban Institute reported the limit for overhead costs set by their government contracts was 10 percent or less of the overall operating expenses. This is in stark contrast to the estimated 17 to 35 percent of overhead expenses that may be necessary to support a strong administrative and management infrastructure.

While funders play their role in this cycle, nonprofits still have an opportunity to break it. Organizations need to make the essential case for investing in capacity building, not only in the capacity to deliver systemic outcomes, but in the far-reaching and long-lasting capacity of the people and systems they use to implement these game-changing programs. Consider enlisting the help of a financial consultant who can help you further solidify your case with forecasting, cost-cutting analysis or custom financial models, which can stabilize your funding picture and instill confidence in your donors.

Most nonprofits are desperately raising money inside a funnel. While an overwhelming amount of attention pours into rigorous grant applications and lavish individual donor cultivation plans, only a trickle of thought typically goes into sound financial and management planning. Until you’ve developed a rolling plan for legitimizing and managing the funding you’ve worked so hard to cultivate, stop fundraising in vain. Otherwise, your organization will always be thirsty.

Is Your Organization Thirsty for Overhead Support?

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Are Nonprofits Funding Their Priorities - By Erica McGeachy Crenshaw

About the Author: Erica McGeachy Crenshaw

RSS for Erica's articles - Visit Erica's website
Erica McGeachy Crenshaw, a former Wall Street equity research analyst with 16 years of finance experience, left leading global investment bank Goldman Sachs in 2002 upon purchasing the New York City rights to AmeriSpec Home Inspection Service, the leading home inspection company in North America with over 400 offices throughout the U.S. and Canada. She subsequently acquired four additional territories in Long island, NY. Within seven years, Mrs. Crenshaw grew the business at a rapid clip and became one of the top 20 franchise owners in the AmeriSpec system within three years.
While running AmeriSpec, Mrs. Crenshaw launched Execute Now!, a finance and accounting firm. The firm is focused on two types of clients: non-profit organizations including charter schools and private companies with up to $20M in revenue. Execute Now!'s historical emphasis has included contract-CFO assignments on behalf of small to medium-sized companies, assisting clients in raising private debt and equity capital, and coaching business owners on how to successfully launch and grow their businesses.

In recent years, the firm has expanded into providing day-to-day finance and accounting services to non-profit organizations and private companies. Each Execute Now! client has a team of professionals focused on providing accurate and timely financial reports, financial leadership, and superior service.

The team approach provides stability, additional oversight, and a required segregation of duties. Mrs. Crenshaw's background also includes leadership at a start-up charter school in New Orleans where she was the founding finance director. Mrs. Crenshaw developed and managed Benjamin E. Mays Preparatory School‘s $2.1M budget. At the end of her tenure, the school had free cash flow and operating margins of 6%, which is above the industry norm of 4%.
In addition to being invited by organizations to speak to other entrepreneurs around the country, Mrs. Crenshaw has also been featured in several newspapers and magazines such as Essence Magazine, Black Enterprise, New York Post, Real Estate New York Magazine, The New York Amsterdam News, and various radio programs within New York City. In addition, she has been recognized by the NYC Commission on Women's Issues as an exceptional role model for other would-be entrepreneurs across the country.
Click here to visit Erica's website.

More from Erica McGeachy Crenshaw
Its Not What You Say But How You Say It
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Part Two Build a Financially Strong Nonprofit with Cash Flow Management
Is your Nonprofit a Statistic
Are Nonprofits Funding Their Priorities

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Part Two: Is Your Organization Thirsty for Overhead Support?

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