When I first joined the nonprofit world in 2010, after a career in the private sector, it struck me how many small to mid-size nonprofits struggle with operational functions like accounting and human resource management. As the CEO of several businesses, I routinely outsourced accounting, HR, and IT to firms that specialized in these activities — a move that enhanced quality while driving down costs. I knew my organization didn’t have expertise in these areas and that it was more efficient to leave it to those who did.
It thus came as a surprise that this kind of outsourcing was uncommon in the nonprofit sector. The reason for this stems from the fact that funders don’t properly pay for operational overhead so nonprofits tend to cut costs by “making due” with whatever help they can get. Oftentimes, this means hiring a bookkeeper or asking a board member to oversee the accounting duties. And while this may work for the short-term, it doesn’t give the organization the professional reporting and financial management it needs to scale the business.
Outsourcing, however, has increasingly become a part of the discussion for nonprofits and for good reason. When done well, outsourcing can mean nonprofits can focus on their missions, and better position themselves to develop staff and raise more capital. And while there are clear advantages to the model, you must also consider the potential drawbacks.
Nonprofit Consulting vs. Staff Augmentation
There are two primary models of outsourcing: staff augmentation and nonprofit consulting.
Back-office staff augmentation generally involves contracting with firms like Account Temps to bring in accountants, controllers or CFOs to fill specific roles in your organization. These staff members work for the contracting firm and provide you with qualified resources that work inside the structure and process your organization has developed.
- All benefits paid by contracting organization
- generally fast turnaround, good for filling gaps
- Mixed-quality talent
- Can be expensive
- High rates of turnover
Nonprofit consulting involves contracting with firms that take over portions of your operations, providing both tactical and strategic support. This can include providing a full accounting or HR team that works with management to ensure coverage, and strategic assistance with board and staff. Consulting firms generally bring best-practices with them and operate with less day-to-day direction from the customer.
- The consulting firm generally warrants the work and will stand behind the results, providing some assurance that the work will be done properly
- Staff are fully employed by the consulting firm
- You generally get the benefit of the firm’s historical knowledge and its processes and methodologies that can drive down costs.
- Can be a challenge to integrate inside of certain company cultures.
- Can be costly.
Is Nonprofit Consulting Right for You?
Generally, there are good solutions for organizations at every stage and size:
For start-ups and smaller organizations (below $500K in annual revenue), outsourcing can be a tremendous value. It can provide turnkey financial infrastructure while providing management with a budget and Pro-forma analysis that will be a big help in fundraising. In addition, it can help growing organizations hire staff and comply with state and federal regulations so the organization starts off on the right foot.
For mid-size organizations ($750K to $3M), outsourcing can provide reliable operational support as the organization grows, including budgeting, and Financial Planning and Analysis (FP&A) to assist the ED and board of directors with strategic guidance. In addition, outsourcing can handle your daily, weekly and monthly HR needs, including hiring, firing, benefits, employee dispute resolution and more.
For larger organizations (in excess of $5M), the support is more strategic; CFO-level support on growth, planning, mergers and acquisitions (M&A) and other activities with an emphasis on imbuing best-practices into the organization. On the HR side, it’s more focused on organizational development, leadership development, and succession planning.
Whatever the size of your organization, outsourcing with a nonprofit consulting partner can provide an excellent solution for short-term and long-term operational support while saving you both time and money. Before hiring your next full-time accountant or HR employee, consider the advantages of bringing in an outside firm to support you.