Most food banks, homeless shelters and other social services nonprofits constantly face hard decisions about how to use their limited funds.
Should they spend as much as possible on meeting the immediate needs of people who need help? How much of their budget is appropriate to spend on new equipment, skilled managers and everything else required for an organization to thrive and endure?In consultation with the Indiana Hoosier Hills Food Bank, we also studied the relationship of administration costs with a nonprofit's capacity, which comprises the organization's infrastructure, equipment, staff and other resources.
Our model indicates that new organizations and groups that are operating on small budgets need to spend a larger share of their revenue onthan larger, more established nonprofits. This investment lays a solid foundation for long-term resilience and ensures they are better equipped to serve their beneficiaries.
For instance, if a nonprofit expects to take on larger projects or greater responsibilities in the future, it would be prudent to increase administrative spending now to prepare for those challenges.to providing services, generally known as a nonprofit's program. Many funders even set admin and fundraising caps in grant agreements. These well-meaning practices can compel nonprofits to scrimp in ways that make them less effective.
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