Talking about That Which Shall Not Be Named [what it really costs to be a charitable nonprofit]

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While we wish we could just wave a wand, magical thinking won’t stop those who rate and rank nonprofits by focusing on the cost of a nonprofit’s operations. So what can nonprofits do to shake off this aversion to costs? Remember Harry’s invisibility cloak? Throw it off! Be bold and brave enough to have candid conversations with donors about what it really costs to deliver programs and services.  

Bring financial sustainability closer in 3 easy steps

First, let’s toss out the shape-shifting term “overhead” that means something different to everybody and instead just call all these costs what they are, whether “fundraising,” or rent, or “general administrative.” Second, let’s ignore any apparent incentives to be fuzzy about the full expenses needed to deliver a nonprofit’s services or programs. Instead, by fully embracing our own costs, nonprofits will help manage expectations about what is really needed to solve problems in communities. Third, let’s find the courage to talk about the costs, especially with donors and grantmakers – and document them, demonstrating accountability and candor consistent with a culture of transparency. We think this is the right approach – and we’re inviting you to join us by: “Owning your own costs.”

#OwnYourOwnCosts

Not only is transparency the right approach, but by owning your own costs your nonprofit is more likely to be financially sustainable. You’ll build more accurate budgets and, when, for example, your nonprofit submits a proposal for grant funding, the proposal will be based on actual costs and will contain a budget line for “administrative/general” or the equivalent. If the funder pushes back, this creates the opportunity to educate the funder, candidly, that outcomes (and evaluation of outcomes) have pricetags. Being transparent about expenses will serve to educate all funding sources about specific program expenses, but also about the administrative expenses that cut across all that your nonprofit does, such as insurance, or the internet connection. As your nonprofit, along with other nonprofits, educate donors and grantmakers – and governments – about all the expenses related to your nonprofit’s mission, the charitable nonprofit community will be more resilient and one day we hope will completely shake off the dreaded starvation cycle

While there are still a few who focus on costs when evaluating whether or not to donate to a nonprofit, more and more nonprofits, joined by enlightened grantmakers, such as members of  GEO (aptly named, Grantmakers for Effective Organizations), recognize that indirect/overhead costs are necessary in order for charitable nonprofits to be financially sustainable. Rather than calculating one ratio or conducting a single analysis, it’s important for charitable nonprofits to earn the donating public’s trust by being transparent about:

  • The nonprofit’s governance and finances, and
  • The outcomes of the nonprofit’s activities.

The solution is not solely to blame charity raters who misguidedly use overhead as their litmus test or private foundations who misguidedly limit or prohibit funding administrative costs needed to run an effective and efficient organization, but instead to be more candid about our own outcomes and costs to help funders and the public understand the true costs of delivering services.

As you can tell, we think it’s high time that everyone who invests in a charitable nonprofit’s mission accepts that administrative/overhead costs, such as turning on the lights, are not inherently bad. Quite simply, help us spread the word: it costs something to advance your mission!

At the National Council of Nonprofits, we and our state association network are tackling misconceptions about costs one step at a time. Transparency about costs first requires knowing how much it actually costs to provide services and deliver programs. This means that someone at every nonprofit should be able to properly account for program related costs as well as those costs that cut across all the activities of the nonprofit. We know this can a challenge, so we have posted resources: #OwnYourOwnCosts.

Please help the National Council of Nonprofits and our state association network spread the message that overhead costs, whether for fundraising or administration, or anything else related to advancing our nonprofit’s mission, are essential.

Help your nonprofit understand and communicate its costs!

  • Use the hashtag:  #OwnYourOwnCosts on social media.
  • Share this article with your board: Overhead for board members (Blue Avocado)
  • Understand why governments and nonprofits need to revise how indirect costs are handled in contracts and grants: Investing for Impact: Indirect Costs are Essential for Success  (National Council of Nonprofits)
  • For the skeptics: Social Velocity’s Nell Edgington lays out in a post and video why we need to “get over overhead.” Overhead is “…meaningless because you can’t have exceptional programs and services if you don’t have solid staff behind them, if you don’t have …systems to figure out if you are making a difference, if you don’t have a fundraising function to bring the revenue in the door to make those programs and services operate, if you don’t have the infrastructure, the technology, all of the things that you need to make those programs and services run well.
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