Posts Tagged ‘sharing administrative expenses’

Why nonprofits should explore shared administrative services

To some, sharing administrative services sounds like a great idea for streamlining operations and saving money. Others would ask whether it is really worth the effort, compared to just continuing with business as usual. What is needed is a clear-eyed exploration of the real benefits and challenges of shared administrative services.

Some of the most common shared services are bookkeeping/accounting, office space, human resources and benefits administration, and information technology. Most shared administrative services take on one of the following structures:

  • One organization provides services for one or more other organizations.
  • Two or more organizations share staff, a department, space and/or office equipment.
  • Two or more organizations trade administrative services (e.g. one organization trades IT services in exchange for HR services provided by another organization).

Here are the most common questions I am asked about sharing administrative services with one or more other organizations:

Will we reap substantial savings by sharing administrative services?

Most organizations will not experience significant cost savings in the first year or two of sharing administrative services. Often, they can expect additional expenses associated with the transition to shared services, such as building or modifying systems to handle the transactions of multiple organizations. For example, let’s say three organizations decide to jointly share one department to do their bookkeeping. In the first year, there are costs for modifying an existing accounting system, migrating data from other sources into one system, transitioning staff and training the shared staff on the financial transactions of each organization. (In this particular case, it is also useful to note that typically organizations with budgets of less than $500,000 do not reap significant cost savings from sharing bookkeeping/accounting services, but can often outsource the function at a lower cost.)

Will it increase our capacity and provide us with expertise that we do not currently have access to?

The most immediate benefit of sharing administrative services is that organizations can gain access to expertise they do not have or could not easily obtain on their own. For example, three organizations might decide to hire an HR manager because each organization individually does not have the resources to hire a person with HR expertise. By sharing this service, they now have assistance in hiring new staff, retaining and building the capacity of current staff and more effectively handling personnel matters that might otherwise take up a significant amount of an executive director’s time.

How do we determine if an organization is a good partner for exploring shared administrative services?

The first question to ask is: Do our potential partners have operations and programs that require similar administrative functions? Organizations that have operations and programs that require different administrative functions are not good potential partners for sharing services. For example, if one organization services mortgages and the other organization processes a lot of insurance reimbursements, they would not be good potential partners for sharing accounting/finance services because they would require different accounting systems and staff with specific areas of expertise.

Next, you want to look at the following question: Is there a high level of trust between the organizations? Our experience with nonprofit partnerships tells us that organizations with close, trusting relationships have the greatest potential for successfully sharing administrative services. Organizations that share services will be making many decisions together, and if there is not a high level of trust it is often difficult to efficiently and effectively make those decisions. In most cases, when organizations terminate their partnership after a very short time together or decide not to launch a partnership with another organization, it is because there is not a high enough level of trust between the organizations.

Another key criterion is: Does one of the potential partners have existing systems with the capacity to handle providing services for multiple organizations, or are there resources available to build the systems or infrastructure to provide these services? Most of the time, sharing services requires modifying a current system or building a new system. For example, if two organizations share accounting staff but continue to run two different accounting systems, the outcome would not be cost effective.

Finally, there is the managerial question: Will it be difficult for the shared services staff to serve under more than one executive director and meet the needs of multiple organizations with different cultures? For example, if one organization has a highly centralized decision making culture and the other has a very decentralized decision making culture, it can present a challenge for the staff of the shared services department to get both organizations to make necessary decisions and develop common systems and procedures.

Here are some other key lessons that we have learned about shared services:

Sharing administrative services will often not help organizations that are in financial distress. These organizations need to develop new revenue strategies, find another organization to acquire them and/or begin planning an orderly shutdown of their organization and transfer of their clients to other organizations.

There are more and more for-profit organizations providing administrative services for nonprofits. Many small- to medium-sized companies already outsource many of their administrative functions, from accounting to human resources management. At our firm, we work with a great local financial services provider that handles all our accounting transactions, and all our staff is actually employed by a PEO (Professional Employer Organization) that provides a robust and affordable package of employee benefits including a variety of trainings on capacity building topics.

Sharing space can be a great starting point for organizations that wish to share services. Operating together in the same space provides the opportunity to share conference rooms, reception areas, front office staff and equipment. It also provides an environment for the staff of the different organizations to develop relationships that often lead to increased levels of trust. As trust builds, the organizations may feel more comfortable sharing services in various administrative areas like information technology, human resources or accounting/finance.

Sharing services can provide many significant benefits to your organization, but it is important to take the time to consider the factors above before jumping in with both feet.

See also:

The Cash Flow Solution

Cash Flow Strategies

image credits: jeffbullas.com, mikemerrill.com, influenceapp.com

 

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