Outsourcing Back-Office Services in Small Nonprofits: Pitfalls and Possibilities

The current economic  situation has only intensified the ever-present need of executives of small and mid-sized nonprofits to find cost-effective ways to reduce overhead costs. According to a new report released by the Meyer Foundation and the Management Assistance Group (MAG), outsourcing is a promising strategy for these nonprofits to meet their back-office needs, but there are many barriers that prevent outsourcing success.

The study, "Outsourcing Back-Office Services in Small Nonprofits: Pitfalls and Possibilities," is based on a survey of grantees of the Foundation, interviews with grantmakers, consultants, and a range of back-office service providers, and a review of current literature on the subject. The goal for the collaboration was to survey and identify alternative back-office services that could strengthen operations, relieve the pressures on executive directors, and lead to greater efficiencies, particularly in this difficult economic climate.

Key findings include:

• Outsourcing may not offer short-term cost savings but can offer significant long-term benefits and cost savings.
• Current business models for outsourcing are often not well suited for serving small to mid-sized organizations, many of which are complex and have significant unmet needs.
• There is a significant opportunity for business entrepreneurs with a deep knowledge of and sensitivity to the nonprofit sector and innovative new business models.
• Areas most in need of better solutions include human resources, marketing and communications, and financial planning.
• Barriers that prevent nonprofits from outsourcing back-office services include the inability to find specialized skills at a reasonable cost, lack of time to find and contract with providers, and negative past experience.

The 48-page study offers ideas for grantmakers, back-office service providers, nonprofit executives, and business entrepreneurs as they consider how to better meet the back-office needs of nonprofits and proposes a framework for evaluating outsourced back-office services.