I’m doing a 990 study. Each Sunday for 10 weeks, I will give out one insight for leaders. Most people ignore the 990 and its 16 additional schedules. Life is too short to do all that reading!
There are three critical areas for every company that plans for stability and growth – a) leadership, b) marketing, and c) infrastructure. It’s not possible to draw conclusions about leadership development and marketing from 990 reports.
There is an entry on technology expense on page 10 of the 990. This number is from the income statement so we can treat it as a signal of the priority that a company places on infrastructure. It’s only an indicator because infrastructure is more than technology.
I’m assuming that most of the technology expense is cloud based software as a subscription. Nonprofit subscriptions can be expensive. Blackbaud is a common software environment and its most inclusive packages range at least to $50,000 per year.
What did I find?
Old line NPs (more than 25 years old) only devoted .33% of their total revenue to technology. Their other financial indicators are fragile and they are not set up for a great future. The largest agency was an exception with $85 million revenue. Children’s Village reported 1.29% over 4 years.
New agencies (less than 10 years old) 1.07% of total revenue per year over 4 years.
Incubated agencies from think tanks 1.07% of total revenue per year over 4 years.
Single donor funded agencies average 1.07% of total revenue per year over 4 years.
Growth companies averaging 20% overall growth in revenue for 4 years on average also each used 1.07% as their benchmark for technology expense.
What do these numbers mean if you want to learn something for your company?
- Your investment will be greater than 1.07% for growth because these numbers do not include any hardware or software that was capitalized and depreciated. 2% of total revenue cash costs per year is probably a safer technology target for growth. For example – on a $10 million budget, devote $200,000 cash per year to technology
- Increasing Labor costs make technology investments critical. One company that I coach added a tuition collection program from Blackbaud which integrates directly into the general ledger. Suddenly, there are no labor costs for mailing, creating and printing invoices monthly.
- Infrastructure is larger than technology and involves decisions on how fast to add staff in Human resources, administration and accounting.
- These numbers are drawn from companies in the $3-$100 million revenue. If you are a startup under $3 million in revenue, you need to plan for a Valley of Death time where costs for infrastructure are difficult to manage.
The message is simple – companies that are thriving make investments in infrastructure. Set your own goals for infrastructure and sustainability.
Scaling Up business coaching creates a plan in 90 days, a quick win in the 2nd quarter and a 20% growth in revenue in the 2nd year. Until next Sunday, keep your eyes on technology!
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