There has been a long-standing debate about operating support for our nonprofits. Some funders have imposed strict guidelines on how much of their funds can be used for operating costs. Some donors mistakenly believe funding operating expenses takes away from the mission. This simply isn’t true.
All nonprofit expenses fall into one of three categories on the IRS Form 990:
Program Service Expenses
Management and General Expenses
Click HERE to learn how to calculate your overhead costs.
The pandemic brought a shift in the philanthropic community to lift restrictions on funding. This allowed nonprofits to use funds where they were needed the most. Seeing the results of this change in funding has made foundations and other donors more receptive to funding operating support. We’ve also seen more support for capacity building efforts and for diversity, equity, inclusion, and justice (DEIJ) initiatives.
How you communicate your need for operating support to your donors is important. Here are some examples to consider when communicating with your donors.
Be transparent with your donors. Show them how operating funding supports your programs. For example, you can’t run your program without a classroom or a teacher or supplies.
A donor’s trust means everything. Share your stories of success and need without the drama.
Let your donors know that to best serve your clients, your staff must be highly trained and educated. That means investment in competitive salaries and benefits.
Show foundations that unrestricted support does advance their philanthropic goals. Document the benefit your clients receive and how it impacts their lives.
Don’t be afraid to invest in your organization and have appropriate overhead rates. Failure to balance the need for program funding and overhead costs have can a huge negative impact for nonprofits such as increased staff turnover, poor program delivery, outdated technology, and limited ability to expand services.
Understanding how overhead costs are allocated and following best management and accounting practices will help you and your nonprofit organization be successful.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.