A guest post by Jess Birken
Around the nonprofit sector, you run into phrases like this everywhere:
“Of every dollar donated, 99 cents goes DIRECTLY TO saving the snails!”
Or, even worse, you’ll see a pie chart like this cropping up on nonprofit websites and in nonprofit annual reports:
I know why we do this – it’s tradition! And we believe donors find this kind of tactic really persuasive. I mean, who doesn’t want to be told that their donation is going right to those cute baby snails?? Nonprofits use this kind of language because it makes them seem “trustworthy.” But let’s be real – in the long run, communicating like this might hurt your nonprofit more than it helps.
Nonprofits are Businesses
I know lots of folks don’t like to refer to nonprofits as businesses, but it’s true! Nonprofits are businesses. Just because nonprofits have a special tax status from the IRS does not mean they are magically exempt from the realities of running a business. Even the smallest businesses have expenses – things like rent and software subscriptions and insurance and employees or contractors to pay. No matter what your mission is, you WILL need to spend some of the nonprofit’s money on things that are not directly the work of saving the snails.
But that pie chart visual controls the way people think about how nonprofits use their funds. It sets up donors to believe that administrative and fundraising costs are OPPOSED to programming costs. It encourages us to shrink the “overhead” to the smallest possible slice of the pie – because we are a “good” charity, that has taken a solemn, puritanical vow of poverty.
The reality is, in the world of business, these “overhead” expenses are not the enemy. You’ve heard the saying “you have to spend money to make money,” right? It’s true for nonprofits, too. You have to spend money on crucial infrastructure in order to be able to effectively deliver your mission. Period. These are not bad expenses. They support your mission getting accomplished. So why do we paint ourselves into this corner?
That controversial “overhead” is really just the stuff that’s crucial to delivering your mission – whether that’s a nonprofit saving the snails or a for-profit business selling t-shirts. If you promise your donors that 99% of your revenue goes straight to your programs, how are you going to run the thing? How are you going to pay a fair wage? How are you going to use ethically sourced snail feed? How will you ever invest in a donor relations management software system so you can reach even more people passionate about snails?
I’ll tell you how – you’ll skip the fair wages and cry about how you have a tight budget. You’ll scrape and scrounge for the free software (even if it’s not really a good fit for what you need). You’ll ask the Board Chair’s brother-in-law who’s an accountant to do your books on the side. You’ll ask that personal injury attorney on your board to understand IRS nonprofit regulations and do all the nonprofit’s legal work for free. Or – worse – you’ll decide you can figure out nonprofit accounting and legal requirements later (or never) because “well, we’re just a small nonprofit” after all. THIS is the poverty mindset that is so pervasive in the nonprofit sector. And it’s a killer.
I’ve seen this happen again and again as a lawyer for nonprofits. Organizations who are trying to penny pinch decide they can get by without real support. And because there are so many unknowns when you’re running a nonprofit, they make a big mistake. One nonprofit I worked with contacted me when one of their employees got in an accident on the job – and they didn’t have state-mandated Worker’s Compensation insurance (insert face-palm here). That was a $260,000 mistake. That’s definitely the kind of thing that can sink a small nonprofit. Let me tell you – doing it right up front would have saved them a LOT of money and stress.
We can’t keep looking at “overhead” expenses as a necessary evil, the slice of the pie we have to reduce as much as possible until we can barely take care of ourselves. But we can reframe those same expenses as the crucial infrastructure support needed to deliver the mission. By running a sustainable organization with a strong back office, you can better achieve your mission.
How to Banish the Poverty Mindset – For Good
If you’ve bought into the overhead myth, don’t feel bad. It’s like the entire sector has been brainwashed into thinking we have to make this vow of poverty. You’re not alone. And now it’s time to be part the of change. That starts within individual nonprofits, large and small. So, how do you banish the poverty mindset at your nonprofit?
You just do it. (I’m kidding. Kind of).
There’s no magic bullet, but there are some important steps you can take to get the nonprofit (and its donors) out of the poverty mindset. Here’s a few ideas:
- Acknowledge your true program costs.
Be honest – you cannot run your programs without strong back-office support. Even if they are donated services or volunteer services, remember to account for what those would cost if you paid for them – that’s a real number! While “overhead” may not directly fund the program, those costs support the program in real ways. A nonprofit can’t spend a dollar on a program without someone cutting the checks and keeping the records. That’s program support, not just admin. Let’s stop separating [evil] “administrative” costs from [good] “program” costs. Here’s how to envision what Curits Klotz at Propel Nonprofits dubbed your “true program costs” and check out their original article on the subject.
- Hire professionals to support the organization.
You don’t know what you don’t know. And that’s exactly why you need support. All professional nonprofits should have a CPA, a lawyer, an insurance broker and other professionals in their orbit. Real support can help a nonprofit thrive – so don’t deprive yourself of it! Invest in the expertise you need.
- Focus on the metrics that really matter.
How much a nonprofit spends on “overhead” isn’t the best way to measure the strength of a nonprofit. Instead, focus on what your donors really care about – your impact. No one donates to a nonprofit because the org has taken a vow of poverty. They donate because of the work you do. Highlight that.
So, now what?
As nonprofits, we obviously want to be wise about how we spend our funds. I’m not advocating that nonprofits become poor stewards of their dollars, or spend money on stuff they don’t need. But it’s time to re-think the nonprofit’s real needs. Building a strong, sustainable house starts with the foundation – and a nonprofit is no different. Core mission support is vital to the success of every organization.
Programs don’t run themselves. Let’s avoid teaching our donors that the ideal nonprofit has 0% of funds going to “overhead.” Start by abandoning the pie chart. Look, as soon as you say less than 100 cents of every dollar goes to programs, donors are like “where’s the rest of my dollar going!!?” And can you blame them? So what do we do about that? We STOP communicating to donors like this. Down with the old pie chart!!
Next of course is by leading with the mission and your outcomes in your communications – not your low, low overhead rate. If you’re not sure how to change the mindset – get some communications help! That’s a core mission support if I ever saw one. No one donates to a nonprofit because the org has taken a vow of poverty. They donate because of the work you do. Highlight that.
Jess Birken is a solopreneur attorney based in Minneapolis, MN. Her firm, Birken Law, empowers nonprofits to achieve their mission by doing things right. Jess is also the host of the podcast Charity Therapy, where she answers listeners’ most burning nonprofit questions.
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