Benefits of outsourcing for nonprofits: FAQs

ARTICLE | June 07, 2021

Every nonprofit organization has a core mission that it strives to fulfill each day. But as nonprofits continue to operate with constrained resources, it’s important to maximize their efforts and focus on that mission rather than allocate those resources to back-office support. For this reason, many nonprofits are considering the benefits of outsourcing core back-office functions to a managed service provider. But is this approach right for your organization? Following are some frequently asked questions that address the benefits of outsourcing.

Why should nonprofits consider outsourcing?

Attracting and retaining talent

Finding skilled people is difficult in any industry, and the nonprofit sector is no exception. Organizations often find that talent is in short supply, and it can be a challenge to hire well-qualified people within budgetary constraints. Often, nonprofits cannot find the appropriately skilled talent, let alone talent that is the right fit for their culture and mission. Instead, they often bring in people who can fill a pressing need, as opposed to individuals who can enhance key processes and help the organization succeed and grow. In addition, many nonprofits suffer from high turnover due to limited options for internal career advancement.

Flexibility to meet changing demands

Working with a managed service provider that specializes in outsourcing for nonprofits provides access to highly skilled talent at the levels that organizations need, when they need it. For example, many smaller nonprofits don’t require a full-time experienced chief financial officer. But most of these organizations would find it beneficial to work with such a person at crucial times of the year.

For larger organizations, the ability to delegate financial accounting details to well-trained professionals allows senior leaders to shift their focus to strategy and new opportunities. In either case, having access to capable people, for the amount of time you need them, provides scalability that cannot be as easily achieved with in-house staff.

Upgrading technology and processes

Although every organization needs people who can keep up with all the accounting and reporting requirements of its industry, many nonprofits struggle to find and retain individuals with those skill sets. But the right outsourcing provider will supply not just experienced professionals to fulfill those vital job functions, but also focus on enhancements to an organization’s technology and processes. After all, a top-flight IT professional can only do so much with an antiquated system.

For this reason, a good provider will discuss upgrading to cloud-based dashboards or investing in more computing power. The service provider may bring up automating processes such as the accounts payable function or streamlining IT checklists. In essence, an organization can improve its technological efforts and hone its processes with guidance from a provider that prioritizes efficiency.

What job functions are nonprofits outsourcing?

Finance and accounting

Improving an organization’s back-office finance function is a common rationale for considering finance and accounting outsourcing. Many nonprofits find, however, that the very act of hiring a provider jump-starts their analysis of key data, and the provider may offer strategic financial advisory services in addition to addressing the engagement’s stated goals.

Furthermore, working with a responsive team of experienced accounting professionals can solve long-standing problems. This can be achieved by effectively designing and deploying an outsourcing solution to manage finance and accounting operations that leverages cloud-based technology and provides enhanced customer service. This can also be a catalyst for broader organizational change and the adoption of best-in-class technology and automation solutions.

For example, some organizations may still need remote employees to go into the office for a check run. Automation can help eliminate paper-based processes for accounts payable invoice approval and payment processing, as well as employee expense approval and routing. A resourceful service provider will look at such situations and offer a better solution that takes advantage of technology and leaves such archaic practices in the past.

Information technology

For many organizations, addressing IT needs is the impetus for engaging with a managed service provider. This stands to reason, considering that most nonprofits do not focus on technology. But while upgrading and maintaining IT systems is crucial, many managed service providers go beyond simply improving the nonprofit’s technology to addressing potential business and security risks, including cybersecurity. A good provider will address the immediate threats and help to establish a culture of security awareness within the organization. So while an outsourced provider may start by tackling the nonprofit’s technology issues, its solutions may spread to other areas of the organization.

Human resources

After experiencing the benefits of outsourcing IT and finance operations, many nonprofits have also hired service providers to bring stability and consistency to their human resources (HR) functions. Organizations can benefit from additional advice and support to utilize HR as a strategic advantage, giving leadership the confidence that personnel is being managed effectively. Supplemental HR can be utilized on a retained, fractional or individual project basis to manage the execution of specific projects or act as an outsourced HR manager.

What are some benefits of outsourcing?

Scalability

Improved scalability is a huge benefit of outsourcing for nonprofits. An experienced managed service provider can help an organization address staffing issues and add specialized resources as business needs arise. In contrast, working solely with internal staff frequently means that a nonprofit must make do with overwhelmed employees, or shift resources to resolve current crises at the expense of building for the future.

Cost savings from cloud solutions

Another benefit of outsourcing is the cost savings that often results from deploying flexible cloud solutions for some or all of your IT infrastructure and software applications. The cloud offers organizations cost-effective options to utilize advanced applications and high-tech solutions as an operating expense versus a capital expenditure. Cloud solutions can enhance data storage capabilities, security and the ability to scale up or down for a predictable monthly spend. Moving key functions to more flexible and affordable cloud servers brings new functionality that can increase collaboration and productivity across the organization.

Increased performance of the finance function

Nonprofit organizations regularly see increased performance from their finance function as a benefit of outsourcing. Specifically, they often experience more timely and accurate financial reporting, increased transparency and greater visibility into the organization’s finances. The nonprofit’s stakeholders often get more access to better information, and as a result, the nonprofit may develop an entirely different approach to its finance function.

Innovative ideas

Furthermore, managed service providers often bring best practices and innovative ideas from larger organizations that can help transform the nonprofit. In this way, an effective provider can accelerate the pace of positive change within the organization.

What should nonprofit organizations look for in a managed service provider?

Compatibility

Choosing a managed service provider is an important decision, but it doesn’t have to be complex. Organizations need to assess their own needs and analyze the prospective provider’s compatibilities. Nonprofits should look for providers with deep industry expertise, a solid reputation, and a simple, yet transparent pricing model.

Broad range of capabilities

While nonprofits must ensure a provider meets their immediate needs, it is wise to evaluate service providers that have a broad range of capabilities across multiple job functions. After all, many providers have experience with other back-office functions that the nonprofit might not need at the moment, but that may become urgent in the future. For example, a nonprofit looking for financial accounting assistance could experience a security incident requiring support to quickly respond and contain the situation to minimize the financial impact and reputational damage. As such, it is often best for a nonprofit to establish a long-term relationship with a strategic advisor who has deep skill sets in a wide range of areas such as finance, accounting, technology, security, compliance and HR.

Forward-thinking insights

Along those lines, a nonprofit may hire a managed service provider to solve specific problems, but the best providers will develop a road map to look forward. In essence, an effective provider should help the organization meet its current needs while remaining open to addressing future projects and proactively mitigating business risks. To fully experience the benefits of outsourcing, organizations should engage service providers that are scalable and can adjust to changing circumstances.

What are common pitfalls to avoid when outsourcing?

With all the benefits outsourcing can offer to nonprofits, some organizations may see the arrangement as a panacea. However, there are a few vital components to keep in mind:

Outsourcing management of your provider

Nonprofits cannot outsource the management of their managed service provider. In other words, you still need in-house resources to manage the relationship between the managed service provider and the rest of your organization.

Lack of communication and measurement

Communication is key. Nonprofits should ensure that they are on the same page as their provider at all times, and establish clear criteria for measuring success early in the relationship.

Only considering short-term needs

Lastly, just as cost should not be the sole determining factor when choosing a managed service provider, the nonprofit’s short-term needs should not be the only concern when assessing the engagement. Although many organizations engage a provider only when a specific, immediate problem arises, keep in mind that today’s issues are rarely as grave as they appear. As such, nonprofits would be wise to think in the long term. The goal is to create a lasting partnership by bringing in a trusted advisor that can help make the organization stronger and more efficient.

Conclusion

Nonprofits need to focus on their mission. They are not expected to be experts in financial accounting, information technology management or cybersecurity. However, these and other support functions are essential to the nonprofit’s ability to fulfill its goals and further its mission.

A respectable managed service provider improves an organization’s functionality, but it should also change the culture for the better. When a provider delivers exemplary service and offers consistent value, it can be the beginning of a long and productive relationship.

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This article was written by David Bohn, Anna M. Hofmeister, Tara Leja, Diego Rosenfeld and originally appeared on Jun 07, 2021.
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