24 Mar Advocating for Real Costs and Organizational Expenses by Megan Campbell, MPA, GPC

Like any business or corporation, nonprofit organizations must manage revenue and expenses to deliver their products and services to communities. While nonprofits have been charged with addressing the world’s most critical issues, they often lack the adequate resources required to do it. Most organizations need things like safe facilities, light bulbs, furniture, computers, printers, office supplies, etc. to function. Large organizations such as hospitals and university systems are seldom scrutinized for these kinds of “operational” expenses, yet small organizations often accept the nonprofit starvation cycle, assuming that items needed for operations should be donated, mismatched, and held together by duct tape. There is an unspoken yet oft-acknowledged expectation that small nonprofits should rely on free or donated space, equipment, and even underpaid professional expertise more than their larger counterparts.

Vu Le, author and former nonprofit executive director, shares:

Then there are nonprofits that are too afraid to be truthful about the full cost of doing this work. It’s alarming how much we lie on our org budgets and shortchange ourselves…. Be truthful about what your org needs. Stop thinking a shoe-string budget is some mark of resourcefulness and efficiency. Read the full posting here: Nonprofit AF, 2022

Where does this expectation come from?

The assumption that overhead or operating expenses are somehow “bad” undermines the reality that it costs money to deliver a nonprofit’s mission (Council of Nonprofits, 2023). Nonprofit advocate Dan Pollotta began sounding alarm bells about the overhead double standard in his 2013 TED Talk “The Way We Think About Charity is Dead Wrong,” and in 2023, he released a documentary film, Uncharitable. The conversation continues to shift. AGS grant professionals have seen many local and national funding institutions examine their collective impact and shift to increasing operational and unrestricted grant practices. Even the federal government is considering increasing the de minimus indirect cost rate from 10% to 15% in 2024.

The reality is that nonprofit organizations must also do their part in making sure they aren’t perpetuating the myth that they can exist on wishes and peanuts. Here are a few ideas:

1. Be honest about your costs and what it takes to operate your program. You may not get funding for all you ask for or need, but at least you’ve built a realistic financial picture of what it takes to achieve your mission.
2. Don’t set a budgeting precedent that leaves your staff overworked and underpaid. Fair and equitable staff wages should be the cornerstone of nonprofit operations, not the exception. The warm fuzzies derived from a day of meaningful work don’t pay for rent, food, gas, childcare, tuition, etc.
3. Take the time to learn more about financial management, braided funding strategies, and reasonable and justifiable cost principles so that you are responsibly accounting for revenue and expenses.

Stay tuned for the final installment of this small nonprofit building block series with more guidance and tips tailored for small organizations. Learn more about a variety of topics with AGS online training sessions available on demand.

If you are interested in grant services, training, or federal review services, or are interested in our career opportunities,  Julie Assel, CGMS, GPC, President/CEO, will be happy to talk with you about this opportunity and provide you with a quote for grant services.

This blog post is aligned with the Grant Professional Certification Institute’s Competencies and Skills.

4.08. Identify effective practices for developing realistic, accurate line-item and narrative budgets and for expressing the relationship between line items and project activities in the budget narrative

4.10. Identify factors that limit how budgets are written (e.g., matching requirements, supplanting issues, indirect costs, prevailing rates, performance-based fees, client fees, collective bargaining, allowable versus non-allowable cost)