Earlier this year, I announced my retirement from Community Youth Services effective July 31. I have learned a lot about child welfare and, most importantly, how to effectively operate a nonprofit organization. Today, I will share some important revelations and lessons learned.
Nonprofit organizations are often referred to as the Third Sector as they work alongside government or on behalf of government to attack pressing education, social and health problems. With the exception of health care, human service nonprofits do not play by the same supply demand rules as private enterprise. Social services consumers customarily do not directly pay for services such as food banks, emergency shelters, crisis clinics, Boys and Girls clubs or day support centers. We depend on contracts from various forms of government, fundraising and foundations for funding. Whereas in the private sector, the more customers a business has, the more money and profits are to be made. If not careful, nonprofits can implode from high demand and inadequate resources to carry out their services.
Nonprofit organizations must earn and maintain the trust and support of their community. They do this by recruiting and maintaining a well-trained and motivated board of directors and staff. Board members must not have any conflict of interest and should not enter into business relationships with the nonprofit. Recruiting and putting to work a pool of volunteers also helps to educate the community about social issues while providing meaning and purpose for hundreds of persons.
An effective nonprofit understands the outcomes that are expected and has a method to document the effectiveness of their programs. When negotiating contract outcomes, nonprofits must know what is reasonable and negotiate terms that are realistic and achievable.
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COMMUNITY TRUST ESSENTIAL
A majority of expenses for nonprofits is labor related. No machine or technology can substitute for a caring, skilled and understanding case worker who has manageable caseloads. Areas in which nonprofits can improve efficiency is through technology such as electronic records, advanced finance software and ensuring that all staff understand the capability of their computers.
The term nonprofit does not mean that a nonprofit is prohibited from making a profit. One of the differences between a nonprofit and for profit is what occurs with the profits. In nonprofits, any profit is reinvested back into the organization and/or saved for a rainy day. Profits in the private sector are delivered to shareholders and reinvested into the company. A healthy nonprofit should strive to achieve a 3 percent profit margin. The old adage, “no margin, no mission,” is very relevant to nonprofits.
Since nonprofit profit margins are so slim, large property purchases are best financed through capital campaigns and/or bonds. Reducing debt associated with occupancy provides needed funds to directly deliver service to clients. If required to pay rent, occupancy costs for Community Youth Services would total $329,000 per year. Since, the agency conducted several successful capital campaigns, we are able to use normal occupancy costs to support staff and services.
KEEP OVERHEAD RIGHT SIZE
Administration costs should not be excessive or too slim. Both extremes can have a material impact on the organization’s performance. The normal administrative range is between 12 percent and 20 percent. Generally, higher revenue volume reduces administrative overhead.
In order to increase organizational outcomes, nonprofits must decrease staff turnover. Recruiting, hiring and training new staff is costly and detrimental to the organization. Ways that nonprofits can improve retention include: paying a living wage, providing adequate benefits including retirement, providing ongoing training and evaluation, holding staff to high standards, and supporting and encouraging staff.
Nonprofit organizations often work within their own service silos and as such can become isolated. Careful planning needs to occur to develop strategic partnerships with other organizations and business sectors. Nonprofit leaders should embrace and actively participate in organizations such as Rotary, Kiwanis, The Chamber and Olympia Downtown Association
And finally, regardless if we are working in the nonprofit, for profit or government sector, leadership matters. It is critical for the leader of a nonprofit to express optimism and hope for the future, to effectively advocate for their cause, support their workforce, follow through on promises and obligations and operate in a fiscally responsible manner.