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The Myth and Truth Behind Nonprofits’ Overhead Expenses

Overhead expenses

According to the National Council of Nonprofits, overhead expenses of a typical nonprofit are often misunderstood. The idea that effective nonprofits don’t need to spend a lot to perform their duties continues to persist, so overhead expenses are usually seen as markers of ineffectiveness, especially when they’re higher than expected. Not many people seem to realize that when nonprofits work toward achieving their goals, they also incur substantial administrative costs covering management, general, and fundraising in the process. This misconception of nonprofits’ true expenses is often reflected in the disproportionate size of grants to the outcomes grantmakers expect. How often have nonprofits encountered a small grant with big demands attached to it? Too often, it seems.

Nonprofits need to be proactive in shaking off the wrong notion about overhead expenses, and one thing they can do this is becoming more transparent in their processes. In this way, grantmakers and other donors – as well as the government – can be made fully aware of the actual costs of successfully delivering a mission.

Understanding the importance of transparency

Transparency should be an organization-wide initiative, but it’s ideal to start at the top not only to set a good example for all other members, but to also fix any problem while it’s still part of a plan, not already a step in an implementation. In a nonprofit, as in most organizations, the board of directors is at the top.

Thus, directors need to be more transparent about their decisions, particularly when it comes to identifying expenses and allocating resources. This gives the donating public a clear picture of the nonprofit’s finances and also gives grantmakers a realistic view of what it takes to achieve the outcomes they want. The goal is to enlighten grantmakers and make them feel comfortable with the idea that tangible results come with a price.

But now that you already know why directors need to be more transparent, the pressing question now is this: How can it be done?

Achieving transparency through technology

In this digital age, the answer to that question is easy to find. Directors who want to increase transparency in their board’s processes can adopt software solutions that allow them to vote on resolutions and collaborate on documents while recording every action taken. Records for all decisions are kept for future reference, allowing grantmakers a close look into a nonprofit’s financial standing.

One example of such a solution is the board portal, which is software specifically designed for boardroom use. Aside from serving as a platform for remote meetings, the board portal also serves as an archiving system where records of all past meetings are stored. In the name of transparency, the presence of this archive is critical.

But whether nonprofits choose to use technology or not in its quest for transparency, there’s one thing that’s certain: Grantmakers will not come to the realization on their own, so the burden of responsibility falls on nonprofits when it comes to changing perceptions. It can be a slow process, but it’s worth the effort if it means grantmakers will become more reasonable with their grants and demands.

Alexandrea Roman

Alexandrea Roman is a social media specialist and copywriter for Azeus Convene.