5 Myths About the Nonprofit Sector – Debunked

There are a lot of misconceptions about nonprofits. Sometimes these myths and misconceptions become contagious, and dispelling them can be a challenge. The following is a look at 5 common myths about the nonprofit sector and how they are debunked.

1. Nonprofits spend too much on overhead

This has been a long-standing myth and one that has been difficult to dispel, but you’ll remember Dan Pallotta’s bold TED Talk: “The way we think about charity is dead wrong” where he argued, quite convincingly, that the public’s obsession with overhead has been depriving non-profits of the resources they need to create real change. “There is no greater injustice,” he says “than the double standard that exists between the for-profit and non-profit sectors. One gets to feast on marketing, risk-taking, capital and financial incentive, the other is sentenced to begging.”

While it’s true some nonprofits have unacceptable overhead ratios, for far too long the whole sector has had to live up to unrealistic expectations about spending, which has limited what they can do.

In fact, in a historic move, the leaders of the US’s three leading sources of information on nonprofits – GuideStar, Charity Navigator, and BBB Wise Giving Alliance – penned an open letter to the Donors of America denouncing the ‘overhead ratio’ as a valid indicator of non-profit performance.” (From overheadmyth.com)

Letter-Denouncing-Overhead-Nonprofit

The letter (Click here to enlarge), signed by all three organization’s CEOs reads: “The percent of charity expenses that goes to administrative costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.”

The sector has too often “erroneously focused on overhead over the past few decades, which has starved non-profits from investing in themselves as enterprises.”

Read more here: Non-profit Authorities Denounce “Overhead” as an Accurate Measure of Non-profit Performance

2. There are too many nonprofits

This myth is perpetuated partly becasue cause-focused organizations often compete for limited resources. While many may argue that merging nonprofits with similar needs is the solution, bringing two organizations together can, in fact, be very time consuming and costly, and the organizations don’t always have the same vision, or provide the same value in solving social problems. Instead maybe we should be increasing resources for nonprofits, so there’s enough to go around. 

3. Nonprofits aren’t important to the economy

Nonprofits serve an obvious purpose – they make the world better, but they are also important for the economy. In the U.S alone, 10 % of the workforce is employed in the nonprofit sector. In Canada the nonprofit sector accounts for over 8% of the GDP (Gross Domestic Product). Nonprofits also consume third-party goods and services in order to operate, which stimulates the economy.

4. Nonprofits are not efficient

If nonprofits are lacking funds to purchase and implement the right technology or hire the right people, it’s true that they can be inefficient. But getting the right tools and the right people in place all relies on funding. Donors and grants can help with this!

5. Nonprofits don’t make money

This myth is somewhat understandable, after all they’re called ‘nonprofits’. It’s up to organizations to explain how funds are reinvested in the cause, unlike for-profits where they go to the owners and shareholders. Making financial information available on your website and/or in other publications is a good way to get the message across that nonprofits do make money, they just spend it differently. According to a study published last year in the Journal of Accounting, Auditing, and Finance, transparent nonprofits receive 53% more in contributions.

See Complete List of COVID-19 Resources for Nonprofit Here.

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About the Author: Sumac is part of the Silent Partner Software family, a company dedicated to providing exceptional software and services to nonprofits. With over 25 years of service, Silent Partner has helped organizations manage over 3 million donors and contacts across the US, Canada, UK, and Europe. Learn more 

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