After stories in the media showcased lavish travel and other perks among some nonprofit leadership, the public outcry became deafening. The public believed that their cash donations should go directly towards the people they thought they were helping. Nonprofits, eager to prove that they were using funds wisely, began touting the percentage of donations that go ‘directly towards helping those they serve.’
The problem with this model, however, is that it doesn’t address the ongoing need for funds to support overhead. Yes, overhead. Many nonprofits bemoan the limited funds given to them for overhead, yet do nothing to educate the public about why donating to general funds that include overhead, marketing, and administrative costs are necessary.
Nonprofits Are Businesses
Part of the problem is that many people still believe a nonprofit organization is in effect a full charity with zero need for funds for things like office rent, utilities, computers, telephone services, and salaries.
People seem to equate the nonprofits of the 21st century with the charitable organizations of the 19th century. You know, the ones you see in movies, run by ladies with leisure time out of their sitting rooms over cups of tea.
Okay, so we exaggerate, but there’s still a public perception that nonprofits aren’t businesses but charities that should give away all of their funds.
While it is true that nonprofits do not seek a profit margin the way for-profits do, they do need margin to continue their operations, and they certainly need capital to go towards infrastructure.
Ratios Can Be Misleading
Touting the proportion or percent of funds going directly towards programs can be misleading. If 99% of the donated funds go towards programs, nothing is left to pay the bills. And if you can’t pay the bills, the nonprofit won’t be able to continue operations. It’s not an either/or scenario – either funds go towards programs or overhead. It should be both.
Every Penny Goes Towards Supporting the Mission
Instead of promoting the percent of funds that go directly to the nonprofit’s recipients, it would be better if organizations promoted how their donations go towards supporting the overall mission of the organization. After all, every penny donated to a nonprofit, whether earmarked to pay the water bill or to buy food for the homeless, goes towards the support of the organization’s mission.
A few ideas to help you showcase your mission rather than the ratio of funds going towards program recipients:
- Use images on social media to showcase the recipients without promoting percentages
- Explain how you track and monitor the use of funds, and reassure donors that all money goes towards fulfilling the organization’s mission
- Disclose the needs of your nonprofit for overhead and infrastructure. Don’t skip over it in your messages to your constituents. If you need funds for a new roof or to pay the electric bill, say so.
- Showcase how your nonprofit is more efficient or effective this year than last year — share program results and outcomes
Nonprofits, like any other organization, need money for their infrastructure. By including transparent, honest messages in your and potential donors, you’ll avoid the trap of focusing only on the percent or ratio of dollars spent on direct programs and help raise awareness that yes, overhead and infrastructure are essential, too.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please at 206-605-3113 for more information.