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High spending a concern for nonprofits

According to a new report by BDO Institute for Nonprofit Excellence, nonprofits are facing increasing pressure to keep overhead costs low.

The biggest challenge: spending for programs and services. Specifically, the report found 77 percent of nonprofits’ total expenditures go to support programs and services. It also found 42 percent of nonprofits report that the inability to meet demand for their services will be a high- or moderate-level challenge in the next year, while 21 percent say it is not a challenge.

And that’s a problem for associations and nonprofits, for whom learning and education are a top priority.

“This type of high programmatic spending could mean that organizations are underfunding necessary infrastructure — new technology, employee training and fundraising expenses —a phenomenon known as ‘the starvation cycle,’” the report says. “The prevalence of restricted donations could also be a contributing factor to the high program-related spending.”

Despite the findings, nonprofits are more likely to expand their offerings than constrict services to meet their members’ and constituents’ needs. Forty-seven percent of nonprofits say it is somewhat likely they will introduce new programs without eliminating others. At the same time, just 18 percent of nonprofits said, in the next two years, they plan to downsize their services and eliminate current programs without adding others.  

Along with commitment to maintain crucial services – such as training and education – managing growth is key, especially to offset increasing costs of programs. In fact, 40 percent said managing growth is a high or moderate challenge.

To do this, nonprofits plan to form strategic partnerships. When it comes to collaboration, nonprofits are far more likely to enter strategic partnerships with similar nonprofits than with for-profit companies.

However, all the findings are moot if there are aren’t enough employees to provide services. As such, the survey found staff retention and recruitment are of utmost importance, but also a high or moderate challenge.

The leading challenge, when it comes to staffing, is compensation. The availability of up-to-date technology is the second-leading employee satisfaction issue, ranked by 58 percent of nonprofits as a high- or moderate-level challenge.

“While organizations are under pressure to minimize overhead and prioritize programmatic spending, more isn’t always better, and the ‘right’ level of spending varies greatly by organization type,” the report says. “Falling on either end of the spectrum—underfunding or over-allocating—can both be causes for concern.”

Other areas covered in the report include regulations, board management and governance and operations.  

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