• Skip to main content
  • Skip to primary sidebar

Social Velocity

Creating more strategic, financially savvy, and confident nonprofit leaders and organizations.

  • Consulting
    • Financial Model Assessment
    • Executive Coaching
    • Strategic Planning
  • Book
  • Clients
  • Speaking
  • Blog
  • About
    • Nell Edgington’s Bio
    • Media
  • Connect
  • Tools
Home » Capacity Building » Breaking Freeing of the Nonprofit Overhead Trap

December 27, 2012 By Nell Edgington Leave a Comment

Breaking Freeing of the Nonprofit Overhead Trap

Note: While I’m off during the holidays I wanted to provide some archive blog posts that you might enjoy. A version of this post originally appeared on the Social Velocity blog in November 2011.

It’s that time of year when donors make key decisions about their end of year giving. But a post on the Social Earth blog advising donors about questions they should ask nonprofits perpetuates thinking that actually hurts, rather than helps the nonprofit sector. The author asks “How do you know where your charitable dollars are going? Are they going to the cause you want to support or are they going to administrative and fundraising expenses?” In reinforcing old, and destructive binary thinking about program vs. overhead expenses, the author is doing nonprofits and their donors a real disservice.

The author lists 4 key questions she thinks every donor should ask of the nonprofits they consider donating to:

As various charities vie for your charitable donations, there are many questions you can ask them directly, including:

  1. How much goes to the cause? How high are their expenses?
  2. How efficient is their fundraising? What is their cost-per-fundraised-dollar ratio?
  3. Is the charity run properly? How efficient and effective is their human capital? Management team?
  4. Do they even need your money? Will your money just be lying around in their reserve?

I think questions #2 and #3 are excellent, but questions #1 and #4 perpetuate thinking that holds the nonprofit sector back.

Let’s start with Question #1: “How much goes to the cause? How high are their expenses?”

As I’ve written before, the distinction between program (or “cause”) and administrative expenses is meaningless at best, and destructive at worst. If a nonprofit organization is creating change, then everything they do is in support of that change. How can a program run if there is no financial engine (fundraising) to fund it? If there is no building or space to house it? If there is no financial management or regular audits? If there is no regular evaluation of whether the program is making a difference? How can you possibly separate “program” from “overhead?” We must move beyond this distinction and encourage nonprofits to raise (and donors to give) more capacity capital, or the money that nonprofits so desperately need to create effective and efficient organizations.

Question #4 “Do they even need your money? Will your money just be lying around in their reserve?” is equally troublesome.

This question reinforces the backward notion that nonprofits should not have a reserve fund. As I (and others) have written before, we have to get away from the nonprofit taboo that operating reserves are wrong. Nonprofits cannot plan for the future, have a sustainable financial model, experiment with program changes, take risks, or any of the other things that are absolutely necessary to creating social change, without some operating reserves. If nonprofits are continually forced to go month to month without any cushion they will never emerge as strong, sustainable organizations capable of creating lasting change.

We must move away from thinking that encourages nonprofits to scrape by without the tools and infrastructure they desperately need. We must stop measuring nonprofit performance with meaningless financial metrics and instead evaluate nonprofits on their ability to deliver change. If a nonprofit is creating real change, does the minutia of how they spend money really matter?

Related Posts

  • How Is Nonprofit Overhead Still a Thing?
  • Nonprofit Leaders Have the Power to Create Capacity Funding
  • Learn How Capacity Capital Can Make Your Nonprofit Work Easier

Filed Under: Capacity Building, Capacity Capital, Financing, Fundraising, Leadership, Nonprofits, Philanthropy, Roadblocks, Social Change, Strategy Tagged With: asking nonprofits questions, capacity capital, evaluating nonprofits, nonprofit donors, nonprofit fundraising, nonprofit outcomes, nonprofit overhead, Philanthropy, program expenses

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

Free Training

Consulting Services

If you want your nonprofit or foundation to do and be more, Nell can help you get there

Ready to Learn More About Working with Nell?

Book a Discovery Call

Featured Blog Post Topics

  • Social Changemaker Interviews

  • Smart Strategic Planning

  • Effective Philanthropy

  • Networks for Social Change

  • The New Nonprofit Leader

  • A Groundbreaking Board

  • Reinventing the Nonprofit Sector

  • From Fundraising to Financing

Recent Posts

You Can Turn Any Challenge into Opportunity

A Social Change Army is Amassing

It’s Not All Up to You

To Save the World, Save Yourself

Imagine the World You Want to See

Categories

  • Abundance
  • Advocacy
  • Board of Directors
  • Capacity Building
  • Capacity Capital
  • Financing
  • Fundraising
  • Individual Donors
  • Leadership
  • Marketing
  • Networks
  • Nonprofits
  • Philanthropy
  • Roadblocks
  • Social Change
  • Social Movements
  • Strategy
  • Consulting
  • Book
  • Clients
  • Speaking
  • Blog
  • About
  • Connect
  • Tools

© 2022 Social Velocity | Privacy Policy | [email protected] | Tel: 512-694-7235