Small and midsize charities might benefit from outsourcing administrative operations, such as finance and human resources, but not because it will result in immediate cost savings, according to a new report published by the Eugene and Agnes E. Meyer Foundation, in Washington.
“Many organizations are under-investing in their infrastructure and in their back-office functions,” says Rick Moyers, director of programs at the Meyer Foundation. “If a group is not spending enough money on something in the first place –- or in some cases they’re not spending any money on it –- then they’re not going to be able to save any money by hiring someone else to do it.”
In fact, the new study found that cost was one of the main barriers that keep more small groups from outsourcing administrative functions. Representatives of outsourcing companies interviewed by the report’s authors said that it was very difficult for their companies to offer services to charities with annual budgets of less than $3-million or fewer than 20 employees.
The new report, “Outsourcing Back-Office Services in Small Nonprofits: Pitfalls and Possibilities,” discusses the administrative tasks that small charities struggle with most, the types of outsourced services that are available to nonprofit organizations, and the reasons why relatively few small groups are able to access those services.
The study found that leaders of small charities also worry that outside providers may not adequately understand the needs of their organizations.
“Small organizations do not necessarily have less complex needs than larger ones,” write the report’s authors. “For example, some small, effective advocacy nonprofits are simultaneously managing a 501©3, a 501©4, and a political action committee. It takes a specialized provider (whether in accounting, database management, or communications) to deal competently with this level of complexity.”
Mr. Moyers, of the Meyer Foundation, says that it’s important for charities to focus on more than just short-term costs but to also think about the consequences of poorly handled administrative tasks, such as the damage late financial reports cause to their relationships with grant makers or the potential liability they incur through haphazard human-resources practices.
“Those are all things that could have serious potential long-term costs,” says Mr. Moyers.
“Outsourcing Back-Office Services in Small Nonprofits” was written by the Management Assistance Group, a nonprofit research and consulting organization in Washington, and commissioned by the Meyer Foundation.