Nonprofit ≠ No Profit

Thu, 18 Oct 2012 04:00:00 GMT

For all those critics out there that think nonprofits are inefficient and lack sound financial management, consider what David Greco of the Nonprofit Finance Fund shared at his presentation last week, Financial Analysis 101, hosted by Northern California Grantmakers.

He said that even the greatest entrepreneurial minds of our time haven’t figured out how to make social services profitable.

So, imagine the massive gap that nonprofits are filling—essentially functioning like businesses without paying customers, with disparate revenue streams (and many strings attached), plus the pressure of a growing demand from the community they want to help!

Since ‘consumers’ of social services can’t necessarily pay the full market price, or true costs, of these services, third party donors are brought into the equation. This includes individuals and foundations. Without this additional help the nonprofits would (and they often do) operate at an unavoidable deficit.

Since these donors are now invested, they understandably want to see their dollars making an impact. They are often more interested in funding the delivery of service versus helping with the costs related to making the service happen.

This is where for-profits have the upper hand.

These "hidden costs” in the business world (like rent and salaries) live up to their name because the consumer is typically none-the-wiser that they are paying for their cup of joe AND the paycheck for the poor sod across the bar PLUS an extra bit for profit.

[Image source: David Greco and Matt Milletto, Vice President of the American Barista & Coffee School]

When donors restrict their funds to program costs only (like in the illustration above showing the breakdown for a cup of joe), the nonprofit faces an uphill battle to find money to keep the lights on and pay the workers. Many aren’t able to accomplish this and end up failing. What's worse is when I see them labeled as poorly-run enterprises. That's often just not the case!

The bottom line (pun intended) that Greco drove home is that noprofits step into this profit-less gap in order to make our communities better. So let’s work together—better—and if you are a . . .

DONOR	FOUNDATION	NONPROFIT
Consider what your “strings” and restrictions really mean for nonprofits. Donate because you like the organization’s mission and work. Trust them to do a good job (unless facts prove otherwise).	Don’t be scared to ask grantees questions about their financial decisions. You can create an opportunity for a true partnership while learning how your grant can fill gaps or spur transformation.	Understand your financial situation and the real cost of doing business–money for programs without money for rent can lead to disaster. Inability to tell your story is a lost opportunity.

Together, we can give donors the information they need AND give nonprofits a better rap.

Gretchen Ellis is a former program associate at the Community Foundation. Her previous experience included work at the Firelight Foundation, where she supported grassroots programs in Africa. She has a passion for learning about and helping our local nonprofits.

Philanthropy 831 Blog

Nonprofit ≠ No Profit

DONOR

FOUNDATION

NONPROFIT