By Lise E. Fried
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 1 that showed some
fascinating data on nonprofit status collected by Bridgespan.2 Some of the data are based in an important
article, “The Nonprofit Starvation Cycle,” published in 2009 in the Stanford Social Innovation Review .3 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.
Impact
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.
1.
Tips, Tricks & Secrets to a Successful
GuideStar Profile (www.guidestar.org)
2.
Eckhart-Queenan J, Etzel, M, Prasad S. Pay-What-It-Takes Philanthropy, Bridgespan
3.
The
Nonprofit Starvation Cycle, Stanford Social Innovation Review, Fall 2009