Status of nonprofits
Donors and funders often want to know how much of a nonprofit’s revenue was spent on “infrastructure” or “overhead.” Donors and foundations want to fund “programs” not “infrastructure.” But, how can programs exist without infrastructure? At home you pay for heat, light, furniture, etc, and we have to do so at nonprofits too. Restaurants have to pay for staff to order supplies as well as produce pizza. It is the same for nonprofits.
I participated in a recent webinar by Guidestar that showed some fascinating data on nonprofit status collected by Bridgespan. Some of the data are based in an important article, “The Nonprofit Starvation Cycle,” published in 2009 in the Stanford Social Innovation Review. It did not surprise me that in 2014, 24% of nonprofits were “in the red.” What was more compelling was that the twenty nonprofits that Bridgespan studied spent between 21% and 89% of direct costs on “infrastructure.” Back in the 1950s, the federal government believed that 15% of direct costs should be the overhead (infrastructure) goal for nonprofits. It was a myth and the federal government no longer believes 15% is appropriate. It is a rare organization that can survive on that percent. And, more importantly, as shown in the article mentioned above “infrastructure drives impact.” So, spending little likely means accomplishing less than the organization could if it were better funded for core dollars.
The Institute for Community Health (ICH) is a sixteen-year old participatory evaluation and innovative research nonprofit creating sustainable community health. ICH is moving from a primarily donor-funded infrastructure to infrastructure funded as part of the cost of doing business on grants and contracts. For ICH, funding for infrastructure has always been an issue. We struggled for years to show our donors the impact of their dollars. Their dollars paid for the organization to exist, lead, manage, pay rent, and more, all of which drives impact. Moving to explaining this same issue to foundations and other funders, we have a similar challenge. Again, it is not that different from a restaurant that needs staff to make food and management to run the restaurant. We need staff to run our programs and staff to manage the organization.
Language of impact
I agree with other participants on that recent webinar that part of the problem is the word “infrastructure.” We all agreed that some other terms might be better – “core funding” got the most votes. Federal (and other) grants call it “indirect”, some call it infrastructure, but it all means the same thing. Terms that highlight the fact that these costs are part of the work and not a separate set of costs make more sense.
Ultimately, what matters is impact. Has a nonprofit organization helped anyone? If so, how many people and in what ways? Have we met our goals? If yes, then organizations funding the work that led to that impact should help pay the core funding dollars that made it happen.
- Tips, Tricks & Secrets to a Successful GuideStar Profile (www.guidestar.org)
- Eckhart-Queenan J, Etzel, M, Prasad S. Pay-What-It-Takes Philanthropy, Bridgespan
- The Nonprofit Starvation Cycle, Stanford Social Innovation Review, Fall 2009