Axiom #4: It’s Harder To Spend Money (Well), Than Raise It
This is the fourth in a series of posts based on the axioms Laurence propounded in his book The Nonprofit Fundraising Solution.
Are you surprised by my axiom: “It’s Harder to Spend Money (Well), Than Raise It”? To understand it, let’s start by asking ourselves, “What do nonprofits spend money on?” The biggest cost centers in the nonprofit sector are staff and facilities.
To spend money well on staff means that your employees are coordinated, trained, seasoned, and supervised so that the organization is producing the impact you promised when you raised the money. Coordination is both an art and a science that requires active management. For the staff to be coordinated, functioning, and helping to raise money at the highest level, everyone—even the non-clinical staff—has to know what the money contributed to your organization was for and have a rough idea of the outcomes the organization is supposed to achieve. Your mission and impact should put a gleam in the eye and a spring in the step of everyone at work under your roof.
Speaking of the roof, with spending on facilities being the second highest cost center, your physical plant should reflect well on who you are and what you do. Our surroundings both natural and engineered have a profound effect on us. You may have read of fung shui, the ancient Chinese art of beneficial influences within our physical spaces. But did you know that Harvard’s T.H. Chan School of Public Health recently sponsored a Healthy Buildings program? The report issued by that program bulges with evidence of the effect of facilities on human performance and raises staff effectiveness and productivity. For instance, poor ventilation in schools was found to be associated with student fatigue, diminished attention spans, and loss of concentration. The study also disclosed that test points dropped about six points for each 10-decibel increase in classroom noise.
A Stellar Example
For an example of money raised and well spent on facilities, drop into the Lighthouse Guild, at 15 West 65th Street in Manhattan. Bright, natural light from oversize windows; airy, spacious walkways and waiting areas; and large-print white-on-black signage all combine to make the lobby easy to navigate. The organization of course assists people who are visually impaired—but you can sense its mission from its physical plant.
Coordinating how people work and function together and designing and maintaining appropriate facilities are complex tasks, much more so than writing a grant proposal or asking for major gifts! I hope you now see that I’m really serious when I say it’s harder for an organization to spend money well than to raise it. Further, you will need to know how to measure your performance along the way, which leads me to our next area, quality assurance.
Spending money well has a couple of other dimensions. For example, spending money on quality assurance, something many nonprofits overlook, is often a wise choice because Q/A by definition is concerned with measuring your progress, your impact, and your outcomes.
One of the highest performing organizations I’ve been associated with in my 32-year career spends 15 to 20% of its budget annually on quality assurance. They have four full-time staff members (out of 120) dedicated to this function. Each program (and each new large goal) has its own defined measurable objectives and process benchmarks, and the quality assurance program tracks them closely to ensure that they are being met. The staff reports they find the Q/A unit’s work to be supportive and preventative. Quality assurance (Q/A) is a way of preventing mistakes or catching small defects before they become larger ones. The terms “quality assurance” and “quality control” are used interchangeably. The point is that you have to know along the way if you’re headed in the right direction.
As Peter Drucker said, “Performance is the ultimate test of any institution.” What’s the point of working in the non-profit sector if you’re not demonstrably having the impact you want to have on a given social dilemma?
A related spending consideration is innovation. High performing nonprofits need to be acutely aware of changing conditions and prepared to seize new opportunities and raise more money. Many leaders sadly prefer to continue doing what they’ve always done. To continue spending money on ideas that have come and gone will sooner or later lead to organizational stagnation and decline. To spend money well in life or non-profit management means to be prescient, to be forward-looking, to redirect one’s energies and focus if necessary to revitalize a career or an institution.
Over the years, I’ve charted the most common mistakes nonprofits make in not spending their money well, and the assumptions they typically make when they commit these mistakes. Here are the top three to be aware of: 1. I can spend money, don’t you worry about that, it’s not that complex. 2. The project won’t take very long. 3. Everyone will understand, believe me! Have you heard these remarks yourself? Like me, have you also spoken them yourself? I’m here to tell you that spending revenue well is complex, it always takes longer than you thought, and it never ceases to amaze me how important restating the original goals are.
Edgar Dale, a great American educator and audio-visual expert, says that we retain 10% of what we read, 20% of what we hear, 30% of what we see, 50% of what we see and hear, 70% of what we discuss with others, 80% of what we personally experience, and 95% or what we teach others. This shows that learners retain more information by what they “do” as opposed to what is “heard,” “read,” or “observed.” That means you will want to engage your staff and board in the change processes, and this will take time.
Money Well Spent
What does it look like when a nonprofit spends money well? It means that all of these factors come together and produce a highly performing nonprofit.
Your nonprofit must be built around performance, and you must spend revenue well on those factors that drive high performance. The staff is functioning at a measurably higher level, in more inspiring surroundings, as informed by changing needs in community and society, and reflected in quality assurances.
Compared to the challenge of achieving and sustaining such a level of performance, the task of asking for money is relatively straight-forward.
I welcome hearing from you and learning about your experience with spending revenues. Email me at or call me at 212.932.9008.