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Funders are likely to scrutinize organizational overhead more than ever when the economy is struggling. But in conducting due diligence on a nonprofit, a would-be donor should never assume that low overhead is a sign of efficiency. Often it means the organization is stretched too thin to be healthy, which ultimately can hurt the nonprofit, donors, and beneficiaries alike.
In tough times like today’s, funders are likely to scrutinize organizational overhead more than ever. But in conducting due diligence on a nonprofit, a would-be donor should never assume that low overhead is a sign of efficiency.
We concluded that everyone—donors, nonprofits, and beneficiaries—loses when there’s an overemphasis on lean overhead. “Operating with sub par [IT] systems meant that we simply couldn’t support a bigger network,” said an executive director who requested anonymity. “A smaller network, of course, means serving fewer kids.”
By providing the board with data on where resources are lacking and by seeking and partnering with funders who understand the value of overhead investments, the organizations we studied have boosted their transparency efforts. For example, they have developed business plans showing clearly what actions would be needed for healthy growth.