We at GVT had a remarkable revelation recently while corresponding with the nonprofits we service and talking with their donor base. We were trying to get a feel for how much nonprofits rely on small, individual donors for their subsistence. We discovered that many people, even those involved in the nonprofit world, harbor many myths regarding the nature of nonprofits and their financial status overall. We have found that there are four major misconceptions that persist in distorting the public's perception of the heroic nonprofit community. Let's debunk these myths and try to alter slightly an uninformed public's loss of faith in America's nonprofit community.
Myth #1
Nonprofit not No Profit
"Nonprofit my foot. Those guys at the Red Cross are rolling in it. They don't need my money too."
The term "nonprofit" is a bit of a misnomer. Nonprofits can make a profit (and should try to have some level of positive revenue to build a reserve fund to ensure sustainability.) The key difference between nonprofits and for-profits is that a nonprofit organization cannot distribute its profits to any private individual (although nonprofits may pay reasonable compensation to those providing services). When St. Jude's Children's Hospital, The Red Cross, or The March of Dimes, for example, grow into mammoth organizations it means that the donor world has developed faith in the rectitude of their missions and generously supported them for many years. This is good news, not suspicious, and should be applauded by all Americans.
Myth #2
Overhead
"These nonprofits spend too much money on their own salaries, elaborate offices, and throwing parties at fancy hotels. All my giving will be directed to the "mission" only from now on."
Operating costs, such as paying utility bills, rent, salaries, and investing in office equipment are referred to by a variety of names, including "overhead," "administrative costs," and "indirect costs." While the terminology varies, one thing does not: these costs are essential to delivering on a nonprofit's mission and have no relation to the level of effectiveness or the outcomes a charitable nonprofit may deliver. It takes substantial administrative capability (personnel and equipment) to deliver aid to the neediest nations across the world.
Myth #3
Source of Funding
"Let the billionaire philanthropists and big foundations support the nonprofits. What do they need with my two cents?"
The fact is that only 2.9% of nonprofit funding comes from foundations. Below is the actual breakdown of funding sources for America's nonprofits both large and small.
- 49% earned through Private Fees for Services
- 31.8% earned by Government Grants/Contracts
- 8.7% donated by Individuals
- 2.9% donated by Foundations
- 1.5% donated from Bequests
- .9% donated by Corporations
- 5.2% donated by Other
Myth #4
Nonprofits are Big Business
"Nonprofits are corporate giants. They might want to look like the little guy helping the little guy, but nothing could be further from the truth."
In fact, most nonprofits are small in both budget size and numbers of employees. While large, well-known nonprofits, such as The Red Cross, have high visibility, those nonprofits are not representative of the charitable nonprofit community. 92% of all reporting public charities had annual revenue of under one million dollars.
Debunking
Frankly, we were surprised that these 4 myths were still prevalent in society's view of the nonprofit world. We hope this blog will help dispel them.
