Overhead Ratio is NOT a Good Measure of a Nonprofit

#nonprofit #nonprofitorganization #misconceptionmonday The misconception we're tackling today is the commonly held belief that the overhead ratio of a nonprofit is a great way to measure its effectiveness and efficiency. The overhead ratio is the amount of money an organization spends on administrative and fundraising efforts compared to its total proceeds. It's generally believed that 15% is the goal overhead ratio. By and large, overhead ratio is not a good metric to measure a non-for-profit organization's effectiveness for a number of reasons. Those I outline are: 1. Some nonprofits are more expensive to operate 2. Operational costs vary by geography 3. Rudimentary metrics such as overhead ratio can be manipulated 4. Administrative costs are necessary to grow the organization which grows their impact in turn So, if you're looking to determine how efficiently a charity will spend your dollars, the most effective method is to look at how they spend their money. Take a look at their Form 990 or their tax filings. You can also speak with them and ask them how they measure their impact, their goals, what success looks like. _____________________________________________ Have questions? Book a call, and talk to Brett today: https://rebrand.ly/clarity-brettcenkus86 _______________________________________________ You can reach Brett through: https://www.linkedin.com/in/brettcenkus https://twitter.com/BCenkus https://cenkuslaw.com https://braatenwoods.com https://merger-resources.com _______________________________________________ Brett A. Cenkus has 20+ years of experience in business law, finance, and entrepreneurship. Through Cenkus Law, PC, he provides advice and services for mergers & acquisitions (M&A), securities offerings, founders’ agreements, and other general business law issues. Through Braaten Woods, LLC, Brett helps business owners in the lower middle market ($2MM - $25MM) position themselves for sale, find buyers, negotiate, and close M&A deals. Brett also maintains merger-resources.com, a site packed with free articles, videos, checklists, deal diagrams, template contracts, and other tools to help pass M&A knowledge to others. Brett regularly consults with entrepreneurs and invests his own capital as an angel investor. From 2010-2013, Brett served as Chief Legal Counsel of a publicly-traded international oilfield services company. From 2001 to 2006, he and a partner founded and built Paragon Residential Mortgage. Bridge Investments acquired Paragon in 2006. Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania. Brett lives in Austin with his wife, Cathryn, and two children. He enjoys reading, squash, classic movies, great food and wine, and the New England Patriots.