Good people are doing good things for their communities across the United States. With the help of non-profit organizations, they work tirelessly to reach citizens in need, advocate for important causes and create positive change.
Nonprofits are also integral to the U.S. economy. Independent Sector’s September 2022 Health of the U.S. Nonprofit Sector Quarterly Review states that nonprofits contributed $1.4 trillion to the economy during the year’s second quarter.
However, despite efforts to make a difference, the report also found that only 56% of Americans trust non-profit organizations to do the right thing for the people — a 3% drop in public trust from 2020.
Some of the mistrust derives from misunderstandings around how the charitable community operates, from the notion that “non-profits aren’t real businesses” to their work being effortless.
Here are five common misconceptions about running a non-profit organization.
Nonprofits Don’t Earn a Profit
The belief that non-profits don’t earn some form of revenue is not unusual — the term itself is unclear. The reality is that nonprofits do make a profit to operate effectively.
However, unlike for-profit organizations, nonprofits can’t distribute funds to private entities — unless they are compensating for services.
The Internal Revenue Service (IRS) clarifies that tax-exempt charitable organizations must benefit the public somehow, not fulfill their private interests.
Most Funding Comes from Foundation Grants
Foundation grants are just one form of non-profit funding. In fact, government and private grants only account for a small portion of annual dollars.
Most monetary contributions come from community members and far-reaching supporters, meaning non-profits must be savvy in fundraising attempts for a steady stream of donations.
There are many ways non-profits tap into individual giving potential, from social media campaigns to hosting events like raffles or auctions.
For example, when hosting an auction with a Golden Ticket raffle, nonprofits can promote early ticket purchases, leverage their tactic for marketing and raise over $5,000 before the event even happens. Say they sell 100 Golden Tickets at $100 each — pulling a ticket at the beginning of the event is the perfect way to energize the crowd.
Only Unpaid Volunteers Work at Non-Profits
Another misconception about non-profits relates to staffing. Although many believe only unpaid volunteers hold down the fort, nonprofits employ millions.
Paying for staff shouldn’t be too surprising, considering that nonprofits are notable contributors to the U.S. economy. Yet, nonprofits must walk a fine line to ensure they follow the IRS’s charitable tax exemption rules.
Non-profit executive and employee salaries must still meet local, state and federal minimum wage requirements and not exceed a fair amount.
Nonprofits must also ensure transparency by disclosing executive earnings annually while voting on all benefit compensation packages, including health insurance, paid vacation time and pre-approved bonuses.
Successful Nonprofits Have Low Overhead Costs
Any business or organization has operational costs, including utilities, commercial rent, wages and standard office equipment. These costs are usually referred to as “overhead” or “administrative costs.”
Of course, it doesn’t matter what one decides to call these expenses — they’re vital to a non-profit’s ability to follow through on its mission. Sometimes, private grants help fund overhead costs so nonprofits can allocate more money towards their cause.
There are several ways nonprofits can save on overhead. For example, downsizing office space will reduce rent and lower utility bills. Additionally, looking for discounts on office equipment upgrades and supplies or improving budgeting and expense tracking is also effective.
Only Contributions from the Wealthy Matter
Tax incentives for charitable contributions are indeed lower for individual taxpayers than for elite parties. You might also hear more about larger donations in the news. However, wealthy donors merely get the most attention.
Collective action is the surest way to social change, whether through monetary gifts or volunteerism. The idea that only contributions from wealthy donors make a difference misses the mark on philanthropy.
In reality, individual contributions are equally significant and impact an organization’s ability to serve the community.
Misconceptions About Non-Profits Shouldn’t Dissuade Contributions
Dispelling misconceptions about running a non-profit is essential for building public trust. People will be more willing to contribute when they understand how nonprofits use donations to achieve their mission.
