5 Costly Nonprofit Myths—and the Truth You Need to Succeed
So, you're thinking about starting a nonprofit, or maybe you're already in the trenches. That's fantastic! Nonprofits are vital to our communities, but it's important to start with a solid foundation of truth.
All too often, well-meaning individuals launch nonprofits based on misconceptions, leading to unnecessary struggles. Let's debunk five common myths that can derail your nonprofit before you even get started.
5 Myths That Derail Nonprofits
Myth #1: Nonprofits Can Survive on Grants Alone
Myth #2: A Nonprofit Qualifies for Grants as Soon as it's Incorporated
Myth #3: You Can Pay a Grant Writer From the Grant After it's Awarded
Myth #4: You Can Get Funding Without an Infrastructure
Myth #5: You Can Be Both the Executive Director and the Board President
What You Can Do: Next Steps
Diversify Your Funding Streams
Build Your Track Record
Budget for a Grant Writer
Prioritize Infrastructure
Clarify Roles and Responsibilities
Educate Yourself
You Got This
This is a big one! The idea that you can launch a nonprofit and sustain it solely through grant funding is simply not realistic.
The Truth: Grants should be part of your fundraising strategy, but they shouldn't be the only part. Aim for a diversified funding portfolio, with grants accounting for only around 35% of your overall income. You should strive for at least 10 different funding streams to keep your organization afloat and effectively serve your community. Remember, grant applications take time (6-12 months!)—and there's no guarantee of success.
You've got your 501(c)(3) status—congratulations! But that doesn't automatically unlock the grant money vault.
The Truth: Your 501(c)(3) status makes you eligible to apply for grants, but it doesn't guarantee you'll qualify. Funders are looking for organizations with a proven track record and demonstrated impact. You're competing with established nonprofits who can showcase their successes with data and financial statements. It typically takes one to two years to build the necessary track record to become truly competitive for grants.
This is a dangerous misconception that can land you in hot water.
The Truth: Paying a grant writer with funds from an awarded grant is illegal and can be construed as mismanagement of funds. The money you receive from a grant is designated for specific programs and activities outlined in your proposal, not for paying for past services. You are responsible for budgeting and paying your grant writer upfront, just like any other essential service (accountant, lawyer, etc.). If you can't afford a grant writer right now, focus on building your capacity and saving until you can.
Enthusiasm and a great mission are important, but they're not enough.
The Truth: Without a solid organizational infrastructure, securing funding is extremely difficult, if not impossible. This includes essential elements like:
A bank account
An accounting system to track income and expenses
Financial statements
Document management and compliance processes
Funders need to see that you can responsibly manage their money and that you have the systems in place to ensure accountability and transparency.
Wearing both hats creates a conflict of interest and signals a lack of understanding of nonprofit governance.
The Truth: In the nonprofit world, the Executive Director reports to the Board of Directors. The Board holds the fiduciary responsibility for the organization and is responsible for hiring (and firing) the Executive Director. If you're both the Executive Director and the Board President, it raises questions about accountability and oversight. You wouldn’t fire yourself, would you?
While it's common for for-profit companies to have a President/CEO, this structure doesn't translate to the nonprofit sector. Choose one role or the other to maintain proper governance and avoid red flags for funders.
Now that we've busted those myths, let's turn that knowledge into action! Here's what you can do today to set your nonprofit on the right path:
Don't rely solely on grants. Brainstorm at least nine other potential income sources. This could include:
Individual Donations: Host a peer-to-peer fundraising campaign on social media, asking supporters to donate in lieu of birthday gifts. Set up a recurring donation program on your website with options for monthly or quarterly contributions.
Fundraising Events: Organize a small, targeted event like a "wine and cheese" night for major donors or a community fun run. Offer different levels of sponsorship for local businesses to support the event. Need help coming up with fundraisers that work? Start here 👉🏾 Beyond Grants: the Nonprofit Guide for Creative Fundraising Ideas: Over 200 Pages of Fundraisers
Corporate Sponsorships: Partner with a local business to sponsor a specific program or event. For example, a pet supply store could sponsor a pet adoption event.
Earned Income from Programs/Services: If your nonprofit offers workshops or training, charge a modest fee for participation. For example, a job training program could charge a small fee for materials. Make sure you price your programs/services right, so you don’t up taking a loss. Use this guide: How to Price Programs for Profit.
In-Kind Contributions: Solicit donations of goods or services from local businesses. A restaurant could donate food for a fundraising event. An office supply store could donate paper and pens. A marketing agency could donate their services. Make it easy for donors to give with an In-Kind Donation Form.
Most importantly, develop a plan to actively pursue each of these streams.
Focus on demonstrating impact in your community before aggressively pursuing large grants, especially if you're a new nonprofit. Start small, document your successes with data, and use those results to build a compelling case for future funding.
For example:
Offer your services for free or at a reduced cost initially to gather testimonials and success stories. Example: if you are a new reading program, offer free tutoring to 5 students for a semester, track their progress, and get testimonials from parents.
Track measurable outcomes. Instead of just saying, "We helped homeless people," track "We helped 15 homeless individuals find housing and employment in the past year."
Create a simple annual report highlighting your accomplishments and sharing compelling stories.
“Funders want to see the impact you’ve made before giving you their money.”
Grant writers are an essential part of your team, helping you secure the funding your nonprofit needs to thrive. If you can't afford to hire one full-time, start saving now. The typical cost of a grant writer varies based on experience and location, but you can expect to pay between $30 to $150 per hour or $2,500 to $10,000 per grant proposal.
Some may offer flat-rate packages or retainers, so it’s important to research options that fit your budget. In the meantime, invest in grant writing training for yourself or a board member. There are courses and workshops available that provide foundational knowledge to help you get started. Whatever you do, remember that paying a grant writer with awarded grant funds is a no-go.
A solid infrastructure is the backbone of a successful nonprofit. This includes:
Open a dedicated bank account for your nonprofit.
Implement an accounting system to track all income and expenses. Even a simple spreadsheet is a start.
Develop a system for documenting your work, including client data, program statistics, and financial records.
Small BizPro is a great resource to ensure you have all the necessary documentation in place.
If you're the founder, decide whether you want to serve as the Executive Director (paid position) or the Board President (volunteer role). Ensure your bylaws clearly define the roles and responsibilities of each position and that you have a separate individual fulfilling each function. This demonstrates good governance to potential funders and the IRS.
The nonprofit sector has its own set of rules and regulations. Stay informed by attending workshops, reading industry publications, and networking with other nonprofit professionals. The more you know, the better equipped you'll be to navigate the challenges and opportunities that come your way.
By debunking these myths and taking proactive steps, you'll be well on your way to building a thriving and sustainable nonprofit. Remember, starting from a place of truth and knowledge is the strongest foundation you can build.
This is where I come in—I have created a program designed to educate and train nonprofit leaders on how to position their nonprofit for success. Basically, everything I just talked about—from diversifying funding streams to building a solid infrastructure to writing winning grants.
It’s called The Nonprofit Mastery Academy, a 12-month incubator program that draws upon my decades of experience in the nonprofit sector. If you’re serious about your nonprofit, I strongly urge you to check it out.
Ready to transform your nonprofit? Learn more about The Nonprofit Mastery Academy and start your journey to mastery today!
Got more questions? Book a call, and get them answered!
