When you want your donation to make a meaningful impact, you should think twice about giving a restricted grant. Nonprofits need our flexibility and trust in order to support their communities. Here’s why funders should invest in general operating support for the greatest impact.
As a donor, I get inspired by so many nonprofits and the stories they share. I see the incredible work organizations do to feed children or provide medicine for sick animals, and so much more. When these stories move me, I think about giving to support direct needs. But I’ve learned that if I were to restrict my gift to just those direct costs, I would be limiting a nonprofit’s ability to support its community.
Before I worked at a nonprofit, I thought about my charitable donations in a narrow way. I wanted my gifts to go to the nurses on the front lines, the abandoned dogs who needed a home, the seedlings needed to regrow a forest—not to accountants behind the scenes, meals for staff retreats, or reserve funds.
Fast forward—a year into my time as a business partnerships manager at GlobalGiving, I now understand nonprofits must budget for overhead and operational expenses. When a nonprofit is restricted from investing in these categories, their ability to carry out their mission is limited. In other words, it’s harder to hire the nurses you need to defeat a pandemic, save animals, and protect the environment without too many financial restrictions. Gifts for general operating support are vital to fulfilling missions.
Accountants help balance budgets. Team-building activities prevent nonprofit employee burnout. Putting money aside for operational reserves, as opposed to being forced to spend it right away, can help an organization keep the lights on during a recession. [Read about how flexibility is essential for supporting nonprofits in times of great uncertainty, like during the COVID-19 crisis.]
Some of how we perceive a nonprofit’s impact stems from the overhead myth. There is a belief that you can measure an organization’s impact by how little they spend on overhead, proportional to their total budget. But when we trivialize the importance of overhead costs and operational expenses, we limit a nonprofit’s flexibility.
It is important for funders to understand the different types of contributions and the unique benefits of each. While positive results do come from program and project-specific grants, funders should understand the pros and cons of general operating support grants. General operating support grants provide nonprofits the flexibility to decide which projects and expenses to invest in based on their current needs.
Support from funders can help influence public perception and combat the overhead myth. Companies can play a role during their cause campaigns by demonstrating trust in their nonprofits recipients. In 2018, Riot Games, creators of the video game League of Legends, took a new approach to the prizes for their annual All Stars Tournament. Top-performing players directed grants of $10,000 or more towards a charity in their region.
Riot Games’ social impact team collected employee input and identified charities meeting the most pressing needs in each region. In partnership with GlobalGiving, Riot Games awarded 14 of the 16 grantees $10,000 each in unrestricted grants. The charity recipients receiving unrestricted grants had the flexibility to use the funds for general operating support or for priorities of their choice. By strategically awarding both restricted and unrestricted grants, Riot Games was able to build a comprehensive and impactful philanthropic program that best served the local communities.
Make-A-Wish America, which was featured in an earlier Riot Games cause program, was able to distribute their general operating support grant where it was needed most. Make-A-Wish America said in their grant report, “Funds from this grant were distributed to 39 chapters across the US to fund the wishes of children with critical illnesses—in addition, some of the grant funds were used to support infrastructure and resources that enable our mission.” Thanks to funding from programs like this, they were able to grant more wishes than ever before in their 39-year history.
While nonprofits benefit from restricted grants that are project- and program-specific, more investment is needed in overhead and operational expenses. When funders become aware of the positive impact that flexible grantmaking provides, we will start to see nonprofits progress further in achieving their missions.
Learn more about GlobalGiving’s grantmaking approach.
Featured Photo: Saving Belize's Birds by Belize Bird Rescue
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