marblesThis past weekend I had the pleasure of attending the Northern Colorado Active 20/30 annual “Suitcase Party” ( http://noco2030.org/) for the first time. This event, designed to raise money for NoCo 20/30’s philanthropy goals, was amazing. Essentially it is a silent / live auction, food and drinks, along with a concert (Blues Traveler this year!) and raffles. It is called the Suitcase Party because the attendees come with a packed suitcase. The winner of the big raffle won a trip, by private plane, to San Diego CA and the trip started right after the party ended. Since I am writing today, you have probably surmised that I did not win the trip. But I had a great time anyway.

These guys know how to throw a party. Everything was absolutely top-notch, from the food to the décor, entertainment, auction, etc. The fund raising goal for the event was $500,000. I am waiting to hear the final totals but I would expect that they reached their goal.

As I was speaking to some of the other party goers, there was one guy that I spoke to who indicated that the party was great but he wondered how much money was going to help kids versus covering the expense of the party. In other words he had a question about “overhead.” I had no info on this, but it allowed me the opportunity to give the donor a different perspective.

I had the good fortune to hear Dan Pallotta speak a few weeks ago. The topic was on charity overhead and some of the myths associated with it. I cannot give you all of the info here, but the main thing that I wanted to convey to this donor is that although we have been conditioned to believe that overhead is “bad,” it really is not. Overhead is a necessary part of the success of a nonprofit organization. In fact, I am overhead.
When we look at the financial performance of a nonprofit organization, the three main things that we typically look at on the expense side are Program Costs, Management Costs, and Fund Raising Costs. We consider Management and Fund Raising expenses to be “overhead,” and the conventional wisdom is that they must be as close to zero as possible.

In order to be a high-performing organization, it is critical that you have sound management. You have to have people who have the ability to develop a vision and assemble the necessary resources to construct a strategy and execute it. Strong management systems give the organization the ability to make an impact. Having a good Development Team will ensure that the organization has the financial resources to execute the strategy. Without money, the organization will not be able to function. I have been working at Weld Food Bank for 3.5 years, leading their fund raising department. Back in the 90’s, before they had professional fund raising staff, the food bank was raising about 15% of last fiscal year’s $1.8M in philanthropic revenue. There are people who believe that if organizations did not employ fund raisers then that would free up more money to go to programs. Actually, the opposite is true.

The real question that we need to be asking is “what kind of impact is this organization having?” “Are they closer to accomplishing their mission than they were 1 year ago, 5 years ago, 10 years ago?” If they are successful, the fact that they spent 30% on overhead instead of 20% is really irrelevant.

Let’s look at a brief example. 2 organizations are working on tackling homelessness in the same community. Charity A has overhead of 10%, raises $500,000 a year and builds 2 houses annually to house their clients. Charity B raises $3M per year with a 20% rate of overhead, and they build 15 houses per year to house their clients. Which organization is having a greater impact? Where is your financial investment most likely to yield the best outcome?

I have no idea what the overhead percentage was for the Suitcase Party on Friday night. What I do know is that the NoCo 20/30 group is making an impact in our community. When I was at the Boys and Girls Club of Weld County gala in March of this year, I was able to witness NoCo 20/30 present $100,000 to the BGCWC. That was one of the clubs’ largest contributions and will go a long way toward providing youth development programs to our children locally. This is just one of the grants that they made last fiscal year. That is impact.

Do you disagree? I’d love to hear from you in the comments below.

Have a great week,

KLM

PS

See www.overheadmyth.com for more perspective on this issue.

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