Forums: Discussions for entrepreneurs and small business.

Capacity building is an ongoing problem faced by nonprofit corporations for a number of reasons. Most rely on external funding (government funds, grants from charitable foundations, direct donations) to maintain their operations and changes in these sources of revenue may influence the reliability or predictability with which the organization can hire and retain staff, sustain facilities, or create programs. In addition, unreliable funding, long hours and low pay can lead to employee burnout and high rates of turnover.

I often say that most gov't grants and contracts come with assoicated costs that are  not covered.  That is what we are seeing on the board on which I serve.  There is a sense that it is best to 'get the grant' without understanding the overall impact. 

We are revamping our accounting system to track not just the functional expense according to GAAP and the funding source allocations BUT also to 'charge back' M&G and Development cost to programs for internal reporting to help us better choose grants so we understand the 'hidden costs'.

One issue is that NFPs think that the closer they get to 100% spending on programs, the better off they will look.  In fact, without the correct level of expenses for M&G and Development, larger funders understand that they are not supporting a long-term model.  Even the BBB sets the bar of program expense at 65% to encourage resources be spent on capacitiy builiding.  Larger orgs have ecomomies of scale so, for example, the Red Cross can spend 90% on programs.  For small orgs, that is not a long term plan.  I have seem where a small organization will hire the least expensive bookkeeper to keep M&G costs low and end up with a mess of accounting and grant reporting.

Another point to remember is that there are capacity building grants out there, mostly from private foundations.