Embracing Reality: The Hidden Costs of Nonprofit Operations

In my seven years as CEO at Columbus Speech & Hearing , I've navigated numerous challenges unique to nonprofit management. One of the most pervasive challenges? Balancing the need for essential overhead costs with the pressure to minimize these costs for donor appeal. It's a difficult balance, spurred by the desire to appear cost-effective while still providing the most impact. At the Columbus Speech & Hearing Center, we've seen firsthand how these practices can stretch our capabilities thin, impacting our staff and the very communities we aim to serve.

Understanding the Overhead Challenge

Nonprofits are often constrained by the stipulations of grants which allocate funding for specific purposes. This can be problematic when these funds cannot cover vital overhead costs that are crucial for organizational growth and service quality. For example, certain grants might generously fund program activities but severely restrict allocations toward operational improvements, such as upgrading IT systems or professional development for staff, which are essential for expanding our impact and keeping these very same program activities running.

Local Perspectives

This is not just a challenge for us but resonates deeply within the Columbus area, where I have engaged with numerous other nonprofit leaders facing similar dilemmas. Leaders in our region echo these challenges, recognizing the need for change.

"Just like any other enterprise, health and human services organizations have business and facilities expenses that are necessary to further their mission-oriented work," said Michael Corey, Executive Director of a nonprofit chamber of commerce serving over 200 organizations in Columbus. "But most donors don't want their financial contribution paying for a roof that doesn't leak or an air conditioner that works or for an accountant to manage an agency's annual audit. This puts nonprofits in a tough position, because the moment any of those business or facility functions struggle, the ability for an agency to help people struggles, too. That problem is acute in the summer: How can a nonprofit serve clients on a 100-degree day if its air conditioner isn't working? That's why we're regularly reminding donors that supporting the non-programmatic financial needs of a nonprofit is as critical as ever because the cost of everything has gone up the last four years for all of us--including nonprofits."?

Corey’s sentiment underscores the shared struggle and the communal urge for a shift toward transparency. With thousands of nonprofits in our area all competing for the same fundraising dollars, it is even more important that we are able to use donations for the highest impact, working together as a community rather than competing against each other.

Steps Towards Transparency and Sustainability

Our approach to addressing these challenges involves fostering honest and open conversations with our funders about the real costs associated with running effective programs. We emphasize the importance of understanding that investing in overhead is not merely an administrative cost but a crucial investment in our organization's growth and sustainability. This involves detailed presentations of our operational costs and their direct impact on our service capabilities.

Fostering Donor Relationships

Implementing educational initiatives for donors and illustrating how overhead investments can directly contribute to program success. For instance, by enhancing our administrative capabilities, we can improve client intake processes, reduce wait times, and ultimately deliver better outcomes for those we serve. This transparency helps donors understand the necessity of overhead investment in achieving lasting results.

Collective Impact

“In nonprofits, future sustainability is never guaranteed. We fight for it — by raising money, making tough choices, and relying on government and philanthropic leaders in our community to understand the realities of the individuals and communities we serve,” said Elizabeth Brown, President of YWCA, in her recent article, Policies Impacting the Future of Nonprofit Work.

The shared challenges across nonprofits in Central Ohio highlight the need for a collective approach to funding. By coming together as a community, we can advocate for funding structures that recognize the importance of overhead costs in nonprofit success.

Join the Conversation

As leaders in the nonprofit sector, it is incumbent upon us to lead the charge in changing the narrative around nonprofit funding. By embracing transparency and educating our supporters, we can foster a healthier ecosystem that values true cost and true impact equally. I invite other nonprofit leaders and funders to join us in this crucial conversation to collectively enhance our community's capacity to serve and succeed. Together, we can foster a more supportive funding environment that enables all nonprofits to thrive and expand their impact.