People are always watching.
Your donors, investors, stakeholders, the public. When it comes to non-profits, your business is everyone’s business. Few things land you in more scrutiny than your financial health (or lack thereof).
The Financial Health Check panel discussion at The Uncommon Good: NPO Forum and Fair 2017 on November 24 took a stab at some of your most pressing finance-related questions.
The panel featured Dato’ James Greaves, founder and executive chairman of JAG Group Holdings (including APPCO Group Asia and SG Global Support Services), Ms Yap Mun Ching (executive director, AirAsia Foundation), and Ms Angie Wong (assurance partner, PwC).
1. How much is too much for overhead costs?
Projects don’t come to fruition on their own, but administrative costs can still be tricky to explain to donors.
For Ms Wong, it all comes down to honesty. “Let your donors know that we may be NPOs, but we don’t work for peanuts. We do hire people, we do train our colleagues,” she said.
While AirAsia Foundation doesn’t fund administrative costs of more than 30%, they allow relevant operation costs. Ms Yap explained, “If you have a training program, the trainer cost will obviously be part of that. … What we define as overhead is more like what you are paying for the staff of the overall organisation.”
“I think one of the constant battles for NPOs that I see is this idea that overhead is a bad word and must be reduced all the time,” said Dato’ James. “[If] you put all the money on the cause and don’t reinvest money into making more money, sooner or later your charity will cease to be.”
2. Should I pay for quality workers?
Dato’ James quoted a TedTalk by David Pallotta, that suggested people are more willing to donate the additional income from a better pay, rather than working for charities and earning less.
Using that as an example, he said a non-profit that does not invest in quality staff will stay stagnant. “But if you are going to spend more money, you got to keep up the communication. You got to be able to justify,” he said.
3. Can I save for rainy days?
Reserves can be controversial. They can be a great safety net when unexpected issues crop up, but the idea of non-profits hoarding money is not a pleasant one.
Ms Yap makes sure AirAsia Foundation reserves 20% of its funds. “But it is not a priority for us to build reserves because our goal here is to use the money for the cause, not to build a big bank account.”
“If I run out of money and I have spent it all, then I have done my job,” she said. “I budget about 95% so I have a bit of buffer in case unexpected things come up.”
4. How do I justify using third party service providers?
Not even Superman can save the world on his own. Third party fundraisers may be a viable option if you want freedom to focus on your cause.
“The great thing about having a third party is you can stop it whenever you like. If there is any reason it isn’t working, you can go, ‘Oh, this isn’t what I want.’ So give your notice and bye bye,” said Dato’ James, stating it would be much harder to do the same for internal staff.
5. Why are third party fundraisers so expensive?
Dato’ James disagreed with the perception that third party fundraisers are costly, saying, “To call it expensive is a relative concept. Our [APPCO’s] goal is north of three, hopefully four-to-one return. So if you are putting in a dollar, you are getting three dollars back.”
Third party fundraisers also leave an impact on the public, encouraging those who did not sign up to donate on their own in the future. “We hope we are actually having a greater effect on the 90% of people that says no to us. … So we have an overall no-risk customer acquisition and guaranteed returns, and we are pretty good ambassadors at what we do,” he said.
Ms Wong said the use of third party fundraisers is fine as long you can justify the cost. “I have seen some fairly expensive fundraising expenses. That is where I am accountable to [my] stakeholders. I have to get comfortable that those are expenses well spent.”
6. Is there a cost-effective way to manage donors?
The best donors are perhaps ones you already have. They are not just donors, but volunteers and ambassadors for your cause. But is it better to stretch your resources and do your donor retention in-house? Or is outsourcing the smarter choice?
Dato’ James said, “It is certainly not compulsory if charities can manage on their own. We [SG] operate an operation-of-scale environment where we think we can deliver a full service, from managing a call centre, to donor communications, to processing debit and credit cards and bank accounts.”
“We do it for 43 different [non-profits]. We can deliver an extremely cost-effective service that is cheaper than you could probably do in-house,” he said.