Best Practices for Running a Successful Non-Profit Organization in Philadelphia

Non-profit organizations, such as hospitals, have been accused of providing inadequate services to the poor, which should be their primary focus. A 1987 Harvard Business Review article concluded that the non-profit hospital chains studied did not offer enough charitable care to justify their exemption from paying income taxes. In fact, the poor would have benefited more if the considerable profits earned by so-called non-profit hospitals had been taxed and used to pay for their hospital care. A 1989 study by the General Accounting Office confirmed this controversial conclusion when it reported that 57% of the non-profit hospitals they examined offered charitable care whose value was lower than the tax benefits they received.

Nowadays, state and local governments are likely to sue nonprofit hospitals for paying taxes when they provide inadequate levels of charitable care. When assessing the effectiveness of a non-profit organization, it is essential to consider how resources are allocated. For instance, if only 10% of the middle-class members of a council attended a camp, should the council dedicate a larger percentage of its expenses and assets to subsidizing them? In many cases, the councils concluded that the answer was negative and, reluctantly, they sent camping properties that had been a source of fond memories for many of their adult members, but that no longer constituted an appropriate use of the organization's resources. The distribution of expenditures is another important indicator of the correspondence between resources and goals. Most of a nonprofit organization's expenses should be used to provide services, unless the organization is doing massive fundraising or unusual administrative work. Too often, administrators become selfish, allowing administrative expenses to grow while service component expenses are reduced.

A historic national survey conducted by James Cook, “Charity Checklist” (Forbes, October 28, 1999), indicated that expenditures on program services as a percentage of all expenditures of non-profit organizations represented an average of 76% and ranged from a maximum of 99% (for the Jewish Communal Fund of New York) to a minimum of 2%. The percentage of contributions spent on fundraising averaged 18% and ranged from 0% (for the Jewish Communal Fund) to 90%. This data is easily misunderstood, since the Girl Scouts of the United States discovered when an angry volunteer alleged that her local council was spending too much money on administration and not enough on program services. In fact, Girl Scout program expenditures in 1992 represented 75.5% of revenues, a figure well within the average range of all nonprofit organizations. It is also important to consider intergenerational equity when evaluating a non-profit organization.

In general, non-profit organizations should not sacrifice current generations of users for the benefit of future ones, and vice versa. When a charity saves an excessively large proportion of its resources to help future users, it denies benefits to current users. On the contrary, when it consumes virtually all of its assets to serve current users, it denies the benefits of the organization's services to future users. Some Girl Scout councils take this process a step further and also report the results to the public. At a recent Girl Scout council meeting in Worcester, Massachusetts, administrators and board members organized a public debate about the organization's use of funds.

A Girl Scout council had just been criticized in a national news magazine program, “Eye to Eye”, which suggested that council staff members accumulated most of the profits from selling cookies rather than using them to provide services to local troops. Instead of going on the defensive, the council discussed its sources of income before an audience of nearly 200 people comprised of Girl Scouts, volunteers, staff and board members and described how it used those funds to develop programs, maintain camps etc., demonstrating full disclosure typical of an organization with an ethical agenda. Most importantly, the council called for an open debate on how best to use its resources. When selecting board members for a non-profit organization it is important to consider professionals in the organization's actual field of activity as potential candidates. It is also important for non-profits to invest in key tools from the start in order to capture new leads and convert them into donors as well as execute campaigns to maintain donor engagement in the long term. If an organization is planning new programs management must submit a plan that analyzes the separable financial consequences of each program and their combined effects on the organization. Someone from your organization or hired temporarily must prepare and submit Articles of Incorporation to state government. However, in order for non-profits to thrive in an economy that demands greater organizational efficiency and in a society that demands greater responsibility they need powerful boards of directors overseeing them.

Sophisticated organizations can even use this information to predict (with surprising accuracy) how much those donors will donate in future. A tax sponsorship allows an organization to use another tax-exempt organization's nonprofit status in order to receive funds. An organization with high liquidity tends to have social objectives that are too modest while one with little liquidity may be overambitious. Some Blue Cross-Blue Shield plans are good examples; once known for their charities these are now non-profit health insurance organizations. This argument is somewhat undermined by many professionals employed by non-profits accepting lower salaries than they would receive in for-profit organizations.