NonProfit Mythbusters Roundtable: Tackling the Overhead Myth [Episode 116]

"This is where data and story come together, at your 990...That's your storyboard, right? And so you should really care what goes into that document...And if you trust too much, if you tell your accountant to tell your story, I think that's problematic. You have to tell your own story. And you work with them to make sure you get the data right and the numbers right."

Join the Roundtable With Four Experts As We Discuss Nonprofit Myths

A few weeks ago, someone shared an article on LinkedIn about the long-debated Overhead Myth. Is nonprofit overhead bad? Is there a magic percentage for overhead? How can we educate people about the importance of funding operational costs?

That’s why I rounded up five nonprofit thought leaders to discuss this. We’re passionate about busting this myth and look forward to sharing some nuggets of wisdom with you!

Our goal for this conversation was to be clear and to provide practical takeaways and verbiage you can use throughout your nonprofit journey. And we accomplished just that!

One of the best ways to bust myths in the lives of those around you and your donors is to learn how to shift the conversations to help people better understand your nonprofit’s situation. Join us as we pick the brains of these experts in the field surrounding this topic.

I’m currently planning more ways to support you as my listeners and would love some feedback! What would you like to see more of? Share your ideas for podcast topics, resources, course ideas, or other ways I can support you in the new year!

 Transcript: Moving Past the Nonprofit Overhead Myth

Teresa Huff, Sherry Quam Taylor, Sean Hale, Michael Thatcher, Kiersten Hill

Teresa Huff 00:02

All right, here we go. Welcome and it’s great to have all of you! I want to first introduce our roundtable guests today. We’ve got, I’ll just go in order, Kiersten Hill with Firespring, Michael Thatcher with Charity Navigator, Sean Hale with Philanthroforce, and Sherry Quam Taylor, who is a nonprofit revenue generating expert. And I am Teresa Huff with the Grant Writing Simplified podcast. So, welcome everybody.

As I said earlier, feel free to pop your name, location, specialty in the chat, whether you are with a nonprofit, or if you are joining us as a grant writer, as a donor as just an interested, good citizen who wants to get in on this conversation. Welcome. First of all, I would love for each of our roundtable guests to just introduce yourself quickly and tell us why are you here today for this conversation? Because all of you just very quickly said, “Yeah, I’m in,” when I threw this out as an idea. So I would love to hear what was it that made you just say immediately without even thinking twice: “Yes, I want to be in on that.” Kiersten, you want to jump in?

Kiersten Hill 01:18

Yes, sure. My name is Kirsten Hill, I am director of nonprofit solutions at Firespring. We’re a full service marketing and communications agency that’s based out of Lincoln, Nebraska. I have about 20 years of nonprofit management and fundraising experience with a variety of different kinds and sizes of nonprofits before I came to Firespring. And I think for me, it’s that I have seen the mistakes that I made in my own organizations, because I was avoiding the dreaded overhead percentage, and just how, you know, it made me less effective as a leader and as a community builder. And so, this is a topic that I’m really passionate about, and I think we can start to change those conversations in a really meaningful way, and redirect people to talking more about the things that are actually meaningful for our organizations.

Teresa Huff 02:18

Michael, how about you?

Michael Thatcher 02:18

Hi, everyone, Michael Thatcher. I’m the president and CEO of Charity Navigator. For me, I’ve been on, at least for Charity Navigator, on a seven and a half year journey trying to work on changing our ratings so that we aren’t just talking about overhead, but talking about impact, talking about how you engage with your constituents, a wide variety of what I would consider more important measures that help a donor understand, “Is this a strong organization?” and are they actually achieving results and what they’ve set out to do. So this is an area of personal passion of mine, and also just working on how we measure social change has been a huge part of my life’s focus. So, delighted to be here.

Teresa Huff 03:10

Sean, how about you?

Sean Hale 03:13

Thank you very much, Teresa. It’s wonderful to be here with everybody. I’m Sean Hale. By day, I get to lead a team of nine folks who help nonprofits with their finance and accounting and other administrative needs. And then my side gig with a friend of mine is Philanthroforce, which is the go-to place for nonprofits that are looking to find the right consultants. We launched last year, and we have more than 400 great specialists listed so far. And I’m here today because I get to see on a regular basis, not just over my 20 plus year career, but with the clients that we get to serve just how much administratively this really ties organizations up in knots. The overhead myth leads so many good organizations to make choices that are penny wise and pound foolish, because they feel like they are beholden to this thing and that any expense at all, and administration is going to get a big wag of a finger. And so it just isn’t even considering this. This really holds them back and limits their ability to do good in the world.

Sherry Quam Taylor 04:21

Good morning, I’m Sherry Quam Taylor talking to you from Chicago. And I work with nonprofit leaders who frankly need to scale their general general operating revenue. And so the leaders I work with need more unrestricted revenue so that they can invest in all the amazing initiatives in their strategic plans and can grow their budgets or double their budgets or triple their budgets. And so I work with growth minded leaders who I would say in some ways are already fighting these myths we’re going to talk about today. And I was interested in hopping on here because to shift this narrative to one of hope.

One, if we can get over this, we, you know, leaders that I’m coaching on how to have these investment level conversations. How do I talk about why my overhead might need to be 25, gasp, 30% for a few years, because we’re doing these few things that’s going to allow us to be this. And so I’m really passionate about leaders and fundraisers, putting this elephant out of the room and really owning the business of the running. And then attracting the donors that get this. Because I think one of the biggest myths is that donors don’t want to fund overhead and don’t want to give general operating gifts. And I actually don’t find that to be the truth when they’re educated.

Teresa Huff 05:55

Yes, and my name is Teresa Huff; I host the Grant Writing Simplified podcast. And that is one of the big reasons that I wanted to pull this together and have this conversation, because I think it really does start with education. And to do that, we have to move upstream. I see it all the time in the grant writing world. People are frustrated, they’re working so hard, and just not gaining traction the way they want to in the way they need to and wondering why not, and a lot of it comes down to education. We need to back up, we need to have better education, better conversations around each of these aspects. And the reason we have this specific group of people on the roundtable is I wanted very different perspectives, very different parts who are serving the sector, from different avenues. And really, through all our conversations, I can see this developing into an ongoing series where we’ll have different backgrounds, different perspectives, different seats around the nonprofit table.

I think this is something that gets all of us fired up, which is a good thing. Because then we can help have better conversations and help equip our nonprofits, our clients, our community members, even our board members who want to help, they just don’t know how. You can tell it gets me fired up. So here we go. Let’s have the conversation today. Michael, would you like to kick us off with a little bit of background context on some of the history and also how we have gotten here? And then we can really dive into what can we do going forward? And how can we provide good tools and strategies?

Michael Thatcher 07:33

And thank you, I think, you know, I’ll answer you, I realized we have an international audience. But I’m going to be speaking in more of a US context, because I think that’s the reason I think this issue is as strong as it is, given the tax forms that all nonprofits must file or the IRS Form 990. And in that tax form, we have to allocate how much of our spending is going to program expense, admin expense, and fundraising expenses. So that’s sort of the core document. It’s a public document that’s available to any interested donor. And that allows people to see how much you’re spending on this particular element.

Now, I think that’s the documentation. The other thing is that you have organizations, funders, in particular, as well as some of the ratings agencies like ourselves 20 years ago, when we started, that’s what we looked at. We wanted to see that the money was being handled well. I think the way we actually talked about it was good stewardship of donor dollars, right. And so it’s this idea that if the majority of the money is going towards the program expense, somehow that is going to produce better results. The challenge is that we don’t, overhead doesn’t tell you anything about results; it just tells you where the money gets spent. And so that’s the clearest data point that we have, given the way the sector works right now. And also given the fact that we’re not like a consumer market, where if you have a bad product, you go out of business. You can have a bad product, and the people receiving that product aren’t actually the people paying for that product. There’s a disconnect in that in the whole delivery cycle of what happens in the nonprofit sector.

So I think we’ve got that one disconnect where it’s not, you know, not market driven excellence. Then you have a lack of clear and consistent information on what the impact of an organization is making. And then we end up using, or we have ended up using, overhead as a proxy for impact. And so I think that’s where we’ve gotten into some trouble. As we were warming up for this discussion, Sean pointed out that we’re about to celebrate the 10 year anniversary of a letter that was written by Charity Navigator, GuideStar, and BBB Wise Giving Alliance, which was the overhead myth letter. So that was sort of the first time we put it in writing. And this was a letter that went to the donors of the United States saying, please stop looking at overhead. Start looking at outputs, outcomes, and actual impact of organizations. After that letter was published, there was suddenly a realization that, well, we don’t actually have any impact data in a clear, concise way to actually point people to. So a second letter was written; this time it was written by the same three entities, and it was sent this time to the nonprofits in the United States saying, you’ve got to start talking about your impact, you’ve got to start reporting on it. Charity Navigator, GuideStar, and others started sort of also looking for ways how we can actually rate impact? And how can we do that across the wide variety of different cause areas of the sector’s focus on? We’re still working on that, I think we’ve made a lot of progress. I’m proud of some of the changes that have happened to Charity Navigator, and I won’t, I won’t talk to the will talk to our rating system now. But I think that’s kind of the general overview is that we have easy information, very simple numbers, and its percentage is findable. It’s part of your annual tax filing. And we don’t have such a simple story when it goes to articulating the impact of organization.

Teresa Huff 11:41

So it sounds like some awareness is happening. And progress is in the works. And it’s an ongoing journey for all of us really, for having better conversations, for providing better data, for really figuring out how to dig in and use the data. That’s a key as well. And I just want to note, as our audience has questions, please pop those in the chat. And we will incorporate those as we go and try to answer as many of those with this conversation.

Kiersten Hill 12:15

No, I mean, I think I think the question for all of us is, now that we’re aware of it, how do we change it? You know, I think that’s the big thing. And I’m an activator as part of my personality as part of my Gallup 10s, the top five strengths or whatever. And so for me, 10 years of having those conversations, but not really seeing the needle move in terms of looking at impact over admin is kind of frustrating. And so how do we change the conversations?

Teresa Huff

Yes, exactly. And that’s one reason I wanted to bring all of you together. How can we provide people with better tools, better conversations? How do we even start the conversation and share it? You’ve mentioned this a lot, how to help people get over the fear of the conversation in the first place. And then realizing the importance of it.

Sherry Quam Taylor 13:53

Yeah, I really, like all my clients hear me say fundraising is education. And, you know, I’m always coming from a revenue perspective. But when even starting its first step and saying, Hey, let’s perhaps not be irrationally frugal this year, when we put the budget in place. Let’s look at each other and say, Are we budgeting in a way that is squeaked by? Because we’re worried about the 990? We’re worried about that? What if that one donor says and we’re worried about how it looks? And we’re worried about what percentage we’re gonna get on our ranking site? And should we actually own this?

And put in the budget what we need. And so I’m not saying triple your budget, you know, we’re going to ease into it. But so often, there’s even just an education at I would say, kind of that that business behind fundraising area where if we’re starting there, we’re starting on shaky ground, and we’re starting with a budgeted need, that is really being handcuffed by this overhead conversation or the fear of the questions that doesn’t empower your team to raise to that need, and that actually keeps you from from growing. And so I find that my clients who actually own the true need, put that irrational frugality to the side and then invest in learning how to raise to the need, actually raise more money. You know, it feels counterintuitive. It feels opposite of what we’ve heard for so long, but I want people to hear that. Fundraising is really education, and it’s, you know, sitting with donors and welcoming the conversation about the percentage and saying, I’m so glad you asked me Yep, can I walk you through this? And so as leaders of nonprofits, I want you to lean in hard, and put shoulders back and sit confidently at the table. And know the answers to why you need to invest in this this year, why your staff might need increased training in this area, why you need this specific technology, because you’re running a great business and our business is changing lives. And so own it and attract those donors who get this.

Teresa Huff 15:28

You think some of that comes from unintentionally, we tend to lie to ourselves about things are better or worse than they are sometimes, like even just Oh, my house is pretty clean. And then you start looking around and you realize, oh, it’s a mess. You know, there’s a ton of dirt hiding here. And sometimes we do that in our nonprofits, we think it’s way better or way worse than it is and like, oh, we can’t define the budget that way, that would be way too much, when really, are we truly being honest with ourselves and our team of what it takes to operate successfully and to truly serve our clients? Well, because that’s what it’s about. It’s serving our mission and our communities in a way that actually meets the needs, not just bare bones. And that piece of it, I think we need to fully own and acknowledge first in order to truly have the conversations and be able to map out those plans.

Sean Hale 16:28

Yes, indeed, if I can jump in on that and build on what you Teresa and you Sherry were saying, there’s work that needs to be done externally. But I think nonprofits also have maneuverability and can do things. But part of it is it’s gotten so ingrained in so many of our minds that we need to make choices that are looked at from a third party perspective, are actually kind of pennywise and pound foolish. Because we’ve gotten so ingrained in ourselves that we suck it up, we suck it up. And we do the cheapest possible thing, rather than being smart and strategic and careful stewards of the money, but not just I’m always going to buy the cheapest thing, never going to replace the staff computers.

And if I can tell a little story, there’s one set nonprofit that I got to serve. And really smart people in management, Blue Ribbon board, great staff, and everybody on staff or about 20 people on staff, they were all using laptops that had been donated three or four years before from a funder. The funder had said, Hey, nonprofit, this equipment is too old for our staff. So we’re going to upgrade our staff’s computers, would you like these old computers for your staff? And so of course, this nonprofit said, woohoo, we got new equipment. And three, four years later, these computers are now six, seven years old. And sure enough, they’re having to reboot multiple times a day. They’re moving slowly, they need constant tech support. And so I went to the leader and said, Hey, this is obviously really, really bad. Can we fix this? And that did not change the equation. And so went in, I did some calculations to really spell out why this was so bad. And just by using very conservative estimates of how much staff time was getting wasted with bad equipment, staff time getting wasted while they were waiting to reboot these computers. Not to mention, we wouldn’t even talk about the morale impact that it has on staff to give them crummy equipment. And the bad messaging isn’t just wasted time. If all that got wasted was an average of 15 minutes a day for the staff, we’re talking about easily $2,000 a year in wasted time, you compare that to buying a new computer for 600 or 700 bucks, that computer pays for itself in six months or less. So yeah, adults are shocked to spend this money. But you know what, you’re not having to add another person to your staff to make up for all the waste of time that your other people can’t do. So there are a lot of things that we can do.

Like Sherry mentioned, you know, we want to continue moving the needle on the overhead myth. At the same time there are choices and behaviors that we can change internally, where we can be much better stewards of the money and be much more effective with the money we have and that don’t require miracles, that don’t require anybody external. We can make changes as well while we’re working to fix the handcuffs of the overhead myth.

Teresa Huff 19:25

Agreed, it goes hand in hand. And I think we do forget to account for some of those hidden costs too, like you said the morale issue or just the stress, the extra workload, the wasted time, the longer time it takes to do things. We forget to count the cost of those and how much it’s truly costing, in addition to simply dollar signs. Well, I would love to discuss how can we have better conversations with our board and how can we equip our board? First of all to understand this, but then also to go out and have better conversations in the company.

Sherry Quam Taylor 20:08

I’ll answer your question, maybe tie on to what Sean was saying, Sure. This is timely, I’m putting together a training, I don’t know what it is yet, for quarter one next year. And I think this is a cousin topic, I guess, is what I’ll say. And it’s a board’s give-get. I’m not a fan of give gets; I think they leave hundreds or 1000s of dollars on the table. And specifically, I think that that get side, you know, tying to Sean’s computer issue, from day one, then it sets the tone to say, we should get everything for free, go get free stuff, you know, and what happens, then we get free PR, we get free communications, we get free accounting, we get free all these things, and are nonprofits that are at the bottom of the to do list for all of those consultants, or contractors or companies, of course, because they’re there on billable hours. And so I think there’s things like that, that just set the tone from day one with a board that says, we shouldn’t spend money on everything; we shouldn’t invest in ourselves. And so a lot of my clients have gotten rid of their give-gets and it has really opened up the conversation I have with board members saying that we need to invest in our organization consistently. And not just in our programs, but across the board in our admin in our fundraising. And so that’s just an example. I was thinking of Sean, when maybe a board member said, Oh, I have a $5,000 get and I got 10 old computers, so you know, done for the year. And that doesn’t serve anybody. Right?

Michael Thatcher 21:49

In terms of the board conversation, and I’m totally in agreement with this. And I think there’s a couple of things. One thing is the overhead myth is something that we propagate and re-propagate. Because people that are less close to what we do or where the different measurement is, they have an old idea. And they bring that idea that often shows up in the board conversation. 

If you look at all use the Charity Navigator rating as a case in point, it used to be the predominant part of the rating. Right now it’s a tiny part of the rating. It’s almost insignificant, we’ve read, we’ve done everything. It’s up to the nonprofits to actually stay current with that and be able to go and say, Here’s my Charity Navigator rating. They’re rating me on culture and community leadership and adaptability, impact and results. Oh, yeah, there’s also accountability and finance, but it’s just a small part of the rating right now. 

It’s not all about overhead. If you stay current, then you can re-educate your board. I actually think we often have to be informing our boards as to what’s actually really going on in the world that we’re doing, particularly as management because what what we face as management is is you know, that’s the day to day of our world. The other part of the way I like to think about this is overhead is measured in annual increments, attrition, staff morale. That doesn’t follow in a 12 month cycle. That follows whatever cycle it is, could be three years. But if you burn someone out over three years, and they spin out of your organization, that’s really expensive, particularly if they’re one of your top players, even underpaying them, giving them lousy equipment to work on. That’s just demoralizing, right. And at the end of the day, people are going to move on, and they’re going to move to where they can find a place where they can actually contribute and also have a decent lifestyle and doing it. So I think it’s if you can show them what will happen in the long run. That’s where you really have to talk in multi year increments, even though, you know, the overhead you’re measuring on your tax forms. That’s annual, they’ve got to be able to have that conversation with your donors too.

Kiersten Hill 24:04

I absolutely agree with that. And I think a lot of it is talking about what are those consequences. When we under invest in our organizations, there is a direct correlation, whether it’s staff turnover, or poor IT infrastructure or poor performance management systems or tracking or, you know, less accountability, less oversight, whatever it is, we’re actually doing harm to our organizations. And so I think that we have to point out those unintended consequences. As nonprofit leaders, we live it every day. And so it seems very clear to us. But when you’re sitting on a board, you maybe come in once a month or you come in, you know, gosh, we only meet quarterly, you come in four times a year and you don’t see those consequences. It’s harder to understand. So I do think that right or wrong, the emphasis has to be on nonprofit leaders to educate boards of directors, community leaders, those folks on the consequences of the underinvestment and what can be done when you invest appropriately.

Teresa Huff 25:22

I agree. And within the nonprofit we have to keep in mind, sometimes we are so close to it, we may not realize what people don’t understand about the work we’re doing. And you alluded to this Kiersten is like, even with grant writing for me, I’ve done it so long, certain things are normal. Then a new student comes into my program and says, What does this mean? Or what’s this basic term, and I’m so used to saying RFP or case for support, they’re like, wait, what in the world. So we forget, board members sometimes come in, they haven’t either been on a board, they haven’t worked with a nonprofit, or they don’t understand our nonprofit. So it may come down to also putting ourselves in the shoes of someone brand new, and looking at it through their eyes and helping them understand just the very basics, first of all, the basics of what is a 990? Because maybe some of them don’t even know what that form is, let alone how to look at it and use the information accurately. And then how not to use it. And as you were saying earlier, Sean, so sometimes keeping that perspective in mind is important.

Sean Hale 26:33

Yeah, to build on everything you all said, and also to respond somewhat to Jason’s question on how do we make the case? How do we do that, especially when we’re cash strapped? And so like, where do we come up with money to buy these new computers or whatever, I think a lot of it does come down to data and connecting the dots to the financial part. And part of it is the kind of emotional and the telling the story part of it, which is important, but some people do respond more to numbers. And so being able to paint that picture for them, and get very specific about, you know, here’s how quickly these computers will pay for themselves. Or, you know, every time we have turnover, it costs from 25 to 150% of the annual salary of that position. And so if we can take our organization’s turnover from 30%, down to 5%, it’s going to pay for itself this way, right, by staff that are more productive, that we don’t have to spend time training. And by breaking the cycle of turnover, which is deadly expensive and very harmful for morale, or yeah, they’re just other ways of connecting these these dots for folks that sometimes I do need to grasp onto the money and understand that it’s it’s there are there there are financial pieces that go beyond what you would typically put into a budget template, but that need to inform that budget template. And yeah, it is that some of that staff stuff, that stuff that’s harder, it’s not part of the regular conversation, but it needs to be as a part of that education component.

Kiersten Hill 28:11

Agreement, I think it’s connecting overhead to programs. So the money, I think because we look at that figure almost separately, we don’t we don’t often acknowledge the fact that the money that we’re investing in overhead is still supporting our programs. It’s still supporting our organization, we are still growing and doing good. And so when we focus too much on that, then we’re not connecting the dots for people how investing in overhead also increases program success. And I think when I was leading nonprofits and asking funders to support overhead, it’s the magic is in connecting those dots. Right? So if you show the funder how this investment in overhead leads to this success in the program, I think they’re much more willing to support it.

Teresa Huff 29:08

And sometimes that comes down to a mix of things like Sean, you said, Some people really resonate with statistics and numbers and seeing the black and white. And then Kiersten, we were talking earlier about your StoryBrand book, and some people are really gonna hit home with a story and something powerful. And then Michael, you and I were talking the other day on the podcast and you shared really eloquently about this piece of the smaller than nonprofit, the more integral the director or some of the key people are to the program’s themselves as opposed to overhead. So go ahead if you want to expand on that.

Michael Thatcher 29:45

I think both, and this is particularly for smaller younger nonprofits, there’s often or there can be a lack aware of awareness of how to allocate one’s time with regard to reporting. If and as the CEO of an organization, you may be spending time on programs, you may definitely spend time on admin and you’ll also spend time fundraising. You just have to allocate your time that way, and you have certain roles that are more clearly defined as overhead, something like HR is definitely going to be more of an overhead area. But you’ve got to make sure you know what you’re doing with the reporting. It’s gonna sound strange, but don’t necessarily trust your accountants. Work with your accountants too so that you really have clarity on when you’re preparing your tax filing, so that you’re actually reporting accurately. And then I think the other thing is just well, I’ll leave it at that maybe that that was really the thing with regard to that question.

Teresa Huff 30:51

I think what you said there, whether it’s an accountant, a social media manager, a grant writer, whatever the role, we can only do so much with the information you give us. Like mine, some people say to me, Oh, I’m afraid I’m sending you way too much stuff, or I’m going to overwhelm you with all the information. I need information! I can’t pull a grant out of a hat; we have to have the information, then I can refine and pick and choose from that of what’s relevant for this project. But I’m sure it’s the same with accountants, you can only work with what you’re given, you can’t just magically create something that’s not there. So the more we communicate and partner with our strategic people, the more critical that is to be able to build that story accurately. And the whole picture.

Michael Thatcher 31:43

And just on that last point, and this is sort of where data and story come together at your 990. It’s not a fun document, but any foundation is going to read it. Any evaluator is going to read it wherever we’re all looking at your 990. And if you’re not, as the CEO, or the management team, guess what your board should be reading it too. That’s, that’s your storyboard. Right? And so you should really care what goes into that document and make sure you’re across it. And if you trust too much, if you tell your accountant to tell your story, I think that’s problematic. You have to tell your own story. And you work with them to make sure you get the data right and the numbers right.

Teresa Huff 32:25

Right there something to start with for some nonprofits is sitting down with the board and educating them on here’s the 990, here are the parts, here’s what it means. And just literally walking them through the app step by step and holding their hand to teach them what it means and how to use it.

Sherry Quam Taylor 32:46

I would also say, we were talking board, but the fundraising teams don’t know how to read 990s. You know it’s sometimes not their fault. A lot of times it’s like, budget approved from the leader, go raise this amount. No, and then our fundraising teams are on the spin cycle of, you know, all those traditional fundraising methods. And they’re not allowed to really not only tell the organization’s story, but also tell the financial story of the organization, which then leads to the impact story. And so I find so often that organizations are not securing large amounts of general operating support to put into overhead. Because frankly, their team is not having in-depth conversations about their financial story, how they’re going to grow, why they need these types of gifts. Either they haven’t been trained how to do it. Or maybe they’re that great at, you know, events or grant writing or appeals and campaigns. They actually haven’t had that training of how would I sit down CEO to CEO, and lead them through the 990, lead them through the financials, lead them through strategic planning. And so I find that there’s a need to invest in our fundraising teams, because it’s not just like, Alright, we’re gonna go from 1 million to 2 million, go raise it. That’s not setting them up for success. They’ve got to be an integral part of this financial story and understand it deeply. So many development directors even say to me, like, Oh, I hope they don’t ask me the numbers questions in this meeting. And I’m like, I hope they do ask you those things. And this is how we’re going to answer it. And so get comfortable having the financial conversation. And that is from your 990. I love that document. I know we were talking about our love-hate with it, but because it’s a forward facing document, we have to know what’s in there and know how it really is driving our growth and to be able to mythbust you know, when when donors are questioning it, it’s critical. Right?

Teresa Huff 34:50

And you know, you mentioned something earlier that I wanted to come back to is that sometimes when it falls to the bottom that people are doing this or that pro bono or volunteer, or you’re just kind of piecing it together to save a dime. When really, that leaves you with a very disjointed strategy. It leaves you with your social media person doing one thing, your grant person doing another thing, your fundraising or your finance, each team is working at separate different cross purposes instead of cohesively towards that same vision. And sometimes that does take an investment in building a core team. And up front, realizing the importance of that funding centrally. So then that can maximize much more quickly and effectively on the mission. And again, ultimately, it’s about the mission. So how can we best impact that? And that’s not always with piece together, bootstrapped strategies.

Sherry Quam Taylor 35:46

Yeah, that or the flip side of that is, let’s hire one person to do all 16 of those things. But I think we’ve seen a lot of that with the high turnover, it’s like, we cannot expect these leaders to do more unless anymore. And it’s keeping people from raising money. It’s keeping people from really fully funding their organizations. And so I think that’s what I see. So often if, you know, gosh, like three job descriptions in one, and to say, let’s start here, so we can start getting revenue in social fundraising departments, so that then we can invest, you know, maybe we start with a, a contractor doing this part or part time person doing this part. But oftentimes, we’re just stuck in this, you know, we need more overhead, we can’t raise unrestricted revenue, but we need more overhead. And so it’s like something has to push, pause, and fix and, and really, you know, stop doing certain types of fundraising activities. So we can start doing other activities that actually yield those gifts that then free the team and free the organization to invest in their growth in their infrastructure.

Kiersten Hill 37:03

Adolfo had a question in the chat that is a hot button for me. And I don’t know what everybody’s opinion is. But he said that they have donors who knowingly donate to cover overhead, and said, Would it be reasonable to let new donors know that their donations go directly to the programs, since overhead is covered by other donors? So I don’t know what the rest of the panel thinks about this. But I personally don’t like that messaging. Because I think then what we’re doing is we’re continuing to tell people that overhead is bad. We are leaning into the myth, we are continuing to perpetuate the myth. You know, don’t worry about this, because somebody else has taken care of it, as opposed to saying overhead isn’t a bad thing. You know, I think we definitely need to, again, it’s all about changing the conversations and how we’re talking about how we fund and pay for the work that we do. And when we say, you know, oh, gosh, don’t you know, don’t worry about this, it makes donors think that that’s still a bad thing. And so personally, I think you just don’t have that conversation. And if you have donors who want to cover overhead, awesome, thank them, be incredibly grateful that they understand it, they get it, but then don’t utilize that to continue to perpetuate that mess. That’s just my two cents.

Michael Thatcher 38:43

And also Jason’s added something, you know how to talk to someone on just overhead. I think it’s more where you devote that funding. And, but I just can’t agree more with what Kiersten’s just said in that if you’re if you change the dialogue, you have to get away from overhead and really talk about other things. You know, there are a few areas; I don’t know if this is a good analogy or not. And I’m sure you’ll let me know if it’s not. But we used to see a lot of fundraising materials that were showing the hardship of individuals, and now you’re seeing much more of that material showing the happy, you know, go from the starving baby to the happy baby. And that’s actually dollar for dollar, you actually make more money by showing a happy baby versus a starving baby. You’re telling a different story, right? Talking about just what it takes to keep the organization running is not as interesting as the impact that you’re making in the world through the cause that you’re serving. And that’s where you really tell that story.

Teresa Huff 39:54

This keeps bringing me back to I believe, Sean, it was your post the other day on LinkedIn where you said should we even be calling it overhead anymore? Should we start calling it something else like infrastructure or impact or something else? What do you all think of that? Should we start shifting the language when people ask us about overhead? Do we gently, subtly incorporate back to them different language and start retraining them to use those words instead?

Kiersten Hill 40:26

I spent, I’ve spent more than 10, oh, gosh, almost 15 years of my career doing workplace giving fundraising. And there are tons of questions about overhead. That’s the number one question that I would get asked when I would go out and speak and ask people to donate through their workplaces and give to the organizations they care about. And invariably, in almost every single presentation I would give, I would get asked the overhead question, how much money actually goes to the programs? Or how much money actually goes to this? And I would always say, I’ll answer your question. First, I want to tell you about the impact that these organizations have. First, I want to tell you about how we’re changing communities. I want to tell you about XYZ, then I could go back and answer that question. But I do think that you have to refocus. And I think it’s about really flipping the conversation and having different conversations that are about impact and telling the story of the work that your organization is doing. And then you’d always go back and give them that percentage. But don’t just focus on that percentage.

Teresa Huff 41:39

I love that approach because you’re acknowledging their question. I’m going to answer your question, let me give you this information first. And then we’ll come back to that. Just like in grant writing, where we say addressed the red flags up front, be transparent with those, you’re doing the same thing. You’re not glossing over it and trying to dodge the question, you’re full on saying, I will answer that; first, let’s talk about this. And then we’ll come back to that. And by the time you come back to it, they have a whole different context and perspective. And it keeps the conversation going, as opposed to just shutting them down and saying no, don’t do that. You’re using that to draw them into the story.

Sean Hale 42:23

And this is echoed in all of the storytelling that we see through advertising, right? What pizza place talks about how much their pizza oven costs, or how much their general manager is getting paid every year, right? They tell you about this delicious hot pizza with great cheese and great ingredients, and how wonderful you’re going to feel after you have a slice or two. And that’s the story that people need to respond to really, that’s the most important thing, right? At the end of the day. If it’s a pizza, is that it’s how great is the pizza? And did I get it for you know, maybe I got it for a reasonable price, but not about how much exactly went into the pizza oven, or the general manager salary? Right?

Teresa Huff 43:02

It’s more about, you see the picture of Game Day gathered with friends or the family sitting around the table. It’s not those logistics, but it is tied to that. And that’s a part of that.

Michael Thatcher 43:17

Yeah, you know, there’s one of the things I’ve observed, at least, from the lens of Charity Navigator. We serve, essentially, the average American donor, we have about 11 million unique visitors coming to our site every year. And one of the biggest concerns that we get from the donor is this, it’s this feeling of wanting to trust the charity. And so I think they use our ratings as a proxy for you know, it’s essentially a trust building mechanism. When you’re asked the overhead question, someone’s someone’s looking for something to establish trust. And that’s why they’re asking you that question. So part of it if you’re in dialogue, which is actually great. Figure out what’s important for them in building trust. And then speak to that, you may have to give them your percentages, that’s fine, but you ultimately want them to trust you. Because at the end of the day, and that is when you think of everything, where we’re going now with, you know, trying to get the donor to a place where they’re going to let you do your job as a nonprofit leader, and actually make a difference in the world. So figuring out the trust piece is really a key.

Teresa Huff 44:37

I agree. And that goes with telling the story along with it and the impact of the story and the difference it’s making to be able to build that trust and show that hey, because of this, we can manage these funds. Well, we can make an impact and a difference.

Sherry Quam Taylor 44:53

I would also add the trust element. This takes time. This is not one conversation and someone’s writing a major gift. I think a lot of times one of the biggest mindset shifts that was hard to say for leaders on coaching is especially individuals when maybe they’re used to having these kind of quick conversations with foundations or companies who want to sponsor. Can I submit this? If we’re talking to individuals, major donors who we actually are educating, we’re building trust, we’re figuring out what might keep them from giving their best gift. This is months and months, sometimes years, even though we don’t want it to take that. So we have to continually be having these conversations. And that not only builds trust, but we’re going to be transparent in those conversations. So my advice to people will be, slow it down. Slow it down. So listen to the questions. I love how you framed that question. Would it be okay, if I came back and shared this with you – might be something financial, I love talking to a donor who’s a CFO, like let’s bring the numbers to the table. Let’s get their feedback. Let’s educate them. And so I think like, in the sector, it’s like, oh, my gosh, it’s fiscal year, calendar year, and it’s Giving Tuesday, like we’re just on this fast pace. And you know, donors at a certain part are like, we got to slow down the cadence to build the trust. I just would give that advice to people to say, Yeah, we are, takes quite a few one on ones. And I will wait to ask that donor for their best gift. I don’t care how long it takes. Because that’s how we fully fund our organizations.

Teresa Huff 46:40

It’s planting seeds and having the patience to wait and water, and tend and cultivate and watch it grow. And something I’ve seen a common thread is along with the conversations. It’s a marathon. I mean, this is not a quick fix. It’s not a quick dime in the door. There are times where Yeah, we have bills to pay. But there are a lot of things we have to do to build that long term mindset. And that long term marathon when it comes to educating and building the trust in what I’m seeing this common thread among all of you is, I think we’re trained so often when somebody asks us a question, we feel obligated to immediately answer the direct, exact question. And I’m not by any means saying to dodge the question. I’m saying sometimes they’re asking a question, because they don’t know what else to ask. So it’s up to us to read into that and to give them what they actually are asking and need to know. They just don’t know differently. So we aren’t necessarily obligated to immediately answer that exact thing. We need to do a better job of giving them the full picture, giving them that better perspective and teaching them along the way. And then that helps them come alongside us in the conversation so that they can understand more context. If we answered the exact question directly, it’s what they needed, they move on, they say, Nope, that’s too much overhead, forget it. But if we say, Yes, let me tell you about the overhead. And let me show you the difference it’s making because of this overhead. And let me show you how our programs have grown. Once we started investing in more staff and more capacity, and better training, better technology, whatever it may be, then that helps paint the bigger picture for them. But Sherry, to your point, it does take time, it’s not a quick fix, and it is laying that groundwork over time to train for the marathon.

Teresa Huff 48:46

What would you say is one big piece that has helped shift your perspective in your role in working with nonprofits? We all work with nonprofits in a little different aspect. So what’s one big thing that has really been like a clicking point for you? I’m speaking to all the panelists here.

Sherry Quam Taylor 49:16

I’ll just start by saying, you know, 13, and I’ve lost count, years ago when I left corporate and joined a nonprofit that I was really passionate about. You know, my fresh perspective, and maybe, you know, I was naive. We were like, well, I was from out of corporate and I thought well, of course we would spend money on that. Of course we would hire this. We probably spent without handcuffs. Just simply because we didn’t really know this was such a weighty issue. And we tripled the revenue in 18 months, because we invested in what we needed. And I think that has set the pace, you know, to how I run my business. And the truth is, when you invest in your organization, you raise more money, and then you put that back into programs. That is the flat out truth. And so we, I think as leaders, we have to believe that we have to stop telling ourselves a story of well, donors only want to fund this or they’re going to ask me this question. Maybe, but maybe not. And so I would just, I see donors say, oh, my gosh, that makes so much sense. Of course, we would, of course, we would make an underserved to get well, you asked me for a project based gift last time. And so I think we as leaders have way more control of this. And we think of really taking that time and leading them to a deep understanding, and then leading them to a mission based unrestricted gift. You can do that, and believe that you can do it and just make sure you’re not in your head and telling yourself stories that might not be ultimately true. Are there donors who are going to ask these tough questions? You bet, we all have, we’ve all had them. But not everybody. investment level donors get this a lot of donors get this people who are running and scaling businesses were given to your organization get this. So believe that people will give in this way.

Sean Hale 51:16

I’ve seen this happen too just like Sherry described by an organization I once got to serve many years ago, a membership organization. And it was deeply deeply in this whole world of like, reselling the Great Depression, and there’s no escape from it. And so we’re gonna save every scrap of tin foil, and every rubber band and every little build a ball of twine. And it was it was rough. And I knew the later leader who came in. And one of the very good things that she did was she came with an attitude of abundance. And, you know, that did not mean that we went out and had a big party the next day, and like, spent all the savings and it was all gone. Right? But it did mean, how are we going, we’re not going to be restricted completely by saying we will never spend a dime on anything. And it began with some small things like, you know, this is a membership organization. So instead of, you know, at the table with a coffee and bagels and stuff in the morning, instead of like, having a you know, kind of expecting me to pay, for the members to pay for their coffee, every time is like no, we’re gonna take that all away, and we found some money to just like, Yep, we’re gonna pay for this, we’re not asking people to donate to get their cup of coffee at the membership gathering. And also, we’re going to start bringing breakfast tacos, partially because that’s a Texas thing. And it’s delicious. But partially because it’s also just like, No come in and enjoy and have this sense of community. And this was one of the key ingredients to helping this community change. Its whole dynamic around money, and its whole spirit instead of a big kind of a grasp onto every dollar for, you know, it’s life, and changing the attitude in the spirit, the organization, total abundance, and these kinds of changes to help the organization to flourish, it was a cultural change. And it was absolutely more than paid for itself. Financially, even those, the big, beautiful part of it was really the beauty, the blossoming of the organization, of having that attitude of abundance.

Teresa Huff 53:17

And besides, tacos make everything better, right? No matter what time of day. And you know, sometimes the status quo doesn’t do us any favors. It sometimes helps to not know about the status quo – like you said, Sherry, coming in you didn’t know. So you did it differently. And sometimes it helps to look at what is the status quo? And how can we do it differently? That may mean buying coffee, and investing that time and that quality conversation in your community. And just those small things here. Michael, what was a catalyst moment for you?

Michael Thatcher 53:58

I think for me, it’s a little bit building off of what Sherry was talking about in terms of getting to know your donors, but it was also about showing vulnerability, and letting people know that I didn’t have all the answers, but here’s where I was trying to go. And, then I needed help. And that had increased the level of investment and buy in and partnership at that point.

Kiersten Hill 54:31

And I think it’s about not separating overhead from organizational success. You know, when you talk about the fact that when we invest in ourselves, we achieve more success, we do more, because we’re investing in the organization as a whole. And I think it’s just looking at it differently and then showing other people that perspective that, you know, when we have good staff that we can pay well, and we support them, you know, health and emotional and financially, then we do better work. And that makes our community better; that makes our organization better. It makes our programs better. And so tying those things together, I think is really important and showing the donor, the board, everybody else how those tie together.

Teresa Huff 55:35

And yeah, that comes back to transparency and what each of you have been saying all along. We do have one last question I’d like to hit before we wrap this up. What would help motivate a donor that gives say, $1,000 to support the mission? What would motivate them to increase that support to $5,000 or $10,000? Is your organization just doing the same? This may not be compelling enough.

Sherry Quam Taylor 56:03

I would say ask the donor the question, “What would inspire you to grow your gift?” We’ve got to listen to the answer to that. If we don’t know, then we have to go into listening mode. We have to really unearth what might block them from doing that. You know, what’s their reason for giving? is what I would ask back.

Teresa Huff 56:27

And that’s probably been one of my biggest catalyst things is learning to listen and learn from the people in the world, whether it’s the nonprofits, the grant makers, the community members, the clients. It’s just learning to listen. If we’re stuck on something, okay, let’s go out and ask good questions. And not worrying about what am I going to say, am I going to present this right. It’s more of, hey, I’d love to learn more about you, and what’s driven you to support this, or what kinds of causes really inspire you? And just listening to that, and becoming a part of that and letting them become a part of the work we’re doing and partnering together.

Kiersten Hill 57:13

Well, I was just gonna say I think in addition to doing more, it’s doing better. You know, so not only can we continue doing what we’re doing, we might be able to serve more people, but we can do it better. And I think donors often will respond to that need for just improvement, right? You want to make the organization better, you want to make your community better. And so I think that it’s not doing more of the same, it’s doing more, and it’s doing more better. So it’s, you know, having those kinds of conversations that are really forward thinking and growth oriented.

Teresa Huff 57:58

Right. I think a lot of that comes down to putting the fear aside, and realizing these are people. Let’s get to know the people and build the relationships with the people. We don’t have to be afraid of these people. We can build friendships and true meaningful relationships and partnerships with them, and collaborate. And once we set the fear aside and really focus on the bigger vision and the mission and why we’re doing this, that’s when that authenticity comes through. And we can really start having better conversations around it. And they will see, this is what we’re about. This is why we’re so passionate. We want you to be a part of this with us. We’re being transparent about the struggles, and also the wins along the way. They can be a part of that journey.

I so appreciate all of you panelists for coming in and being willing to have this conversation because I know there are people out there struggling with this and wondering how do we handle it? I think this has been incredibly valuable with some practical takeaways of rethinking the approach – the language, the conversations around it. And let’s definitely keep the conversation going on LinkedIn and on email. I’ll follow up with resources and the replay. We would all love to hear from those of you who attended and love to connect with you and hear more about the work you’re doing so please feel free to stay connected.

Sherry Quam Taylor 59:33

Thanks for hosting Teresa.

Kiersten Hill 59:34

Yes. Thanks for getting us all together to do it. Fantastic. Take care everybody.


Challenge Question

What a great conversation! It helps us take a step back and look at nonprofits through a different lens. Do you know of people who believe myths about nonprofits? What strategy will you implement to help break these barriers down?

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2 thoughts on “NonProfit Mythbusters Roundtable: Tackling the Overhead Myth [Episode 116]”

  1. Hi Teresa, another great episode. Question, do you have an episode that goes into detail on what all should be included on form 990. After listening here and doing some quick research I think we are not accurately completing our form 990, in everything from assets to non cash food donations. If you don’t have one do you have a link to maybe a resource you have come across?

    1. Hi Dean,
      Great question! I have a 1:1 interview coming up with Sean Hale and he addresses some of this. I’ll see if I have anything else that might be helpful for you in the meantime.

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