When it comes to nonprofit organizations, there tend to be quite a few misconceptions. What does it mean to work for a nonprofit? How do NPOs spend the money they fundraise? What exactly makes it a nonprofit? Working within the organization, answers to these questions might seem pretty straightforward to you. But from the outside looking in, there tends to be a lot of gray area.
What are some current misconceptions society might have about nonprofit organizations, and what can your nonprofit do to better inform outsiders on those myths? Let’s dive in to really understand what misinterpretations already exist about nonprofits, and what you can do to spread the truth.
1. Nonprofits cannot make a profit.
This one is probably the biggest misconception out there: Nonprofit organizations cannot make a profit. The running concept among much of society seems to be that NPOs should only be allowed to break even—raise enough to fundraise for their cause, then stop. In all reality, the term “nonprofit” is more of a misnomer than anything. While NPOs are tax-exempt, this does not mean they cannot make a profit. In fact, they should try to have some revenue built up in order to build a reserve fund for sustainability. This reserve can be spent toward items such as conducting evaluations, hiring competent staff and weathering economic fluctuations.
The greatest difference between nonprofits and for-profit entities is distribution. Nonprofits cannot distribute their profits to any private individual. This detail is outlined by the IRS guidance on 501(c)(3) organizations, prohibiting NPOs from participating in “private benefit,” because they are formed to benefit the public, not private interests. Being a nonprofit does not mean the organization cannot make money; it simply means the money they do make should go back toward their mission or purpose.
2. Nonprofits are only run by volunteers.
For those who choose to volunteer in their spare time, it might seem like nonprofits are constantly in need of volunteers, with very few actual staff. This tends to be far from the truth. While some organizations choose to utilize volunteer help from their community, most NPOs are staffed by paid professionals. According to the Bureau of Labor Statistics in 2014, in the United States alone, nonprofits accounted for 11.4 million jobs, a whopping total of 10.3% of all private sector employment. Some nonprofits also employ volunteers in addition to their paid full-time employees, but many choose not to use volunteer help at all, instead preferring to rely solely on their professional staff.
3. Nonprofit employees couldn’t make it anywhere else.
Of course, for individuals who do work full-time with NPOs, there tends to be an even more disrespectful misconception: Nonprofit employees couldn’t make it working anywhere else. Like many of these myths, this could not be further from the truth. Such as any other sector of work, professionals choose the nonprofit arena because they have a passion and drive for the cause they care about, not because they were not smart enough or didn’t work hard enough for a different career path.
In fact, now more than ever nonprofit organizations prefer to hire MBAs as opposed to MPAs, demonstrating the shift in demand for business knowledge across the nonprofit sector. Nonprofit professionals include everything from experts, scientists, counselors and PhDs, covering a wide range of social issues. Furthermore, since resources in the nonprofit sector are often tight, employees tend to wear a variety of different hats, giving them firsthand experience and developing a diverse range of skills.
4. Nonprofits cannot be involved in politics.
This misconception can get a little hazy. Since some nonprofit organizations receive government funding, the myth exists that no NPOs can be involved in political causes at all. For some, this is even a moral issue, i.e., charities are too noble to get involved in the mess of politics. The reality is every charitable organization can and should make its voice heard on issues relevant and important to its cause or people it serves. As advocates in the community, sometimes it is even a nonprofit’s duty to speak up about policies, laws and regulations.
Therefore, lobbying on particular issues is permitted by law. However, tax-exempt organizations typically are not allowed to engage in partisan political activity, such as endorsing a candidate for public office. For more information on this one, check out our article on whether your nonprofit should take a stand on current issues.
5. Nonprofits are inefficient.
The perception that nonprofit organizations are slow, unorganized or inefficient tends to be a popular—and incorrect—one. With this myth, the underlying assumption is the for-profit world is inherently smarter, more strategic and therefore more effective. Research conducted by Jennifer Aakar at the Stanford Graduate School of Business even found that consumers were “… less willing to buy a product made by a nonprofit than a for-profit because of their perception that the firm lacks competence.” However, the truth is all three sectors—business, government and nonprofit—have organizations which perform well, perform poorly and everything in between.
Because nonprofits tend to work toward causes which don’t have a clear “bottom line” (e.g., human or environmental needs), measuring efficiency can be difficult. Combine this with limited resources, and it becomes clear why there is a misconception about inefficiency. Still, like any other sector, a few outlier organizations do not reflect the nonprofit arena as a whole.
6. Nonprofits should have low overhead costs.
At this point, you may have already heard about the overhead myth. It tends to be a pretty popular topic of conversation, both within the nonprofit sector and outside of it. The term “overhead” refers to things such as operating costs, utility bills, rent, salaries and even office equipment. In other words, items which might not be going directly towards funding your mission, but are vital to keeping your organization running properly. However, the misconception still persists that nonprofits’ overhead should be as low as possible, because saving the world should also be done from a basement without proper heating. More often than not, overhead costs are essential to the proper maintenance of a NPO, and have no correlation with the level of effectiveness or outcomes an organization delivers. This all sounds great, but how can you explain to constituents the reasons behind your overhead costs? Check out our article on How to Help Your Donors Reject the Overhead Myth.
When it comes to working in the nonprofit arena, there tend to be a plethora of misconceptions. From fundraising to volunteering to efficiency, it can sometimes feel like society questions your every move. Fear not, these misconceptions are simply that—misconceptions. With proper education and information, you can help inform constituents on these myths’ inaccuracies, and continue to grow your mission.