This week’s Giving with Purpose course module focuses on the sustainability of nonprofits. It’s important for philanthropists to be able to understand how nonprofit organizations raise and manage the money that they need in order to fund the administration of their organization, and to deliver their programs and services to the community.
Many people do not realize that “nonprofit organizations face many of the same challenges as for-profit businesses of a comparable size,” and need funding to secure the right staff and organizational infrastructure in order to act out their charitable mission effectively.
Some of that money comes from foundations and private donors, and some comes for fee-for-service models. The following graphic from GrantSpace illustrates the breakdown of nonprofit revenue sources:
Nonprofits are best served by diverse funding streams; funders should be attentive to this, as well as an organization’s ability to withstand an economic downtown, its ability to manage its money effectively, and other measures of economic sustainability and effective management.
As potential funders review nonprofit finances, they tend to pay close attention to the amount that nonprofit organizations spend on overhead, or administration costs. Nonprofits are under particular pressure to spend the vast majority of their budget on the delivery of their charitable services, rather than on the costs of administration. Course instructor Rebecca Riccio describes what has become known as the “overhead myth”:
“[Nonprofit organizations do] important work that we value and benefit from as individuals and as a society. But at the same time, there is a common perception that nonprofit organizations should keep costs at a bare minimum because donors want their charitable dollars to help people and communities, not pay for an organization’s overhead, or operating and administrative costs.
Understanding this expectation and knowing that they are competing with other organizations for charitable dollars, nonprofits can feel a lot of pressure to keep costs down in a variety of ways, such as: offering salaries that are inadequate to attract and retain qualified staff, cutting back on evaluation and performance measurement, and under investing in critical infrastructure such as data management systems and effective fundraising tools. This dynamic can undermine an organization’s capacity to do the very work that they and their donors really want to see done.
This isn’t to suggest that nonprofit organizations should stop being responsible about how they spend money, whether it’s on programs, administration, or fundraising, or that donors should stop demanding accountability for how their money is being spent. But it is a call for honesty about the real cost of doing business well relative to the scope and nature of the need a nonprofit organization is addressing and a willingness on donors’ part to help sustain organizations at a level where they’re not just scraping by, but rather being truly effective engines of change.”
Finally, this week’s guest lecturers, Ben Cohen & Jerry Greenfield, the founders of Ben & Jerry’s, discussed the different platforms they have used to foster social change, including via their company’s business model, their foundation, and their own activism.