The NonProfit Times - July 1, 2008 - (Page 14)

STREETSMART NONPROFIT MANAGER Continued from page 13 vided by the total number of employees: (27A+28A)/(25A+26A) or (27A+28A)/90b. Either of these indicators says something about how much the organization is truly willing to “invest” in its personnel. The first version creates a percentage that can be compared across organizations, while the second shows how much, on average, the entity puts toward employee benefits and pension plan contributions for each employee. Spending on pension plan contributions can be skewed by higher-paid employees, so one way to control for this is to use column lines 27 and 28 from column B, program services expenses, which will make the same calculation for direct service individuals. Columns C and D, for management employees and fundraising employees, can be used in the same way. Spending on conferences, conventions, and meetings. Spending on conferences, conventions, and meetings as a percentage of total salaries and wages or divided by the total number of employees: 40A/(25A+26A) or 40A/90b. In a similar way, this indicator shows how much the organization is willing to invest in training its employees. Again, this measure can be skewed by excessive spending on management employees, so replacing the total spending of column A in the above formulas by columns B, C, or D will permit the same calculation for pro- gram staff, management and general staff, or fundraising personnel. PUBLIC IMAGE Fundraising costs as a percentage of direct public support. Fundraising costs as a percentage of funds raised: fundraising costs divided by direct public support: 44D/1a. Fundraising costs, as a percentage of direct public support, is an easily obtained approximation of fundraising costs overall. Fundraisers tend to want to capture long-term fundraising gains that aren’t recorded in the same way by financial folks. This classic ratio shows how much of every dollar of fundraising goes to expenses associated with the effort. The lower the ratio the better, although there are practical limits since fundraising isn’t free. Also note that line 1a is sometimes misunderstood, so care needs to be taken that the reporting is accurate. Management and general. Management and general costs as a percentage of revenue: 44C/12. Management and general costs as a percentage of revenue reveals a similar kind of truth as the previous indicator, showing how much of every dollar brought in is spent on management needs. While one might wish it were not so, for most members of the general public low management costs equate to good quality services. And most nonprofit leaders agree with this objective in concept, even if they’re not comfortable with all the implications. Earned income. Earned income as a percentage of total revenue: 2/12. Earned income, particularly in the context of social enterprise, is a key concern of many nonprofits these days. Often it is difficult to build an earned income stream, yet measuring earned income is most important so you can limit it. This could sound counter-intuitive, but remember that the only thing beyond a charitable mission that legally separates a nonprofit from a for-profit is that nonprofits must pass the public support test. Too much earned income can actually alienate the general public by obscuring charitable purpose. This is one reason why massive medical centers and ultra-rich universities have lost faith with many casual observers. Use this indicator to keep faith with your constituents. Political Capital. Lobbying choices. Schedule A, Part III. Schedule A of Part III in the Form 990 is all about political activity. Nonprofit public charities cannot engage in partisan politics, but they can attempt to influence the public debate. This short section nonetheless contains a lot of extremely important information, mostly in the form of yes or no questions. Tax-exempt bonds.Tax-exempt bonds, 64a. The simple presence of tax-exempt bonds suggests two things about an organization. First, it implies that the entity is a larger and more sophisticated nonprofit, since it takes a fair amount of management capacity and borrowing power to issue these bonds. Second, it makes it almost a guarantee that the organization has the patience, management capacity, and the political acumen to steer a complex financing vehicle through its many steps in the local environment. Sometimes one can’t measure important things directly. In that case, the next best solution is to measure something associated with it.The markers above try to do that. Needless to say, they are not conventional indices. Maybe they should be. NPT Thomas A. McLaughlin is a national nonprofit management consultant with Grant Thornton in Boston. He is the author of the book Nonprofit Strategic Positioning (John Wiley and Sons, 2006).His email address is thomas.mclaughlin@gt.com 14 JULY 1, 2008 THE NONPROFIT TIMES www.nptimes.com http://www.grantprofessionals.org http://www.chemart.com http://www.grantprofessionals.org http://www.chemart.com http://www.nptimes.com

Table of Contents Feed for the Digital Edition of The NonProfit Times - July 1, 2008

The NonProfit Times - July 1, 2008 Time to Let GO Sparks Flying From Blackbaud's Bid For Kintera Holiday Jeer Contents Who...When...Where...How...What? The Wrong Arguments Calendar Measure the Unmeasureable Getting Good Advice We Barely Got to Know You Special Report: Giving USA Shows Bequests, Foundations Boosted Otherwise Flat Giving to 306 Billion Dollars National Benchmarking Nothing Is Forever Diversified Planet Business Briefs NPT Jobs Resource Directory Bridge Map Insert

The NonProfit Times - July 1, 2008

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