Fundraising is such a misunderstood enterprise. And it’s not just misunderstood by nonprofit leaders in the trenches.
I was talking to a normally very savvy foundation program officer the other day who wondered if one of his struggling grantees should think about launching a new gala event to raise some additional money. I swallowed my first inclination to scream “NOOOOOO!” in the middle of a crowded restaurant and instead calmly explained why events are a bad money fix, and why any short-term money generating strategy is probably a really bad idea.
But this well-meaning program officer is far from alone in his understanding of financial sustainability in the nonprofit sector. If I had my way, nonprofit leaders would stop making these 5 big fundraising mistakes:
- Taking a Short-Term Approach
If you don’t have enough money today, a single fundraising activity isn’t going to solve the problem in the long-term. If you want to solve your ongoing money woes, you have to create a long-term plan. The single best way to bring more and larger dollars in the door is to create a smart, long-term strategy for your nonprofit. And that long-term strategy must include a corresponding long-term financial strategy. With a compelling Theory of Change (an articulation of the value your nonprofit creates), what you are hoping to accomplish, and how you will get there, you will be better able to convince funders (no matter what your financial model) to come aboard. People invest in a compelling and believable vision for the future. If you are just raising money for the day-to-day, you will always struggle.
- Looking Under the Same Rocks
Often when there is a money shortfall, nonprofit leaders think they simply need to ask the same people to give again or more. If only it were that easy. To attract more people and organizations you have to have a wider net. But not just on your Facebook page or in your mailing list. A wider net means that your board’s networks need to grow, your distribution channels need to grow, your friend-raising activities, your strategic alliances need to grow — the overall network of your nonprofit needs to grow. You need to think holistically about how to grow the reach of your organization and get everyone involved in making that happen.
- Chasing A Magic Bullet
Seriously, listen when I say this: There Is No Magic Bullet to Fundraising. Fundraising, like so many things, often falls victim to shiny object syndrome. From the Ice Bucket Challenge, to crowdfunding, to social media, it seems there is always something new that nonprofit leaders, philanthropists, or board members think will finally solve a nonprofit’s money woes. But the reality is that finding enough and the right kind of money for the results you want to achieve as an organization is hard work. There is no easy fix. Instead you have to get strategic and create, and then systematically execute on, a financial plan for your nonprofit. It may sound boring, but believe me, once you attach strategy to money, the transformation — to your staff and board, to your funders, to your financial model, to your overall results, to your effectiveness and sustainability as an organization — can be incredible.
- Giving People a Free Pass
When you tell certain board members or certain staff members that they don’t have to worry about money, you are essentially giving them a free pass and placing a larger burden on the rest of the organization. While money must be led by your Chief Money Officer (whatever their title — Executive Director, Development Director, CDO), it must be a team effort. Your money person’s job is to develop an overall money strategy and then mobilize all her resources (staff, board, other volunteers, technology, systems) to bring that money strategy to fruition. She CANNOT do it alone or with only half a board. Money has to be part of the conversation for everyone in the organization.
- Not Fundraising for The Fundraising Function
If you want to get better at raising money, you must invest in the right strategy, staff, and systems — your fundraising function –to raise that money. You need to pay market rate for a fundraising person who is a smart, strategic leader. You need to put time and effort into an overall financial strategy, and you need to create the infrastructure (technology, systems) to make that financial strategy a reality. To make these investments, you might have to raise capacity capital from your donors, a one-time infusion of significant money that helps strengthen your organization. A capacity capital investment in your fundraising function can more than pay for itself in a few years when your transformed financial engine is running at a much more profitable rate. But failing to invest in your fundraising function means you will continue to struggle financially.
Oh nonprofit leaders, please stop hitting your heads against the fundraising wall. I promise you, a more sustainable financial engine awaits if you simply invest the time and energy into a smart strategy, a broader network, effective staff and systems and a real team effort.
Photo Credit: hobvias sudoneighm
It seems I raised controversy with my recent post, “Is Your Nonprofit Board Avoiding Their Money Role?”. The hot button issue, not surprisingly, was my assertion that boards should be charged with raising 10% of a nonprofit’s budget.
As I put it:
I know it’s heresy, but I believe that a board should be charged with raising at least 10% of a nonprofit’s annual budget. But that doesn’t mean they all have to write personal checks (or get their friends to write them). Rather, there is an endless list…of ways board members, who are fundraising shy, can bring money in the door. Because why should the entire financial burden be left on the shoulders of the staff? That’s just not sustainable. And if you can’t get your board to step up to the financial plate, how will you have any hope of getting others to do so?
In my 30 years of experience, the most sustainable organizations financially are those that rely little on their board of directors for their financial success. I just wonder why it is that these governing volunteers, who are charged with so many more weighty responsibilities for sustainability, are held to such a double standard when it comes to revenue development. Imagine the absurdity of you pronouncing: The Board of Directors must be responsible for managing at least 10% of the organization’s programs.
I argued back that we must define board contribution to the financial model of a nonprofit much more broadly:
The point is that board members should not be allowed to ignore the financial realities of the organization, and it is impossible to ignore something when you have a responsibility for a piece of it. In the examples you give, I would wager that if you calculated board involvement in a much broader way, you would find that at least 10% of that money could be attributed to board involvement. And if not, yikes! Because that means it is all resting on the shoulders of the staff, and that simply is not sustainable. The board must be much more supportive of the nonprofits they serve, and in my mind that means they need to show up, and show up in a significant way, to the financial engine of their organization.
But Gayle was not having it. She responded that just as the board should not be expected to deliver on programs, they should also not be expected to contribute to the financial model:
In very brief, the role of the board as governors is to ensure that the organization is delivering on its mission, that it has a business model that supports its ability to deliver its social impact and that the organization has a human resource and operation plan to make that happen. That it is trustworthy and worthy of support. This is the absolutely best fundraising work that they can do. Boards are totally within their governing role to decide that the way to meet the organization’s revenue needs is hire professional staff and have them do what they are in fact trained to do. I would hypothesize that organizations that do that are more likely to successfully achieve their revenue goals (actually, there is research data to back this us -see “Nonprofit Fundraising Study” of Nonprofit Research Collaborative 2012 ) than the wishful and largely unmeasurable objective of 10% standards pulled out of a hat. BTW, I don’t understand why it is unimaginable to say that the board is responsible for delivering 10% of programs, or 10% of operations, if you set up a standard of attributing 10% of revenues? What makes one different from the other in terms of sustainability or professional expertise?
But in my mind, there is a critical role for the board in both mission and money, and you cannot have one without the other, as I replied to Gayle:
I completely agree with how you characterize the role of the board (“to ensure that the organization is delivering on its mission, that it has a business model that supports its ability to deliver its social impact and that the organization has a human resource and operation plan to make that happen. That it is trustworthy and worthy of support”). However, the missing link (so very, very often) in nonprofit organizations is that the board thinks that showing up to meetings and hearing the development report is enough. Raising money requires that the board take an active role. And that active role means opening doors, making connections, providing intelligence, offering insight. This can actually also be true in delivering programs — the board should not only help provide the overall program strategy and theory of change for the organization, but also help to open doors and make connections to key decisionmakers, advocates, or others outside the organization walls who are critical to effective delivery of the organization’s mission. In all of this, I am simply asking that the board step up and take an ACTIVE role, as opposed to a passive role of “hiring professional staff and have them do what they are in fact trained to do.” There must be an effective partnership between the board and staff in developing and executing on a robust financial model, just as this partnership between board and staff must exist in delivery on mission, because at the end of the day there is no mission without money. Maybe 10% isn’t the right number, but I believe you have to set a significant goal if you truly want the board to take notice and actually step up.
You can read the full debate here.
To me, this is such an important topic because it helps uncover our underlying assumptions about the role of the board versus the role of staff. In my mind, we must elevate the expectations we have for the nonprofit board of directors, and one way to do this is to set clear, specific, and lofty goals for them.
What are your thoughts?
Photo Credit: Ron Cogswell
I was speaking to a group of nonprofit leaders in Pittsburgh last month about how to Move From Fundraising to Financing and there were some parts of the presentation that raised eyebrows and (sometimes) controversy. And it usually happened around the topic of the nonprofit board.
I strongly believe that the board of directors is a nonprofit’s most critical financial asset. A board that is actively engaged and has the specific skills, experience, and networks required to deliver on the organization’s strategy can make the difference between a nonprofit that is just getting by and a nonprofit that is truly creating social change. And money is an inextricable part of that. Therefore, a nonprofit’s board cannot avoid its money role, or the organization and its mission will suffer.
Is your board avoiding their money role? Here’s what it looks like when they are:
The Board Isn’t Raising 10% of the Budget
I know it’s heresy, but I believe that a board should be charged with raising at least 10% of a nonprofit’s annual budget. But that doesn’t mean they all have to write personal checks (or get their friends to write them). Rather, there is an endless list (here and here) of ways board members, who are fundraising shy, can bring money in the door. Because why should the entire financial burden be left on the shoulders of the staff? That’s just not sustainable. And if you can’t get your board to step up to the financial plate, how will you have any hope of getting others to do so? There are really so many reasons why your board should take on more money responsibilities.
The Board Doesn’t Enforce a Give/Get
So to reinforce the idea of complete board involvement in the financial engine, you need to make it a practice. And that’s where the give/get comes in. A give/get requirement is a minimum dollar amount at which each individual board member must either “give” themselves, and/or “get” from somewhere else. Every single member of the board must understand and contribute to how money flows to the organization. They cannot argue that money is the purview only of the staff or a subset of board members. Money has to be part of the ENTIRE board’s job. Until you force the board to really participate in creating and maintaining an effective financial engine, you won’t be able to have substantive conversations about or get real engagement in raising or spending money.
New Program Decisions Ignore Money
It is not enough for a board to approve new programs or program expansion by only analyzing the potential impact on the mission. The board must also understand how a new program will or will not contribute to the long-term financial sustainability of the organization. The board needs to analyze all of the costs (including set up, opportunity costs, and ongoing operating costs) of the program and whether the program can attract enough money to at least cover those costs. And if not, whether the new program can be subsidized by other activities already in the mix. But the board cannot blind themselves to the financial downfalls of a sexy new program.
Real Conversations About Money Happen Only in Crisis
Most board meetings include an update on a nonprofit’s budget, which is the extent of any money conversation. If there is a problem (expenses are too high, or revenue is not flowing as budgeted) a long conversation will ensue about the crisis. But bigger, regular discussions about the overall financial strategy of the organization are scarce. If the board is to be the financial steward of the organization, they have to spend time analyzing and developing their nonprofit’s financial model — where revenue should flow and how money should be employed to meet the mission. Money is a tool. But to effectively wield that tool, the board needs to think, talk, and act strategically about it.
For a nonprofit to be truly effective and sustainable, its board — the entire board — must embrace its money role. Because their is no mission without money. And no successful board turns a blind eye to the financial engine of their organization.
If you want to find out more about developing a sustainable financial model for your nonprofit, download the Develop a Financial Model Bundle. And if you want to learn how to create a more effective board, download the Build an Engaged Board Bundle.
Photo Credit: Luis Miguel Bugallo Sánchez
It’s that time of year again — to put work away, enjoy friends and family, and give yourself a chance to take a breath. I will be taking the next two weeks off from writing the blog. But before I go, as is my tradition, I wanted to leave you with a list of the 10 most popular blog posts from this past year, in case you missed any of them.
I hope that you all will find some space over the next couple of weeks to relax, to get away, to regroup, and to ready yourselves for the next chapter. We need you social changemakers now more than ever, so please find some time to take care of yourself before you get back to taking care of the rest of the world.
Thank you for being part of the Social Velocity community and for all of your hard work making the world a better place. I wish you all a very happy New Year. I’ll see you in 2016!
- The Problem with Nonprofit Events
- How Scarcity Thinking Holds Nonprofits Back
- 7 Questions to Guide Your Nonprofit Strategy
- 5 Myths the Nonprofit Sector Must Overcome
- How to Build a Stellar Nonprofit Staff
- How to Create a Compelling Fundraising Ask
- 3 Signs of a Bad Nonprofit Strategic Plan
- 5 Fundraising Delusions Nonprofits Suffer
- What Do Your Programs Really Cost?
- The Network Approach to Social Change
Photo Credit: Ethan R
Let’s be honest. November was a really tough month. The terrorist attacks in Paris (and other attacks in Mali, Beirut and elsewhere) put the world on edge. And the anti-refugee rhetoric that followed was incredibly disheartening. Finally, the loss of tenacious nonprofit investigative journalist Rick Cohen made for a difficult November, a month that is typically focused on gratitude and giving back.
But there is always hope. Some foundations are taking an innovative approach to failing cities and to supporting networks, students are rising up for equality, and the Overhead Myth was dealt another blow.
Below are my selections of the top 10 reads in the world of social change in November, but please add to the list in the comments. And if you want a longer list of great reads, follow me on Twitter, Facebook, LinkedIn or Google+.
And you can see past months’ 10 Great Reads here.
They have been spinning their wheels for months (maybe years) and can’t seem to get out of a vicious cycle that might include insufficient funding, a disengaged board of directors, struggling programs, or an inability to articulate their value to outsiders. They continue to have the same conversations month after month, wanting to do more and be more, but unable to figure out what’s holding them back.
When that is the case, a Financial Model Assessment can be really instrumental in moving the nonprofit forward.
Last week, I led the culminating meeting of a Financial Model Assessment for one of my clients. In this meeting I bring board and staff together to discuss my findings after a 3-4 month assessment of how every aspect of their nonprofit (strategy, vision and mission, board and staff structure, marketing, etc.) contributes to (or detracts from) their ability to bring sustainable money in the door.
This meeting is always my favorite part of the process because it starts to move a nonprofit forward in several ways:
Taboo Topics Are Uncovered and Discussed
Let me be clear, this is a challenging meeting. Through the course of the Assessment, I often uncover one or two things that are happening at a nonprofit that everyone knows about (and may even be discussing privately) but no one is willing or able to address as an organization. Perhaps the nonprofit is running a program that drags the organization down, or the board is not pulling their weight, or the staff is not structured effectively. In this meeting, nothing is sacred. Anything that holds the nonprofit back is fair game. It can be incredibly helpful to have someone finally put everything out in the open for the organization as a whole to discuss. Because if you don’t articulate and analyze the problems, you have no hope of overcoming them.
Board and Staff Are Energized
Once those problems are out in the open, there is often a palpable energy that begins sparking around the room as individual board and staff members begin to realize that there is a better way. It may not be easy, and it may push them and the organization in new, challenging ways, but it is exciting and hopeful and energizing. Every single time I have led one of these Assessment meetings a noticeable energy beings to build. It’s the acknowledgement among board and staff that they don’t have to be stuck anymore.
A Clear Path Emerges
And the reason they don’t have to be stuck anymore is because the Assessment lays out a path forward that frees the nonprofit from the spinning wheels. Suddenly board and staff have a set of steps and a strategy that they can discuss, analyze, and execute. They may not agree with or integrate every recommendation I make, but they at least have a future path around which they can mobilize.
This meeting, and the Financial Model Assessment that instigates it, can often be the first step in a new direction. It can be the inflection point at which board and staff finally recognize together, as a critical mass, that the status quo just won’t work anymore, and they must come together to chart a smarter, more strategic future course. It is the place where everyone acknowledges that change — true change — is necessary and possible.
Photo Credit: Till Krech
October brought some great discussions in the blogosphere, including a forum on whether regulations around donor advised funds should change, concerns that we are working too hard, the need to better retain donors, and a debate about whether social media is (or can be) an effective fundraising tool. Round that out with examples of successful crowdfunding and volunteer skill crowdsourcing, and it was a good month.
Below are my picks of the 10 best reads in the world of social change in October. But, as always, let me know what I missed. And if you want a longer list, follow me on Twitter, LinkedIn, Facebook or Google+.
And if you want to see past 10 Great Reads lists go here.
- Donor advised funds (DAFs) have come under fire in recent years. There was an interesting discussion in October at the Boston College Law School Forum on Philanthropy and the Public Good about whether regulations on donor advised funds should be changed. In advance of that forum, history professor Lila Corwin Berman provided an historic perspective (on the HistPhil blog) including the fact that “donor advised funds fundamentally changed the balance of public and private power in the United States starting in the 1970s.”
- John Hopkins University professor Lester M. Salamon released a new book in October, The Resilient Sector Revisited: The New Challenge to Nonprofit America in which he lays out a framework for understanding America’s nonprofit sector. An excerpt from the book in the Nonprofit Quarterly examines “The 4 Impulses of Nonprofits“, as he describes it: “The nonprofit sector has long been the hidden subcontinent on the social landscape of American life, regularly revered but rarely seriously scrutinized or understood.” His book is an attempt to do just that.
- The Association of Fundraising Professionals and the Urban Institute released their annual Fundraising Effectiveness Survey Report with some startling data, like: nonprofits retained only 43% of their donors in 2014, and for every $100 a nonprofit brought in they lost $95 to lapsed and reduced gifts. So the challenge for nonprofits, says AFP president Andrew Watt, is to get better at retaining donors: “Donors do not simply choose a few charities to support and stick with them every year. Donors are remarkably inconsistent in their giving, whether it’s because they lost interest in a cause, were giving because a friend or family member asked them, or did not like how the charity was treating them. The charitable sector’s challenge is to figure out how to better inspire and retain donors from year to year.”
- And speaking of fundraising, Nonprofit Tech for Good donated $800 to 32 nonprofit organizations via the nonprofit websites and shared some important lessons for other nonprofits trying to fundraising effectively online. But Derrick Feldmann cautions that social media fundraising is not the panacea many board members might think. The new “Social Good Team” at Facebook might disagree because they have big plans for social media and the nonprofit sector.
- Kickstarter, the crowdfunding website, re-incorporated as a public benefit corporation in order to put their social good mission above profit, and then partnered with the United Nations to raise money for Syrian refugees.
- While we’re on the power of the crowd, in his ongoing Fixes blog, David Bornstein profiles Movement.org, a crowdsourcing site that connects human right activists and skilled volunteers. As David Keyes, one of the leaders, describes the platform: “Amazon says that you don’t need to be a bookstore to sell a book and Uber says that you don’t need to be a taxi service to drive a taxi. I realized that you don’t need to be an N.G.O. to fight a dictator, or a political leader to help a human-rights activist. Millions of people around the globe have the skills to help, and they’re currently not being utilized. If we could build a bridge between these communities, more people could be helped than we ever thought possible.”
- And in more solutions news, South Los Angeles, once an urban food wasteland, is becoming a hub of food activism with a focus on startup, affordable eateries that are committed to building a strong, healthy community.
- Companies are already getting ready for the holiday season mix of commercialism and philanthropy and Amy Schiller worries that Bloomingdale’s “Icons w/ Impact” marketing campaign highlighting celebrities, fashion and philanthropy is a worrisome shift in philanthropy. But I’m hoping that the HistPhil blog will chime in with a reasoned, historical perspective.
- Poor strategy will get you in the end. The breast cancer nonprofit, the Susan G. Komen Foundation came under fire a few years ago for some poor strategic decisions (like aligning with Kentucky Fried Chicken and pulling funding from Planned Parenthood), and it looks like those decisions have dramatically affected their fundraising.
- Phil Buchanan from the Center for Effective Philanthropy has a problem with our workaholic culture. He and his organization have learned from the Millennial generation’s more balanced (than Gen X’s or the Boomer’s) approach to work and life, and he suggests we do the same: “The millennials don’t care that this is what we might have done at that stage of our careers. In fact, they look at us and are quite clear they don’t want to be us — they don’t want to make the same mistakes!” Amen!
Photo Credit: Museum of History and Industry, Seattle
In today’s Social Velocity interview I’m talking with Tim Delaney, President and CEO of the National Council of Nonprofits, the nation’s largest network of nonprofits.
The National Council of Nonprofits helps nonprofits identify emerging trends, engage in critical policy issues, exchange proven practices across state lines, and advance their missions through advocacy. Previously, Tim served as a partner at a large law firm (helping prosecute the impeachment of a Governor and leading the firm’s government relations practice), Solicitor General and then Chief Deputy Attorney General (leading his state to win several cases in the U.S. Supreme Court), and founder of the Center for Leadership, Ethics & Public Service (championing ethical leadership and civic engagement).
Nell: Historically, “advocacy” has been a dirty word in the nonprofit sector. Organizations have been afraid of getting into trouble with the IRS for pursuing too much lobbying behavior. But that seems to be changing. What are your thoughts on how involved in advocacy 501(c)(3) organizations can and should be?
Tim: Yes, it’s perplexing that using words like “advocacy” and “lobbying” could get a nonprofit employee’s mouth washed out with soap. But seriously, advocacy is not just a right for nonprofits that is protected by the First Amendment; it’s a profound responsibility and effective tool to advance nonprofit missions.
Nonprofits provide a way for Americans to come together to solve problems, large and small. And they often do so through advocacy: simply standing up and speaking out for something they believe. Americans came together through nonprofits to advocate successfully in securing the right of women to vote (via suffragist groups), establishing Social Security (spearheaded by Townsend Clubs), desegregating schools (leadership by NAACP), securing civil rights (Dr. King delivered his “I Have a Dream” speech and undertook much of his work as President of the nonprofit Southern Christian Leadership Conference), and so much more.
But advocacy is not just for social movements. Advocacy includes standing up for your nonprofit’s right to be paid reasonably for services it provides under a government contract. Advocacy includes telling the story of your nonprofit’s impact to a reporter. We see advocacy as the answer to one key question: who can I talk to today to advance my nonprofit’s mission?
A barrier many nonprofits run into comes from what I call the “3 As” –uninformed academics, accountants, and attorneys who advise nonprofit boards by passing along false lore that there “might be legal problems” if a nonprofit does “too much” lobbying. Nonprofit staff come back from advocacy training fired up, but boards extinguish that passion based on false lore. After hearing stories like this from across the country, we’ve decided to turn advocacy training around. The traditional approach of “it’s legal” sought to counter the false lore, yet too often it led people to focus on arcane issues more remote than the fine print on your airline ticket or apps that you never read. Therefore, we now focus on “why” advocacy is essential to mission advancement and “why” nonprofits need to be engaged at the state level to protect against government attacks on tax exemptions, nonprofit independence, and charitable giving incentives.
As part of our effort to get nonprofits past those old barriers, we’ve joined together with Alliance for Justice, BoardSource, Campion Foundation, the Forum of Regional Associations of Grantmakers, and Knight Foundation to create Stand for Your Mission, a free website that provides nonprofit board members with information they need to be effective advocates in advancing nonprofit missions.
Nell: The National Council of Nonprofits has been on the forefront of the movement to get government to recognize the importance of funding nonprofits’ indirect costs. The recent OMB ruling mandating a minimum 10% indirect rate on most government grants and contracts with nonprofits seems like a watershed moment, but 10% is still pretty low and many nonprofits don’t understand the implications or how to benefit. What are your plans at the Council of Nonprofits to continue to move this issue forward?
Tim: As you noted, the 10% of modified total direct costs is just the minimum. For tens of thousands of nonprofits, just getting to 10% will make a huge difference. In its most recent State of the Sector Survey, Nonprofit Finance Fund found that 57% of nonprofits are being paid indirect cost rates of 9% or less. And Urban Institute found that of nonprofits reporting a problem, a quarter said that governments were paying them zero for indirect costs.
Now compare those paltry sums against research from Bridgespan showing that a more accurate range is about 25 to 35%. Certainly each case is different, but being reimbursed nothing or just 5% year after year when your real legitimate costs are always higher is debilitating, eroding effectiveness. Delivering sustained impact is impossible. So getting those nonprofits up to just the minimum will enhance sustainability to make a difference in their communities.
Importantly, 10% is just the floor. If a nonprofit is properly allocating costs and documenting its indirect costs, it can receive reimbursement for whatever those costs are, whether they are 20, 30, or even 40%. Getting paid for the true costs of delivering services can reduce burdens on nonprofits to fundraise for the difference, which frees funders from having to subsidize governments and allows nonprofits to dedicate more time to missions instead of diverted to filling funding gaps.
Seeing the OMB Uniform Guidance go into effect is just the beginning and underscores the importance of nonprofit advocacy. The mere issuance of OMB’s mandate doesn’t mean that the tens of thousands of local, state, and federal employees scattered across multiple departments, agencies, divisions, and offices will follow it or apply it properly. First, they need to become aware of it (which still has not happened), then receive training (same), and apply it consistently (same). Plus, states and localities often have contrary laws and policies on their books, requiring advocacy to change them to conform. OMB’s mandate involves a giant systems change, but the federal government still has not informed the system of what is required and the need to change policies and practices to abide by it.
David Thompson and Beth Bowsky on our team have been conducting dozens of in-person presentations and webinars across the country to ensure nonprofits are aware of their rights and how to advocate for proper implementation of the Uniform Guidance. Plus, we have been working with multiple state and local government associations to spread the word, and written numerous published pieces, including an overview, “Know Your Rights … and How to Protect Them,” that highlights potential compliance challenges.
In addition, we’re creating a series of short training modules for nonprofits to better understand their indirect costs. The key is for nonprofits with government grants and contracts to stand up for their rights to fair indirect cost reimbursement and to let their local state association of nonprofits and us know when governments are not living up to their obligations. Working through our network gives a nonprofit cover (so it isn’t fighting alone and having to worry about backlash) and strength in numbers to protect those rights.
Nell: This issue is also part of the larger movement to overcome the Overhead Myth in the nonprofit sector, the idea that “overhead” (or indirect costs) are bad and should be limited as much as possible. How close are we to truly overcoming this myth both among nonprofit donors and nonprofit leaders (who often keep themselves in these handcuffs)?
Tim: We still have a long way to go. OMB’s Uniform Guidance is a huge step forward because the federal government has now expressly acknowledged that indirect costs are legitimate and necessary. The sector needed a powerful external validating voice to overcome decades of treating mythology as orthodoxy. It’s inspiring to see that many private grantmakers have now adjusted their own policies or started to re-examine their past policies that unfairly limit payment for indirect/overhead costs.
However, the anti-overhead culture is deep seated and will take a long time to root it out. That’s true on both the funding side and the nonprofit side, given the powerful disincentives against claiming full costs. Nonprofits were forced to keep overhead artificially low by underinvesting in their infrastructure, staff training, and many other necessary expenses. Until we get so-called “watchdog” groups and reporters to stop using overhead ratios as false proxies for nonprofit efficiency (and get them to stop reporting overhead ratios as if they are a problem), and until all nonprofits are communicating with donors about their impact and what it truly costs to deliver that impact, everyone will still have work to do.
Nell: In both of these areas (advocacy and overhead) and in many others, nonprofits are treated like a second-class citizen. How do we get to a place where the critical role nonprofits play in our economy and in solutions to social challenges is recognized, and nonprofits are fully supported with the tools they need to be successful?
Tim: First and foremost, nonprofits must embrace our role as the place Americans come to solve problems and resolutely assert our role as advocates for the people and our communities. We often are on the front-line of vexing social challenges, giving us front-row seats to see the problems and the solutions. Who are we to hoard knowledge of solutions that could help our fellow neighbors? With the knowledge we hold and the clout we have (10% of the American workforce), we deserve a seat at policymaking tables. We need to proudly stand up, step forward, claim our space, and speak out for government to leverage its resources to solve problems at their source.
We need to tell the full story, not just of how many people were fed or acres preserved, but also the economic impact of the sector as a whole. For instance, CalNonprofits (the state association of nonprofits in California) published Causes Count about the economic clout of California’s nonprofits, and Donors Forum (the state association of nonprofits and grantmakers based in Illinois) released research on Social Return on Investment, showing the economic and social value of dollars invested in nonprofits.
As for being “fully” supported, that’s much more difficult. According to Nonprofit Finance Fund, last year – for the second year in a row – a majority of nonprofits didn’t have the resources to meet demand for their services. That’s going to be tough to turn around, especially as many nonprofits continue to be sliced by government budget cuts. Even as studies boast that individual giving is getting back to pre-Recession levels, that doesn’t make as much of a difference as most people think. Despite the focus on individual giving, it makes up only 9.3% of the sector’s overall revenue. Foundations are an even smaller percentage: 1.9%. Government grants and contracts make up a much larger portion – 32.3% – of the sector’s revenues. That’s why our focus in this area is so important.
Photo Credit: National Council of Nonprofits