At long last, overhead expenses get some respect

Several times a year, I watch as board members and ministry staff struggle to keep overhead expenses as low as possible. Never mind that most nonprofits have already stripped administrative lines to the bone. Overhead can’t be too lean, or so conventional wisdom tells us.

And if a brave CEO suggests pumping up the budget in pursuit of a growth opportunity, well watch out. The 990 trolls and other guardians of the myth that a dollar spent on infrastructure is a dollar robbed from mission will be all over the organization.  

success_on_the_other_side_10182I’ve encourage ministry heads with which I work to invest what’s needed to grow their cause, even if it screws up the administration/program ratio for a few years. In my experience, donors who truly care about the organization will understand the need to do so if the explanation for the investment is mission-centered and if backed up by a solid plan that includes attention to anticipated outcomes. (Those are big if’s, I know, and subjects for future articles.)

But the belief system that rules spending by charities is powerful. The courage required to buck the rules of the nonprofit universe is more than most nonprofit leaders (including boards) can muster. So the majority of nonprofits remain tiny, with results to match. And that breaks my heart.

MYTH BUSTING IN NONPROFIT LAND

To tell the truth, I’d pretty much given up hope that the powers that be, including the big three charity watchdog organizations – GuideStar, Charity Navigator, and BBB Wise Giving Alliance –would see the light about the funding worthiness of appropriate overhead. But all of sudden, seemingly out of the blue, there’s been an abrupt about-face.

This past week, leaders of the three organizations issued a letter “to the donors of America” in which they decry the “misconception about what matters when deciding which charity to support.” The letter writers go on to describe how spending too little on necessary infrastructure “starves charities of the freedom they need to best serve the people and communities they are trying to serve.”

Never mind that this trio in oversight have spent years screaming from their mountaintops that overhead is bad. With the fervor characteristic of new converts, they’re now out to convince the giving public that investments in infrastructure are good. The “big dogs” have taken as their own a message that others in the nonprofit sector (myself included) have preached for years – that “the people and communities served by charities don’t need low overhead, they need high performance.”

This is a sweet moment indeed. Hallelujah! At long last, overhead is getting some respect.

But even as I cheer the change of message, I know the “myth of overhead” won’t die easily — not with 62 percent of the giving public charging nonprofits with spending too much on administrative costs. In the near-term, nonprofit CEOs and fundraising staff should expect continued challenges from potential funders  (foundation program officers, in particular) to “investments in training, planning, evaluation, and internal systems – as well as their efforts to raise money so they can operate their programs.”

It will take many messages from many people over many years to get out the “new” word that administrative costs are necessary and gift-worthy. I’ve been beating this cadence for a long time, and I’ll do so with even more energy going forward. I invite you to join me, beginning with your signature to the Pledge to End the Overhead Myth.

If the big three watchdog organizations are ready to embrace the worthiness of overhead, there’s hope that the donors of America will be close behind.

For more on what I’ve written about overhead, see:

Can I have a cheer for (appropriate) overhead?

Betting long on donor acquisition

Conventional wisdom or self-fulfilling prophecy

What's your take on this topic?

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