To Understand Nonprofits’ Real Costs, We Shifted the Way We Interpret 990s

I worked for a nonprofit organization for several years and remember taking boxes of letters and envelopes home to fold, stuff, and seal because we couldn’t afford to pay a service to do it. When I started working at a foundation, I overlooked funding needs such as those, I’m ashamed to admit.

We as funders have a responsibility to recognize what it takes to make the programs we value successful. Nonprofit programs don’t just emerge in isolation—they require capital assets, staff training, technology, management systems, leadership, and marketing and promotion.

Foundations often review a nonprofit’s Form 990 for signs of high “overhead”—the general, fixed cost of running an organization—and look for a lean, efficient operation. But we often miss the deeper picture of how dollars translate into outcomes, and we punish nonprofits for spending on the essential ingredients for success. Our lack of awareness can cause strong nonprofit programs to fall short of their intended outcomes.

A Form 990 offers much more than just numbers and information about a board of directors. Through disclosures and other data, it also tells a story about the organization.

Do we really know how to read and understand a Form 990?

I no longer take the Form 990 at face value. I use it to generate questions and invite conversations with the organization regarding programming, operations, and infrastructure. I often ask, “What does this line item not tell me?” or “Please break down this number for me… how much actually covers operations/salaries, etc.?”

An example is the cost of marketing and promotion. I learned what should have been obvious: To promote a capital campaign or fundraising event effectively, a nonprofit incurs the cost of hiring a graphic designer and the expense of printing the material or purchasing advertising beyond social media. Not every nonprofit has someone on staff with a design background. And most don’t have the machinery to print and produce a large quantity of materials, let alone the time and manpower to distribute them.

I started talking with larger foundations and businesses here in Oklahoma City who are willing to discount or donate marketing, design, and production services, or leverage relationships with graphic designers and printers. Through this outreach, I also learned of a small group of young marketing professionals that solicits applications from nonprofits once a year to provide in-kind services.

Educating ourselves

To deepen our understanding and awareness of nonprofit finance, our foundation’s staff took a Form 990 training class offered by our local Center for Nonprofits. Although the training is geared toward nonprofits on how to complete the form and educate their staff and board about its contents, it also gave us a better understanding of how to read and interpret the document, and provided a template for ways to have a conversation about it.

When reviewing nonprofits’ financials, we now seek to find answers to these questions:

• What does it take to truly make programs successful that isn’t otherwise conveyed in the 990 and other documents?
• How can we support that work?

We then consider how we might help build the infrastructure that makes programs effective and sustainable. Organizations applying for grants tell us they appreciate the questions and conversations, our desire to understand the full picture of their work, and our efforts to provide more than dollars.

Do you and your foundation really know how to read and understand a Form 990?

An Oklahoma native and community advocate, Jessica Gilmore oversees all day-to-day aspects of giving on behalf of the Expressions of Hope Foundation, the giving arm of Express Employment Professionals International. Funds are distributed in the areas of employee crisis assistance, community enhancement, health and human services, and education.