The business of nonprofits
Successful organizations thrive on business acumen, compassion

Resident Marge E. Edais-Yeltatzie and friends enjoy tea in a second-floor Bellingham YWCA kitchen.

By Sara L. Geballe

Describing the typical nonprofit at a local Starbucks coffeehouse recently, Kim Grams put it this way: “It’s a business, but it’s not a business.
As chief professional officer for the Boys & Girls Clubs of Skagit County, she understands her agency “needs to run like a business in many, many ways.” But unlike private enterprise, her agency’s mission and goal is not turning a profit. “We’re in business to build people and change the world,” she said, nothing less.
Jo Collinge, board president of the YWCA Bellingham, used similar words to describe the organization for which she has volunteered for six years. “Businesses have a product they sell. Our product is people. In a sense, our product is hope.” Since 1907, this Whatcom County institution has been empowering women – many of whom are homeless or fleeing from domestic violence. “The people who give their support to us do not do so because they will get a product or service. They will help people who need help.” As she summed up, “You are engaged in value-added to the community.”
Speaking with Elizabeth Jennings, executive director of the Whatcom Coalition of Health Communities, she explained the role of nonprofits this way: “I really believe that nonprofits are part of what makes American democracy unique and exciting.” These organizations arise, she said, when members of community see an unmet need and set up a nonprofit to do something about it. In her view, nonprofits exist to do the work private businesses and government either cannot or will not do. In a healthy community, she added, four different sectors – government, educational institutions, private enterprise and nonprofits – are all needed. “It’s not like one sector is ‘better’ than the others,” she stressed. “What’s unique in the United States is all four sectors are strong and interdependent.”

Nonprofits Becoming More Businesslike
In recent years, nonprofits have been forced to become much more savvy and sophisticated about the business side of their operations. Part of this is in response to increased competition for donations, and perspective donors demanding a lot more transparency on how nonprofit agencies are run. According to Julie Foster, YWCA Bellingham executive director for the past 10 years, “If a nonprofit is run as a business, it works better for everyone.” Perhaps one sign of this trend is that Foster’s own background is in business and advertising, not social services.
But running a nonprofit like a private business is not that simple. “So many options are available to for-profits to meet budget that are not available to nonprofits. You can’t just raise prices to meet the bottom line,” Grams explained. Clients receiving services often don’t have the means to pay any more. For instance, at the Boys & Girls Clubs of Skagit County, she said, each year it costs the agency about $500 per child to provide services. Membership fees are only $30 per child. Receiving charitable donations becomes the chief way nonprofits can make ends meet and survive.
GuideStar is a national nonprofit organization founded in 1994 based in Williamsburg, Va. On its comprehensive Web site, guidestar.org, it lists almost all nonprofits in the country. Agencies post their profiles along with their yearly tax returns (IRS Form 990) for all to see. Thanks to GuideStar’s enormous database, it has become much easier for potential donors to access information on organizations of interest, to compare and contrast them, and to get hard numbers on how successful, or not, each one is.
According to Suzanne Coffman, GuideStar’s director of communications, there are currently about 1 million charitable organizations in the United States. They represent “the fastest-growing sector of the U.S. economy, and the fastest-growing sector for employment,” she pointed out. “The nonprofit sector is not a monolith; it’s incredibly diverse.”
Nationally, she said, the nonprofit sector represents about $500 billion a year. Speaking of the business of running a nonprofit, Coffman explained, “In some respects they are just like any other business. They have to take in enough to cover their expenses. They need a good business plan.” But one important difference, she added, is that “nonprofits have to answer to their donors in a way businesses don’t answer to their stockholders.”

Finding the Right Staff
People generally choose to work in the nonprofit sector because they are personally committed to the agency’s mission. “You’ve got to love what you’re doing, or you won’t do it very long,” Grams said bluntly. “I’m the only one in the office for a $1 million organization,” she stressed. As a result, Grams finds herself doing everything from opening the mail to overseeing the budgets of four different Boys & Girls Clubs. “But I kind of like that, too,” she admitted. A recreation major at Western Washington University, Grams’ alignment with her agency’s mission is a natural fit. As she put it, “I was always sold on the power of play to teach people and change lives.”
For Jennings at the Whatcom Coalition for Health Communities, running a nonprofit offers her the chance to learn a wide variety of skills very quickly. As executive director and her agency’s only full-time staffer, she “wears many, many hats” and is responsible for everything from accounting to marketing to publicity to working with the board. “There are all kinds of ways for people to apply their interests for a mission they believe in.” And the trick to making it all work seems to be attracting people with both the passion and the business skills.

Picking Boards
As important as staff, is selecting the right board of directors. For nonprofits, the board is ultimately responsible for the financial wellbeing of the organization. As GuideStar’s Coffman put it, board members are the “ambassadors for your mission.” They must also feel passionately about the agency’s cause. When possible, she added, “it’s incredibly helpful” to have well-known community leaders with recognizable names on the board. “It’s everyone’s dream” to attract such luminaries, she said. But there is also quite a bit of competition for strong board members. “There are not enough high-profile people to go around,” she shared.
As competition among nonprofits in recruiting board members has increased, some organizations have become desperate to find people. “We don’t have a mindset of abundance when it comes to picking boards,” explained Skye Richendrfer, executive director of the Celtic Arts Foundation in Mount Vernon. While it’s often helpful to have a lawyer on your board, he cautioned, “don’t just pick ‘an attorney.’”
One critical role for board members, Coffman said, is “relationship building.” When board members are passionate about the agency’s mission and cause, they will talk about it wherever they go. Relationship building later can be parlayed into fundraising opportunities. But be careful, Coffman warns, “When board members hear ‘fundraising,’ they want to run screaming in the other direction.”

What About Volunteers?
With tiny paid staffs, most nonprofits naturally rely heavily on volunteer help. Based in Mount Vernon, Skagit County Community Action Agency has tracked how much time their many volunteers contributed in 2007. The total was a whopping 294,000 hours. According to Deputy Director Karen Parnell, their dedicated volunteers include pro bono lawyers, a mobile dentist, fundraisers working on a capital campaign for a new homeless shelter, and even a crew from Home Depot who volunteered their time to paint a new housing unit.
Cate Melcher, executive director of the Children’s Museum of Skagit County, summed up the value of volunteers for her nonprofit: “We would not exist without our volunteers; they are the heart of our organization.”
But there are challenges, too. According to Foster from the YWCA Bellingham, “every volunteer takes time – time to train, time to support, and time to schedule.” And since volunteers are donating their time, Melcher pointed out, “You have to work around their schedules, and you can’t demand they meet deadlines.”

How Much for Administrative Costs?
There is some debate in the nonprofit world as to how much of the annual budget should go to overhead and administrative costs. Tufts University Political Science Professor Jeffrey Berry and author of the highly acclaimed book, “A Voice for Nonprofits,” recommends not more than 25 percent.
But Coffman at GuideStar maintains there is no good answer to the question. “We know an organization’s mission affects its operational cost,” she said, being careful to point out how some missions are inherently more expensive than others. Providing disaster relief, for instance, is an example of a high-cost program. So when comparing operating costs, Coffman cautioned, be sure to compare nonprofits with similar missions. “Compare food banks to food banks, and animal shelters to animal shelters,” she urged.
Not surprisingly, in interviewing a sampling of local nonprofits their numbers spanned a wide range – from 10 to 30 percent. One – the Boys & Girls Clubs of Skagit County – hit the 25 percent mark exactly. Grams, who oversees four clubs, was pleased to point out that 75 percent of the agency’s operating budget went directly to programming for the 1,593 youth members they served in 2007.

Fundraising Still Key
Ultimately, fundraising is what keeps every nonprofit in business. In professor Berry’s words, “It’s always a highwire act. CEOs of nonprofits are consumed with keeping their nonprofits afloat.” Because these agencies depend so heavily on donations that can never be guaranteed, there’s always a sense of insecurity. How nonprofits approach fundraising varies, and new approaches are always evolving.
The Whatcom Coalition for Healthy Communities in Bellingham is relatively lucky in that 75 percent of its $220,000 annual budget is relatively fixed and expected to continue long term. Four sponsoring organizations – Peace Health/St. Joseph Hospital, Whatcom County, the City of Bellingham, and United Way of Whatcom County – are all committed to maintaining this agency whose mission is to improve the health and quality of life in Whatcom County. As executive director, Jennings greatly appreciates not having to put on major fundraising events. But she also notes that of the four sponsors, two are nonprofits themselves and two are government entities. She would be thrilled to see involvement from the business and education sectors as well.
For most nonprofits, fundraising events are essential. The Boys & Girls Clubs of Skagit County puts on three big shindigs each year – an annual breakfast, golf tournament and auction dinner. But the amount of time and energy that goes into each gala is tending to make more and more nonprofits think twice. Grams shared that her organization wants to move away from these big events and focus instead on increasing their solicitation efforts among individual donors.
Richendrfer, of the Celtic Arts Foundation, takes it a step further. “I’m the anti-auction person,” he declared at a recent breakfast meeting of assorted Skagit County nonprofits. The downside of these large-scale events, he said, is the “extraordinary time and resources” they require. Bobbi Krebs-McMullen, development director for the Lincoln Theatre Center Foundation agreed with Richendrfer. “I’m also an ‘anti-auction person,’ but there is a place for them.” Right now she is once again gearing up for the Theatre’s annual auction April 24. “It takes so much energy and money,” she said. “In the long run, it’s not the best (fundraiser).”
Replace the annual auction, Richendrfer suggests, with an “Ask Event.” Much less complicated and time consuming than an auction, he envisions it as “a fun celebration that liberates people from their resources.” At the event, to which individual donors are invited, simply share your agency’s cause, “find some compelling mission-related activity that raises awareness,” and then ask for their support.

Donors are Changing
Coffman at GuideStar confirms that “more money is being given each year to nonprofits, and individuals are making up the majority of donors.”
But, “Donors have changed,” she said simply. “They believe in wanting to see a return on their investment.” Previously, she explained, “When people gave huge it was in their bequests – their wills. In the last decade younger donors are giving now (while still alive). But they are giving with very specific objectives in mind.”
Grams, at the Boys & Girls Clubs, readily agreed with Coffman’s assessment. Today’s donors, Grams pointed out, “want you to prove their donations are working. Part of that is good because it holds nonprofits accountable.” But largely gone, she added wistfully, are the good old days when a board member could take a prospective donor out to lunch and expect to walk out with a major pledge or even a signed check in hand. Before meeting with individual donors these days, she warned, you better show up “with all your ducks in a row and information ready to present.”
Sara Jacobson, fund development manager for Skagit County Community Action Agency concurred. “People are not giving in the same way they have.” Donors, she said, want proof that your agency is fiscally responsible. “You just can’t ask for dollars and expect that to be good enough.” They want testable, measurable results. In other words, if a nonprofit solicits donations by saying “we feed the hungry,” potential donors are likely to respond with questions like: “Ok, so how many do you feed, who exactly do you feed, where do you feed them, and what do you feed them?”

Future Trends
According to Coffman, online giving is a new trend cropping up among philanthropists. “Online giving is just a drop in the bucket compared to total philanthropy,” she said, “but it’s growing significantly each year.” She predicts as the computer generation comes of age, the impact will be much greater. This group “buys everything online, pays bills online, and will probably give online, too.”
Coffman also described how online social networking practices may crossover into fundraising. For instance, she said, GuideStar’s electronic newsletter adds about “2,000 new readers a year just because someone hit a forward button” and sent their link to a friend who chose to sign up. This new phenomenon has been dubbed “viral marketing.” It’s not hard to imagine, Coffman said, how online philanthropy could follow suit and soon morph into something known as “viral fundraising.”

A Few Words to Donors
These days it’s easy for prospective donors to go online to sites like guidestar.org and scan the financials of virtually all nonprofits throughout the country. Coffman has some sage advice to potential donors: “Look at the mission first,” she suggested. “Why do you care about the numbers if the mission is something you’re not interested in? We feel it is much more important for donors to look at their own values and find organizations whose mission and values fit. Otherwise, you’re just spinning your wheels.”
Jennings has these words for prospective donors. “How do we cultivate a culture of philanthropy? We are not asking for manna from heaven. We’re asking – can we help connect your interests and your passions to volunteering, serving on boards and philanthropy? What it’s not about is trying to get people to give up money they don’t want to give up.”

Last spring, 60 Windemere real estate agents volunteered their time to trim, prune, plant and built a patio in the YWCA front lawn.