Why your clients shouldn’t ask about a charity’s overhead…and what to ask instead.

“If my client gives to a charity, how much of that donation will be spent on the actual cause, as opposed to overhead expenses?”

I get this question from financial advisers a lot, and it makes sense.

As a financial adviser, your job is to help your clients use their money wisely. When it comes to charitable giving, this means helping your clients avoid charities that don’t effectively address their chosen concern—be it homelessness, Alzheimer’s disease or protecting their local historical site.

But here’s the thing: as common as this question is, it’s ultimately the wrong question to be asking when it comes to picking a charity.

The fact is that all of a charity’s expenses are related to the cause. Pulling out ‘administration’ or ‘overhead’ costs is impossible when you consider how a charity operates and ultimately achieves its mission.

Let’s take an example.

Imagine a charity we’ll call Support4Kids, whose mission is helping disadvantaged youth in one of London’s poorest boroughs. The organisation aims to provide a safe place for kids to come after school, receive a healthy snack, take part in structured activities and receive tutoring from trained volunteers.

Support4Kids has 2 full time staff and a group of dependable volunteers they’ve nurtured over the years. About 200 kids regularly attend their after school and holiday clubs, which they run out of a large church hall.  The charity is well respected by local schools and other community organisations, and they’ve even won several awards for their work in this high-need area.

What sorts of expenses might an organisation like Support4Kids have?

A well-intentioned donor might suggest their gift should go toward things like arts and craft supplies, athletic equipment and maybe fresh fruit and veg for the kids’ snacks.

The truth is that the vast majority of expenses for a charity like Support4Kids are much less obvious, yet vital to the functioning of this sort of programme. They include:

  • Staff salaries. Fundraiser and activist Dan Pallotta, gave a much-quoted Ted Talk several years ago. In it, he raises the point that we as society tend to have a visceral reaction to the idea of someone making money by doing something good for society, like running a charity. But we have no visceral reaction to the idea of someone making money by doing something that’s decidedly not good for society, like selling violent video games or petrol-guzzling cars.

The truth is that it takes real skills to run a charity well. When you look at the charities that are truly having an impact on the issues they work on, you’ll see that the vast majority are run by well-paid professionals with skills like strategic planning, management and social care.

Sure, you can get a keen volunteer to run a charity in their spare time. But if they don’t do it well, are your donations really doing any good?

  • Rent, gas and electric. All boring, but necessary fixed costs.
  • Insurance, legal and tax advice. Charities have to file regular reports with the Charity Commission. These and other business reports cost money to put together properly. Yes, some firms may do this for free for a few charities, but this is unusual.
  • Volunteer training materials. Good volunteers don’t just appear. They need to be recruited, trained, managed and thanked. This takes a skilled volunteer manager as well as ordinary materials like printed orientation booklets and scheduling software.
  • First aid and safeguarding courses for all staff and volunteers. A must when working with kids.

At this point, you might be starting to see that effective charities need to spend money on less visible expenses to run well.

But what about fundraising?

Many donors are understandably wary about charities buying ads in local papers and paying salaries for full-time fundraisers.

“If the charity’s doing good work, they shouldn’t need to advertise—they should spend that money on the orangutans/veterans/homeless cats!,” is an argument I’ve heard a number of times.

The fact is that in today’s world of information overload, charities need to actively engage potential supporters in order to raise the money they need to operate over the long term. Donors don’t just happen across effective charities and offer up money—no matter how many charity workers wish that were the case!

Let’s take another example.

Imagine Support4Kids received a £1,000 donation from a donor. They could spend that £1,000 on a couple of new foosball tables for the kids to use after school.

Or, that £1,000 could be matched with another major gift to buy ad space in a strategically chosen local publication, encouraging donors to support the charity’s work in their wills. If the ad is well-placed and well-written (by a trained marketer), that £1,000 could go on to generate four times as much money for the charity.

What’s more, the money generated by that ad would be what’s called ‘unrestricted income’, meaning the charity could spend it on whatever it needed at that moment—maybe an unexpected rise in the cost of their insurance, or a salary increase needed to retain a particularly knowledgeable, valuable staff member.

While the foosball tables might be nice for the kids to use in the short-term, it’s these more mundane, hidden expenditures that the charity must be able to over if they’re to stay open and help kids for the longer term.

Asking better questions

Just because you or your client are no longer asking about a charity’s overhead, doesn’t mean you should stop evaluating a charity before making a gift. Far from it!

What’s important is to ask the right sort of questions—questions that help you understand the charity’s strategy and goals, and how your gift fits in.

Here are more useful questions to ask a charity:

  1. What does success look like to you in the short and long term? Ask the charity to tell you about some of their recent successes and how they plan to build on those to push for longer term change.
  2. What evidence do you have that your strategy is effective? Every charity should be measuring its impact in some way. If they start giving you stats like ‘number of people served,’ dig deeper. Ask them to explain their monitoring and evaluation strategy, and get them to point you toward the research they use to inform their work. You’ll gain a better understanding of their approach to change and whether or not it makes sense to you.
  3. Can you tell me about a recent failure and what you learned from it? Increasingly, charities as well as organisations in general are being called upon to use their failures as valuable learning opportunities. Ask the charity to tell you about a time they made a poor decision and what they’ve learned from it. At the very least, they should be able to tell you about an area where they wish they were doing better. This will give you insight into how open the charity is to new ideas and learning.

With a better understanding of how charities function and a willingness to ask a few questions, you can help your clients become more informed, thoughtful givers. That’s good for you, for them and for the issues they’ve chosen to give to.