Bowling Green, KY. (May 21, 2019) – Nonprofit organizations impact our world in ways you might not even think about. Nonprofits provide public and societal benefits such as health and human services, education and research, caring for the environment and animals, and providing access to arts, humanities, and religion. Nonprofits ultimately seek to improve lives, yet many are undervalued, operating on a shoestring budget while working to make our world a better place.
Nonprofits receive grants from federal, state, and local entities as well as support from foundations. However, this funding is often limited and does not include sufficient funds to cover all costs associated with a project. Grants will have a match component where the nonprofit is required to find additional funding in order to even be eligible to receive the grant.
Some funders don’t allow grants to include current staffing costs, instead only funding the cost for new staff. Other funders do not allow any overhead costs or severely limit it to 5 or 10 percent of the total grant. Grants will rarely pay for fundraising and development costs associated with identifying and applying for new funding.
One item that many donors consider when supporting nonprofit organizations is how much of their support will be used directly for services and how much will be used to support overhead. It is necessary, however, to challenge our thinking related to overhead costs for the nonprofit sector.
When you purchase groceries, do you think about how much of the cost of those groceries is used to pay for the overhead of that store? Of course not. You assume that overhead and profit are built in to the cost of the items you purchase. You know that the groceries would not be available if the store didn’t have a building or electricity or even personnel to stock the shelves, supervise the employees, and do the books.
In a similar way, overhead is a critical cost component for nonprofit organizations. The services provided would not be possible without overhead costs, yet donors view overhead as wasteful rather than an integral part of the services provided. This negative view of nonprofit overhead likely stems from the fact that a few nonprofits have paid executives exorbitant amounts of compensation. This creates a perception that overhead is wasteful spending. The IRS has attempted to address this issue by requiring nonprofit boards to provide annual compensation reviews utilizing sector comparisons for its highly compensated employees.
The mission of nonprofit organizations is not to turn a profit but to provide valuable and vital services for the good of others. When comparing nonprofits with corporate-sector entities, pay scales in the nonprofit sector tend to be lower than comparable corporate positions, which makes attracting top talent to the nonprofit sector more challenging. Some even believe that nonprofit employees should donate the majority of their time and only receive a small stipend.
Nonprofit personnel are committed, passionate individuals who are willing to sacrifice for the good of others, and that alone merits our acknowledgement and support. Aren’t the benefits of having the smartest, most talented people working to make the world a better place worth the additional cost?
Support your favorite nonprofit today.
About the author: Bernie Bogle is the CFO for Connected Nation. Bernie, a certified CPA, ensures compliance on all grants and resource allocations, oversees finances of Connected Nation’s projects and programs, and is experienced in private, government, and nonprofit settings.
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