The full cost of nonprofit services

In Hawaii, there are 8,120 registered charitable organizations. Nonprofits fill in the gaps for food, housing, education, the arts, healthcare, animal welfare, immigration, the environment, civil rights, and more.

I work for a Hawaii nonprofit, so I know first-hand that sometimes it’s a point of pride to do more with less. To provide services on a shoestring budget. To run a lean organization. To work because we, as employees and as an organization, are not supposed to “make money.”

But that’s not a healthy outlook – for employees, for the organization, and for the people who benefit from the nonprofit’s services.

Employees may feel more burned out and may leave their job sooner. Organizations may be limiting services because they lack the capacity to help more people or passing on opportunities because they don’t have the funding. And people, the reason for the nonprofit’s very existence, may be forced to seek help from one government agency or nonprofit after another, depending on which programs are funded.

I recently learned about a different way of thinking about funding for nonprofits. It’s called Full Cost, and it is challenging how I look at our annual budget.

Full cost names and claims all the financial resources it takes to run an effective organization for the long haul, according to Claire Knowlton of the Nonprofit Finance Fund. She offered a compelling and thoughtful talk about shifting funding paradigms at the Hawaii Alliance of Nonprofit Organization’s 2021 HANOCON.

Let’s talk a little about budgeting. (You won’t have to do any math, I promise.)

Full Cost challenges the “false dichotomy” of program vs. overhead (it’s not one or the other, the two are really inseparable). It captures both short-term and long-term needs. It’s about advancing equity in funding, acknowledging that each organization is different and may change over time.

Full Cost includes a nonprofit’s “must-have” (total expenses, working capital, and reserves to operate) with the “sometimes need” (debt principal repayment, fixed assets, capital to grow). It addresses issues that hidden in budgets, like underpaid staff, reduced hiring, lack of benefits, and old equipment.

Why is Full Cost important? Because nonprofit organizations fill many needs in the community, and we need to prioritize their well-being as much as the community’s well-being.

Are we paying a wage that allows nonprofit employees to thrive in Hawaii? Are we funding nonprofits enough that they can expand and adapt when community needs grow and change?

We have all benefited from nonprofit services, whether it was attending a community event or receiving assistance or services. Let’s take care of the people and nonprofits who take care of us.

Have you or a family member worked for a nonprofit organization? What nonprofits have had a big impact on your life?

Explore posts in the same categories: Community, Money

Tags: Full Cost, HANO, Nonprofit, Nonprofit Finance Fund

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