skip to Main Content
Call Us Toll-Free (888) 361-9445

Common Myths Concerning Nonprofits

Just yesterday, I was interviewing a new student intern candidate in my office.  During the course of our wide ranging discussion, the conversation turned to some of the interesting misconceptions we encounter with clients.  I made the comment that we often feel like the crew of the Discovery Channel show, Mythbusters.  There is a never-ending supply of well-entrenched myths and misconceptions in the nonprofit world…and dispelling them is part of our job!  In this article, let’s take a look at a few of the more common ones.

MYTH: Build it and the grants will come.

FACT: Uh, good luck with that.

We get to burst this balloon a lot.  Many who are starting nonprofits for the first time are convinced the government is waiting with bated breath for them to get going so they can cut them a check.  Given the drunken sailor spending spree in Washington, it’s certainly understandable, isn’t it?  Jokes aside, this is too often the by-product of a less-than-ethical fringe of the fundraising profession.  Whether it is over-hyping the latest grant writing workshop or selling books on late night infomercials, this mindset doesn’t just come by accident.  Here’s a newsflash:  Startups are rarely grant funding recipients!  The typical startup is much better served by focusing its efforts on building a fanbase of committed donors and only later looking to grants to help them expand what they have proven they can do.

MYTH: Nonprofit means you must zero-out at the end of the year.

FACT: Great plan…assuming you’ve got a pot of money waiting for you New Year’s Day!

Just a couple of weeks ago, a good friend approached me at church.  She was recently elected to serve on the board of a small charity and at her first meeting, several of the existing board members were discussing their dilemma:  The organization was quickly approaching the end of the fiscal year, but still had money left over.  The conversation revolved around how they could spend down this money before the clock ran out.  Well, her instincts told her this didn’t sound right.  Good for her!  And even better that she asked me about it.

I suspect the origins of this myth might be in the corporate world where departmental budgets are often use-it-or-lose-it.  Anyone who has worked for a large corporation may be familiar with the race to spend down the budget in years of surplus.  Combine that mindset with the notion of nonprofit, and you’ve got a myth in the making.  I certainly hope your nonprofit is not sitting on $0 when the ball drops in Times Square!

MYTH: If our nonprofit’s purpose is not panning out, we’ll just shift gears and go in another direction.

FACT: Not so fast.  You might want to make sure Uncle Sam is OK with that.

This sort of thing happens all the time.  For example, ABC Charity was formed to raise money for cancer research.  After a couple of years of disappointing results, the board sees the devastation from the latest disaster and decides to retool their organization as a disaster-relief charity.  They make plans to travel to Haiti/New Orleans/Wherever and provide shelter and hot meals to those impacted.

Don’t get me wrong…there is nothing wrong with that in principle.  In practice, it is not so simple.  When the IRS granted tax-exempt status to this nonprofit, it was on the basis of its proposed program:  fundraising for cancer research, not disaster relief.  A serious change in purpose and program requires that the IRS be notified in detail on the next Form 990 that is due.  Even then, it is highly probable that your case will be transferred to Cincinnati for further review and questions before approval is granted.

This list could go on and on and on.  Sometime soon, we’ll share some more common myths and their corresponding realities.  Here’s to facts!

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 8 Comments
  1. I am recruiting for membership to activate Helping Veterans Return Inc. The information has cleared up some myths in my mind and will be a great tool for my membership recruiting meeting.

  2. From my experience and education in not-for-profit management, I think that the notion of zeroing out by the end of the fiscal year is why the nominclature changed from non-profit to not-for-profit. Non-profit gave the impression that there should be no surplus by year’s end, which for most organizations, particularly smaller one’s with no endowment, is, at the least angst-provoking (for the ED and the DOD!) and at worst, devastating to the organization. Surpluses at year’s end are a tremendous asset, especially for those organizations who need to raise 100% of their budget each year. While some government contracts want the organization to have spent every penny by year’s end, as do some foundations, a healthy organization has a “fundraising spectrum”-type portfolio that includes unrestricted donations from low-end donors to major donors, as well as from special events, has multi-year goverment contracts, and if lucky enough, multi-year foundation contracts that allow the organization to carry over funds into the next fiscal year. A good relationship with the grants administrators (both governmental and foundation) can also be key to smoothing the way to carry-over unspent funds from the previous FY. In my experience, the last thing government offices want to do is get unspent money back, but good accounting and truthful and frank program updates (as required monthly or quarterly) are essential in keeping the funder informed. I’ve found that experienced funders understand delays in hires, slower program start-ups than had been anticipated, attrition, etc., and as long as they are informed along the way, will work with an organization to be successful. Once not-for-profits stop seeing their grantors as “the enemy” and work with them as “partners” the easier it will be for them to get the money they need to succeed, not have their grants pulled, etc. And what could make a board of diretors more happy than to see a sweet surplus applied to the following year’s budget, or, if lucky enough, to set some of it aside to begin an endowment?

  3. Greg,
    You sure answer a lot of questions.
    Thank you so much for this much needed information.
    Please keep it coming!!!

    Donald Butler

  4. Love the one about grants! I talk to so many nonprofits that think getting grants is as easy as falling off a log. While it isn’t rocket science, it does take some work (a bit of research, some writing, and building relationships with the funders). Maybe we SHOULD start a Mythbusters-style show!

  5. It is scary that some people (including board members) believe that nonprofit organizations need to zero-out at the end of the fiscal year. If this was true, there would be some frantic fundraising going on the first week of the fiscal year or many nonprofit staff not receiving paychecks.

  6. Oh my God! Myth #2 about zeroing out at the end of the year is unbelievable. I know of a national organization that did that!!! I couldn’t believe it. Thanks for the post.

Comments are closed.

Back To Top