6 Myths about Non-Profit Management: Why You Should Manage Your Non-Profit Like a For-Profit Business
For much of much of my career, I’ve worked in the non-profit setting, but I’ve also spent a great deal of time in the for-profit sector, including having the privilege to run my own business.This makes some suggest that I’m quite versatile. I am…but the real truth is, the most successful non-profit organizations and the most successful for-profit businesses are run with the same basic business principles and should be managed in exactly the same way with some obvious revenue/tax exceptions.
I raise this issue because I often run into people who have misconceptions about the inner workings of a non-profit. Somewhere along the line they’ve come to believe that the administration, the oversight, the day to day operations, is run a little less tight than its for-profit counterpart. Now they could be making mention of these things as merely something they’ve seen, but sometimes it’s the case that boards and committees have a lax view of how a non-profit organization needs to be managed.
Here’s the problem. When non-profit leadership takes on the attitude that we can cut corners, we don’t need to run a tight ship, that the quality of our work can be the bare minimum, we can be guaranteed that this non-profit will not be around for very long. Every non-profit should be managed with the mindset of a for-profit business….as if its your money to lose, not someone else’s. So, there are some myths about non-profit management that really need to be addressed:
Myth #1: Overhead should be avoided or kept at a bare minimum.
Of course there isn’t a non-profit or for-profit business anywhere that should practice the use of excessive overhead or spending. For all practical purposes….why? But where the non-profit struggles a bit differently than their for-profit counterpart is the belief that they should do without or with antiquated equipment so that all of their dollars can be poured back into their mission. The problem with this way of thinking is the belief that the mission is even achievable without working computers, usable phone lines, or adequate office space. The more effective an organization is, the easier it is to persuade donors to invest more. But effectiveness is dependent on efficiency, and having the right equipment and the right people is how things are going to happen.
Myth #2: Non-profits can’t have money in the bank at the end of the year.
I almost spit out my drink when someone told me that an experienced non-profit executive actually believes this. There is no IRS rule stating that at the end of the fiscal year, they have to start with a zero balance in their bank accounts. This isn’t the first time I’ve heard this sentiment in all honesty. It comes out in a variety of forms such as “we can’t have a savings account with a lot of money in it because we are a nonprofit.” Please have money in the bank at the end of the year so you have something to work with. So sad that this even has to be addressed as a serious myth….but I’ll move on…
Myth #3: Non-profits cannot make a profit.
Another widely believed myth. So let’s set the record straight on this. If your organization that supports, for example, suicide prevention, and wants to sell t-shirts to create more awareness for the cause, your organization can do that.
Non-profits can earn a profit on activities not related to their stated goals, but any profits of this kind are subject to taxation. In order for a nonprofit to make tax-exempt income, it must fall within the scope of their mission and those profits must be reinvested into its expenses.This income typically comes in the form of donations and grants. Of course, this is not financial advice, please give your financial adviser a call to get more information on this matter.
Myth #4: Non-profit executives should be paid less.
After all, its charitable work, right? Think again. It takes talent to run any business, including a non-profit entity. In the same way you shouldn’t keep the computers around with the Windows 98 operating system (its a security risk!), don’t hire staff who are inadequate for the task. If you plan to be working for your cause in the next 10, 15 or 20 years, you need to invest in the leadership that can take you there. If you underpay, you won’t find the talent you need because they will find a way to go where they can get the salary they deserve. Invest early and reap the benefits later.
Myth #5: Big donors are more important than small donors.
Seems like that $5000 donor who dropped off a check last week should be more important than the guy that dropped $10 in the donation jar this morning. Common sense, right? But you know what they say about making assumptions. There is no donor more important than another donor. Of course, you can’t go to lunch with ALL of them, but don’t assume you know everything there is to know about the man who donated ten dollars. Do you know that he doesn’t have another ten thousand to contribute? The best way to think about donors is to not make value judgments about anyone who contributes less than you expect. Even if the ten dollar contributor could never give another cent again, that ten dollars was given from the heart. We don’t want to lose our small donors because they often make up more of the giving than do the large donors. According to Charity Navigator, “donations from individuals account for over two-thirds of all donations.” Big or small, every donation adds up.
Myth #6: Donor Acquisition is more important than donor retention.
Whether you’re a for-profit or a non-profit entity, you need to always be thinking about how to draw in more customers while retaining your existing customers. Implementation of different marketing strategies will allow you to focus on both types differently. Loyalty programs will help you with retention, including in the non-profit setting, and special deals will make an impact on both existing and potential customers. You need to resist comparing the two and give energy to both.
There are many more crazy myths out there about non-profits and how they should be managed differently from a for-profit business. The bottom line is in order for either to run efficiently and effectively, they both need to be governed by basic business principles that allow for future growth. So don’t buy into the myths and be smart about running your non-profit…like the business that it is.