Five Common Misconceptions About Nonprofits

I have spent the majority of my professional career in the nonprofit sector, doing work that I have found intellectually and morally rewarding. All of my nonprofit jobs have involved some mix of communications, marketing, public relations or fundraising work, so I’ve spent a lot of time thinking about the things that we do, and finding ways to explain those things to others, most of whom operate outside of the nonprofit sector. While engaged in such interactive and explanatory work over the years, I’ve been confronted with an interesting collection of misconceptions about the nonprofit sector. Here are five of the most common ones I’ve encountered, along with explanations as to why they’re wrong.

1. “Nonprofits can’t make more money than they spend.” In Business 101, people learn that Profit equals Revenue minus Expense. Therefore, it would seem to a casual viewer that a nonprofit corporation can’t have revenues greater than its expenses, because in that case, the nonprofit would be making a profit, and would no longer be a nonprofit corporation accordingly. This is wrong, though. Bad wrong. Any nonprofit corporation that spent every single penny it earned, as it earned it, would quickly become an ex-nonprofit corporation. The real difference between nonprofit and for-profit corporations is what happens to those surpluses when revenues exceed expenses: in a for-profit corporation, the surpluses are distributed to shareholders as income or dividends; in a nonprofit corporation, the surpluses must (eventually) be applied toward to the nonprofit corporation’s mission. Some amount of running surplus is always required on a year-to-year basis just to meet basic payroll and operating requirements. Some larger surpluses may support organizational mission by being placed in endowments, with interest earnings providing long-term revenue streams. Some surpluses may be designated for specific programmatic needs, and held until such time as the funds must be paid to meet those needs. The tricky part, for any nonprofit, is figuring out how much surplus and reserve is too much surplus and reserve, given the commensurate benefit of funds being spent in real time. If a nonprofit sits on a $1.0 million in liquid assets while providing only $100 worth of services a year, then there’s probably a problem there. But if a nonprofit spends $1.0 million a year while making $1.1 million in the same year, then that shouldn’t be a red flag, in and of itself. In any case, nonprofits must, over the long term, make more than they spend, or they will cease to exist as effective entities. So don’t begrudge nonprofit corporations their positive balance sheet positions and reasonable cash reserves.

2. “Nonprofits should always be grateful for any and all gifts given to them.” Well-meaning community members often organize grassroots fundraisers for nonprofit organizations. Some of these grassroots fundraisers are wonderful, sure, but many of them aren’t. While it may seem great on the surface that a group of concerned and caring friends create an event that collects, say, $250 in a bar one night to give to a certain nonprofit, if that nonprofit supports a community that may be harmed by alcohol consumption, then the association of the nonprofit’s name with the bar event may actually be a negative, rather than a positive. Also, if the event’s organizers expect the nonprofit organization’s marketing department to promote the event, invite the organization’s leadership to the event, and then expect the organization’s development office to prepare and mail donor letters after the event, when you consider the total nonprofit labor, overhead and materials costs supporting the event, the net financial impact of the event is actually very likely to be negative. You should never stage a fundraising event or use a nonprofit’s name to promote an event accordingly without checking with the nonprofit first, and without asking the nonprofit if such an event represents the very best way for you to serve their mission as a volunteer. You should also never seek to provide legitimacy to a dodgy commercial, political or social enterprise by tacking on the name of a nonprofit as an afterthought, or publicly treating a nonprofit as though it should be grateful for whatever you toss in the proverbial begging bowl. If you take the time to put the nonprofit’s needs and requirements first, then everybody will be happier with your contribution when it’s done.

3. “I can take a tax deduction for anything that I donate to a nonprofit.” For straight-up cash gifts, this is generally a good assumption, although once your income rises to a certain level, you may not get 100 cents worth of deductions on the dollars you spend. But that fundraising dinner you went to last night, with the $100 ticket price? You can’t claim a $100 tax deduction, since you received tangible goods and services (food, fun, etc.) by attending, so only some lesser portion of your payment is tax deductible; the nonprofit should tell you how much. And the $100 worth of raffle tickets you bought? Since you didn’t win anything, that’s a donation now, right? Wrong: those tickets were your entry fee into a game of chance, and in the eyes of the government, the chance at the prize is worth the same value as the prize itself, so you can’t claim any portion of that raffle expense as tax deductible. And that time that you took all those clothes to the Salvation Army over the weekend and put them in their collection bin, and you tallied up how much you had spent on them all ($1,000) and took that as a tax deduction? Incorrect and illegal, since the value of an in-kind donation is based on the fair market value of the item donated at the time of donation, not purchase. Also, if your in-kind donation is valued at more than $500, you’re going to need to include an appraisal with your tax filing, and have documentation from the charity that confirms your gift. Or say you donate your car to a charity, and its Blue Book value is $5,000. You can take that amount as a tax deduction, right? Not necessarily: if the charity sells it for $3,000, then that’s all you can claim. The bottom line on all of these examples is that tax deduction rules are more complicated than you might think, and you should always seek guidance from the nonprofits of your choice on how best to support them, while maximizing your own tax benefit as well, and not setting yourself up for penalties associated with incorrect tax filings. Get gift confirmation letters from the nonprofits for your gifts, too, in the tax year that you are claiming them. The burden is on you, not the nonprofits, to prove that you made the gifts when the Internal Revenue Service comes knocking.

4. “I see a specific need not being met in my community, so the best thing for me to do is to establish a new nonprofit corporation to address that need.” Maybe this is correct, sometimes, but not very often, and a nonprofit organization shouldn’t be established as a hobby, especially if it plans to fundraise. You also should never establish a nonprofit corporation to give yourself a job as its Director. That’s just bad form. While there is a wide-spread shortage of funding in the nonprofit sector these days, there is no shortage of nonprofits themselves: the National Center for Charitable Statistics reports that there are nearly 1.6 million nonprofit organizations in existence today (a 66% increase since 1998), while Nonprofit Times noted that the number of 501(c)(3) charities (a subset of the total number of nonprofits) with income levels of over $25,000 broke 1.0 million in 2005. There are, of course, hundreds of thousands of additional small nonprofits that never get to that $25,000 threshold, and are likely having minimal, marginal impacts in their home communities accordingly. The Balkanization of service sectors into restrictively tight missions of a growing number of niche nonprofits ultimately hurts the overall effectiveness of the response within that service sector. If you see a charitable need unfulfilled in your community, your best, first bet is to figure out which existing service provider may have a mission that could allow it to meet the need within its existing, established operational and fundraising infrastructure. Setting up competing, small nonprofit corporations without the ability to actually pay for such provision will generally make it very difficult for any funds raised to have any significant, long-term impact. Again, this is not to discourage people from volunteering their time, talents and treasures, but they’re going to be a lot more useful to a lot more people if you don’t reinvent the wheel by starting a new nonprofit from scratch on a whim.

5. “People work in the nonprofit sector because they can’t cut it in the for-profit sector.” From a strictly monetary standpoint, this might seem to make sense, since salaries in the nonprofit sector are generally lower when compared to comparable positions in the for profit sector, and if people can get paid more for doing the same job in the for-profit sector, then their continued presence in the nonprofit sector must be indicative of their second-tier talents. But this, too, is very wrong, offering a shallow and reductive view of the nonprofit sector that fails to recognize fundamental elements of the charitable experience: altruism, philanthropy, and a desire to serve others. There are obviously myriad reasons why people choose to work in the nonprofit sector, but at bottom line, people who work for nonprofits generally get some intangible, immeasurable benefit from their belief in the rightness of their work and their organizations’ mission, and the value of this benefit in their lives may often be higher to them than the additional monetary value of doing similar work for a less mission-driven organization. They feel that their work has a sense of deeper meaning, beyond simply providing income and dividends to shareholders. Others may simply see their lower-than-for-profit salary levels as essentially contributions back to their employing organizations, increasing funds available for mission. At bottom line, few people get Masters Degrees in Social Work or Masters of Public Health degrees (to cite but two common examples in the non-profit sector) strictly to help them become wealthy. They get such degrees because they want to make a difference. Some of the most talented individuals that any of us are ever likely to encounter have forged their entire careers and reputations working for and with nonprofits, to the tremendous benefit of their communities and nations. The nonprofit workforce isn’t less effective or less valuable than the for-profit sector is, it’s just driven by a very different set of motivations and inspirations. So don’t pass shallow judgment on those who put something other than money first.

How to Get a Grant

Or a donation, or a sponsorship, or a gift, or whatever. The principles are the same.

First and foremost: to get a grant, you’ve got to ask for a grant, in the most direct terms possible. As they say in the trade: you can’t get the gift if you don’t make the ask. But it’s amazing how many worthy organizations drop the ball with this seemingly straight-forward point, holding endless cultivation meetings, spreading the word about their good cause, hoping that an angel (or Santa Claus) will be moved to donate — without ever actually asking anybody directly for some money.

Ideally when you do get to the point of requesting money, you want to do it face to face, and peer to peer. If you’re soliciting a corporate CEO, you need to find another corporate CEO to ask on your behalf, preferably someone who is so knowledgeable about your cause that they can ask seamlessly, as if they themselves were the cause. And if you can’t find a corporate CEO to believe so deeply in your cause, then you might want to do some serious self-assessment about just how good your cause really is.

It helps to ask for a specific amount, too, and an ambitious “stretch” amount is always a good idea. Open-ended “whatever you can do” appeals will always result in smaller donations, because donors won’t push themselves as hard or as far as you can push them. You’ve also got to do your research before you make the ask, knowing what an individual or organization can give (sometimes with creative financing options of which they might not even be aware), knowing whether they support causes like yours, knowing whether they support organizations like yours, knowing whether they give in your geographic region.

Many foundations and businesses won’t fund individuals, so if you’re serious about your cause, you need to take appropriate legal actions to establish an organization in its behalf, in accordance with applicable state and federal tax guidelines. It’ll seem like a lot of work, sure, but it will provide a degree of legitimacy that will open an amazing number of doors, doors that you need to have opened. You need to understand who holds the keys to those doors, too, and recognize that sometimes it may not exactly be the person who the organization chart would indicate.

I received a corporate sponsorship once for no other reason than because I had a great relationship with a member of the Vice President’s clerical pool from having helped her daughter get an internship. She went to bat for me. We got the gift. And those kinds of relationships are priceless, although people often react with horror at the thought of asking friends or close associates for money, or asking them to ask others for money. But if you can’t bring yourself to ask someone who knows you, and knows how important your cause is to you, then how will you ever get to the comfort point of asking for the kindness of strangers?

And when I say ask, I mean ask. Don’t beg. Don’t go into a solicitation with your bowl in your hands, looking for alms. Your program must have value, or you wouldn’t be so invested in it, would you? To be successful, a grant must be a partnership, benefiting both parties. And people respond to success more than they respond to need. So have a plan. Know your outcomes. Know how your community will become a better place if you get your grant. Communicate that fact to the donor, and make her or him a party to that success. People want their money to make a difference. Have the vision to show donors how it will.

Oh, and then, finally, there’s that thing they call the grant application. Some are easy. Some are complicated. But in either case, you can write the best application in the world (and you should do that, of course, following all of the application’s instructions to the absolute letter), but if your proposal comes from a stranger, to a stranger, for a strange cause, you’re not going to get anything for all your hard work. My favorite grant was a $25,000 foundation gift that I received in response to a half-page letter, which took me 10 minutes to write. But it was the months of personal contact that preceded the application that made all the difference.

And it will for you too — sometimes. But be prepared: a successful grant writer gets a gift about as often as a successful baseball player gets a hit. You need multiple prospects for every ask, and can’t get frustrated by rejections. It’s a tough business, but if you believe in your cause wholly, others will too. And they’ll prove it with their money.

A Memorial for Haiti (One Year Later)

I was humbled and honored one year ago today to be asked by the Haitian Students Association (HSA) at the University at Albany to speak at their Memorial Service tonight for victims of the January 12th earthquake. The organization that I head (University Auxiliary Services at Albany) supported HSA and the entire UAlbany community’s response to this humanitarian crisis by matching gifts to the UAlbany Haiti Relief Fund up to $40,000. On the one-year anniversary of this moving event, I provide the text of my remarks below:

I want to speak with you briefly tonight about giving and about stories.

I’ve spent many years in the nonprofit sector, and know that fundraising is an art, a science, and a business. It’s hard work. The people who do it well know how to identify a need, craft a compelling story about that need, broadcast that story widely, find those potential donors whose personal interests resonate with that story, and then convince them to act on that resonance by making a donation to help meet the need.

It takes a lot of planning. It can take a long time. And the success rate can be very low, as people are bombarded from all sides with competing, worthy stories that often cancel each other out.

Sometimes, though, stories about need are so compelling that they tell themselves. The Haitian Earthquake of January 2010 is such a story.

I imagine most of us here sat riveted by televisions or computers as the earliest words and pictures began to leak out of a shattered nation in the hours after the earthquake. The sights and sounds we were exposed to, even from 1700 miles away, didn’t require anybody to craft a story and tell it to us.  We got it. We understood.

I know for some here, the most tragic sound they heard in the days after the Earthquake was silence, as they waited for calls or e-mails confirming the health and safety of loved ones in Haiti. I also know for some here, those calls still haven’t come, and they never will.

President Woodrow Wilson said nearly a century ago that “There is no cause half so sacred as the cause of a people, and there is no idea so uplifting as the idea of the service of humanity.”

What was most remarkable to me in the days after the earthquake was watching the UAlbany community, including many of you in the room tonight, take up the cause of the Haitian people, rallying together around this idea of service of humanity.

Even as you grieved for lives lost, you began working to help the survivors look to the future.

Even as you wept at Haiti’s despair, you began working to provide hope.

Even as buildings tumbled and rubble was hauled away, you began working to help Haiti rebuild.

I’m very proud to be a UAlbany alumnus, and honored to work for you at UAS, but never have I been prouder of this University’s students, faculty, administration, alumni and staff as I have been while watching the response to the Haitian crisis over the past two weeks.

You, the University, are UAS’s only customer, and our sole mission is to improve the quality of life that you experience here. And I believe strongly that by supporting the UAlbany Haiti Relief Fund, UAS does improve the quality of life of each and every person associated with this campus. We are all better people for giving our time, treasures, and talents, whatever they may be, to provide such service to humanity.

If the world is truly to be within our reach, then we must willingly assume an obligation of responsibility and a duty of care for that world and its people. So the story I want to craft, and that I want everyone to hear, is the story of how the University at Albany accepted that responsibility and duty without pause or compromise.

The world is a better place in your hands tonight, Albany.