Ask Allison
The Ask Allison Podcast with Allison McElroy brings nonprofit pros together for real talk, big laughs, and aha moments! Through honest conversations, shared stories, and fresh takes on trends and best practices, Allison keeps it fun, encouraging, and full of heart.
Allison McElroy is a bubbly encourager, nonprofit strategist, and proud Arkansan who loves helping people reach big goals. Founder of The McElroy Group, she mixes heart, humor, and hard-won experience to lift others up. Fundraiser, singer, speaker, cheerleader—when in doubt, just Ask Allison!
Ask Allison
Ep. 1 – The Real Cost of Doing Good
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
If you’ve ever been told to keep “overhead” low, this conversation might change your entire fundraising playbook. Allison sits down with grant-writing powerhouse Melanie Palmer to unpack the long-standing myth that administrative costs should be separate from program costs, and reveals a better way to budget, report, and raise money that actually fuels impact.
We dig into how 990 categories and charity watchdogs nudged the sector into chasing ratios with no evidence behind them. Melanie shares a practical, test-anywhere definition: a program expense is anything your program cannot function well without. With that lens, leadership, accounting, audits, rent, utilities, insurance, technology, and communications are not extras; they’re the backbone that keeps services alive. You’ll hear a stark pandemic story of a nonprofit that avoided an “admin” hire, overloaded program staff with accounting tasks, and lost a generation of talent, causing a break in services for people who needed help most.
Then we get tactical. You’ll learn how to build full-cost program budgets by adding one internal step: allocate your board-approved total costs across each program using reasonable, documented methods (time allocation for staff, square footage for facilities, and logical drivers for shared services). Think of it as Lego budgeting; you’re not adding bricks, just arranging them by function. We cover how to present these budgets in grants and major gifts, invite donor restrictions without hiding true costs, and reframe stewardship conversations around outcomes and sustainability rather than arbitrary ratios. Along the way, we share templates, training ideas for boards, and simple scripts to educate corporate funders who already fund their own operations without apology.
If you’re ready to move from scarcity to clarity and raise what your mission actually requires, this episode gives you the language, the model, and the courage. Subscribe, share with your team, and leave a review to help more nonprofits fund impact, not ratios.
Welcome & Guest Introduction
SPEAKER_00Okay, it's my first podcast episode ever. This is Allison McElroy at the Ask Allison Podcast, and I'm a certified fundraising executive located in Northwest Arkansas. I would say I'm a bubbly encourager, a nonprofit strategist, and proud Arkansan who loves helping people reach big goals. I mix heart, humor, and hard one, hard-won experience to lift others up. Oh, the stories I could tell. I started my firm, the McElroy Group, in 2016 to help nonprofits navigate fundraising strategies. And a little bit more about me, I met my husband Dwayne in college. We were both at Arkansas State University. Wolves up, everybody, both studying radio, television, media, and communications. And we married and moved here to Rogers, Arkansas in 1994. We have two boys, Cooper and Barrett. Cooper is a senior at LSU. Can't even believe that's happening. And Barrett is a junior at Rogers Heritage High School. And in true Allison fashion, I've been saying that I was going to have a podcast for a million years. And finally, I'm making it happen. And so thank you for listening today. I'm so glad you're here, but I'm more excited to tell you about my very first guest, my longtime friend Melanie Palmer, who owns uh M. Palmer Consulting, and she's the very first guest of the very first Ask Allison podcast. And she's going to discuss something that drives us nuts, and I think it'll drive you, you nonprofit professionals, crazy too, and that's the separation of operating expenses from program expenses. We are here to say today, all expenses are program expenses. This is a topic we are both so passionate about. Melanie, uh, and those of us in the surrounding area know that she is the GOAT of grant writing. Um, her consulting firm is very popular because most of us need her for our grant writing. She learned from one of the best, um, our friend Cheryl Kester. But both of them are excellent. But Melanie has taken it to be uh she's everybody's person when we think of grant writing and grants. So, Melanie, welcome to the very first episode of the Ask Allison podcast. And I now want you to tell us a little more about you. Thanks, Allison.
SPEAKER_01I'm so excited to be here. Um I learned a great deal from Cheryl, of course, but also um I also learned from you, and you are the best as well. Um we've known each other for almost 20 years now. I think so. And every time I see you, I learn something new every time I talk to you. So my goodness. And I feel the same way. Still, and so I'm so glad that you're starting this podcast. I can't wait to listen to all of your episodes. So thank you for inviting me, friend.
SPEAKER_00Oh, I'm so glad. Yeah, tell me more, tell me more about M. Palmer Consultants Consulting. For those that don't know about Melanie's firm, that she offers quite a few things. So I want her to tell a little bit about her consulting firm.
SPEAKER_01Yeah, our firm, um there's five of us on my team. We are M Palmer Consulting. We're a fundraising consulting firm located in Northwest Arkansas, but serving clients throughout the state and region. And about half of what we do is grants work, and the other half is general fundraising, fundraising plans, cases for support. We do a lot of board training. And next year we're going to um pilot Clifton Strengths coaching for individuals and teams. I'm spending all next week in Dallas getting certified to be a Clifton Strengths coach.
SPEAKER_00Okay, so that might be another episode that we talk about that.
SPEAKER_01Big believer in strengths-based work.
SPEAKER_02Okay.
SPEAKER_01So that's what we do. I have a team of um five of us. Um, my coworkers that you may know, Hannah Lastra, Lailani Ocasio, Addison Mahappy, and Alex Bitalia are all amazing. So we love working with small to mid-sized nonprofits. Um, and as I say, we do, we do kind of the whole gamut of fundraising, everything except your special event we can help with. And so we love to get to know the community and to to uplift everybody in the process.
The Origin Of Overhead Myths
SPEAKER_00And you know, I I'm a consultant too, and and I help nonprofits with this some of the same things that they do. But the beauty of it is there's plenty of nonprofits that need consultants. And like I said, when one of my clients says we really need to look at grants, I say, that is not my specialty. You need to speak to Melanie Palmer and her team about that. So um, anyway, like she said, we've known each other 20 years. Oh, the places we could go with this podcast. But today we rein it in, Alsace. We reined it into this one subject. And um, I'm glad she's the one here to hold my hand on the first episode. So we're gonna dive into it. Uh buckle your seat belts because you're gonna hear, you might hear us breathing heavy because we have passion about this topic. It is one of my biggest pet peeves. And um I've always been mythed by this, and I could not put my strong feelings into words, but Melanie did our AFP, which is short for Association of Fundraising Professionals. We have a chapter in Northwest Arkansas, and uh our last session in August, Melanie came and did a program or did our session, educational session, on program expenses versus um operations and admin. And she did put it into words, what I've been feeling and trying to say for years. And I thought, this is the reason I'm supposed to have a podcast because people need to hear this. I know that those of you out there are dealing with this and you just need to hear that. Well, she we're gonna go into it more, but we are here to talk about it and discuss it, and then also give you ways to um, Melanie has some great tips and tricks on how to do a budget to get these numbers. Um, so she'll have uh ways to help you, but also how we can be advocates for this. So who decided in the world, who decided that overhead administrative and operating expenses were not program expenses? Right.
SPEAKER_01That's the million-dollar question, isn't it? Uh-huh. It is. And it's the question that nonprofits um wrangle with all the time because anyone that's worked at a nonprofit knows there is not that distinction. It doesn't really exist. In the way that nonprofits function, in the way that we drive impact, um, in the way that we use our funds and the community's funds to improve the community, there is no distinction between this so-called administrative and program expenses. And I would never use the word administrative except in this context to talk about why it doesn't exist. Um, but if you're a grant professional like I am, you spend a lot of time looking at people's budgets. And we're talking about the overall organization's budget. Right. And we find certainly that a lot of organizations leave a lot of money on the table because of the way they budget or because of the way they don't budget. And so I, you know, years and years and years after looking, looking at these budgets, thinking, oh gosh, this is just this budget is not telling the story of this organization. You know, this is a laundry list, kitchen sink, um, dump it all in a document and call it done and move on, kind of thing. But your budget should really tell the story of your organization, and these budgets are not telling it. And so I thought, who I asked this question that you just asked me, who decided that there was this distinction? Because no nonprofit professional that I know has ever given credence to this, to this distinction, this administrative or overhead versus programs. So I thought, where did this come from? So I started digging. I spent a long time, spent six to eight months probably interviewing every CPA I could find, everyone that I know, asking them, okay, where did this come from? And as best I can tell, you know, most people told me some version of, well, I don't know, which is just so crazy. Um, so what I discovered was there's a all nonprofits file a tax form 990 at the end of your year. That's your tax form, um, your tax return. And on that tax return, there are some ways that the IRS requires you to report um your expenses. And they're not administrative versus programmed. Those aren't the categories, but they're like general and management, fundraising expenses, there are a few others. Um, if you're a CPA is listening to this, you know very well what I'm talking about. Um and so the IRS requires that. Now, why? I've asked so many CPAs, why does the IRS require nonprofits to report in those categories? Who decided and for what purpose that we would report in these categories? And I have never been able to find the answer. No one knows. Um if you're listening and you know the answer to this, please email me. I would love to, I'd sincerely love to know.
Why Ratios Undermine Impact
SPEAKER_00Yes, reach out to us because we want to get to the bottom of why it was this train of thought, how it got started. Yes. And and basically, just to to to simplify it just a little bit more, I think what you're literally saying is who decided whenever this was, you know, when dinosaurs roamed the earth and they were having a bake sale in the cave? I thought this was the 70s when this form came out. Okay, the form came out in the 70s. Who decided that a program needed to, the program expenses needed to be separate from the people how to pay for the shelter that provides that that we do the services in, the salaries of the people that run the services, um marketing budgets, maybe go into that. Like in your session, you gave us all these slips of paper, and it was a it kind of opened everybody's mind because we've been we've been taught and educated that it's you know, spending extra money on a great candidate to work and run the program that loves the children and has all the expertise. Well, to spend what they deserve in a salary is wrong because we need to watch our dollars spent.
SPEAKER_01Right. Um, and of course, going back to the IRS form, the IRS doesn't claim to be any kind of an expert in nonprofit impact or management. That's not their field at all. No. So we have this random form, and then along comes Charity Navigator and other watchdog organizations that go through nonprofits' tax returns because they're public record, and they decide well, we think the most trustworthy nonprofits or the best nonprofits or the ones most deserving of dollars are the ones that have, you know, this percentage of their total expenses in what they called admin or overhead expenses. And there's no research that they cited as to why they made that call. I mean, why, why is why do we need that threshold, first of all? Why does that matter at all? There's no evidence that that matters. There's no evidence that I've ever been able to find, and I have looked and looked, that says that minimizing so-called administrative expenses increases impact. I've never found that to be the case.
SPEAKER_00And I think most nonprofit professionals There's not a factual No. There's not a study that says those that spend less on these things have better impact on the people that are starving or the sick kids in the hospital or no.
SPEAKER_01And anybody that has worked in nonprofits like you and I have, I mean, wouldn't you say probably organizations that invest heavily in fundraising and leadership are the most effective? Yes. I mean, that's we all know that. Um, but somehow they made this this system, Charity Navigator, and then nonprofits, because we want all the dollars for our clients, started catering to that. Right. And say, oh, well, we meet the you know, the the the we're we're gold standards, gold starred, silver starred, whatever. Right, right. But all of it is just based on, I cannot find anything that it's based on factually. So we have this whole system that's based on, I mean, at best, logic that I that's not public, right?
A Pandemic Case Study Gone Wrong
SPEAKER_00But we can't find it's somebody somewhere that's decided that people in nonprofits had a different standard than for-profit businesses as far as the way they spend their money. Now, I'm gonna say right now, we know there are nonprofits out there that have made mistakes, have mismanaged funds, have done things that are wrong, illegal, unethical. We know that. But for the most part, most nonprofits are not only spending all their blood, sweat, and tears to try to solve the problem that they're there for, save the children, you know, feed the hungry, clothe those that don't have clothes, and make houses for those that don't have homes. Like all of those things are all those organizations are out there and they're doing really good work. And for the most part, they are audited, which is one of those expenses that's overhead. Yes. We need them to be audited, but we can't call that part of the program to get it. You know, drives me crazy, and I don't want to go off on a tangent. But that's a good tangent. I like that tangent. Yes. But I'm saying somewhere it started, the thought of nonprofits started with a question mark of, well, I just don't know if they're doing they're doing exactly what they said they would do with that money. It's distrust of the nonprofit sector. It's a distrust that was started with you know, who, you know, maybe some nonprofits did some bad things, but why was that created as the the thing we hold our heads to? And and I will say, when I first started in nonprofit world, you know, when I was 10 years old or a little bit older than that, um, I know that most of our mentalities are naturally, well, you know, we're a nonprofit and we're almost apologetic for the fact that we're a nonprofit, we really don't have resources. Well, a lot of times we don't have extra resources for fluff. Yes, but when we're talking about programs, to have people there to run the program, that's not fluff. Of course. And to get an audit for your organization, that's not fluff. Of course. Copy paper, printer agreements and contracts we have to sign to have the a capable printer. You know, you don't buy a$7,000 printer, but what do most nonprofits do? We have to enter into a contract with a company that provides a printer. So we have to buy the copy paper and the ink, and we all that stuff helps us run the nonprofit. Yes. And so to get, you know, to come into it with that mentality and it's and then find out it's really like more of a habit or a shadow belief that was started by people before our time. Yes. And um, and that's why we're raising this question today with with our fellow fundraisers and fellow nonprofit individuals, and any of you that are listening that are not in the nonprofit space, it's for and and donors for you to understand that it costs so much more to do the actual work that we're trying to do. But for so many years, it was frowned upon to share the complete costs because someone might criticize how much we spent on which copy paper we buy.
SPEAKER_01Let me tell you, nonprofit work is hard. It is. We don't need more things that are arbitrarily difficult. My goodness.
SPEAKER_00No, and and most of us are people pleasers that have that lead with our hearts, sure. And we we go into nonprofit work because we do want to give our blood, sweat, and tears. And most of the nonprofits in the early days when I started couldn't afford anything. So a lot of times we pay out of pocket to do the things we know we need to do, but it's because we're passionate about the cause. And it really shouldn't be that way to get a true snapshot of how much those programs, sometimes life-saving programs, cost.
SPEAKER_01I'm a grant professional. I do a lot of grants work and I love grants and I love funders. But one of the things that drives me up the wall is that funders very frequently will ask this question what is your administrative or overhead quote unquote costs versus your program costs, which again are arbitrary distinctions that don't actually exist in nonprofit work. But they'll ask that question, but then in the same, in the same proposal, in the same guidance, they will also ask, what are your plans for program sustainability? Well, what is sustainability? It's fundraising, it's strong leadership, it's it's partnership development, all those things that you're labeling an administration. So you are on the one hand implying to nonprofits that you want them to minimize administration. On the other hand, you're asking them how they're going to use that so-called administration to keep this program going. Well, those two things don't go together. If the administration, quote unquote, is really irrelevant to the program, you shouldn't be asking about sustainability. Right? Those two things don't go together. Or if you recognize that sustainability is important as it is, then you shouldn't be asking this admin question. I mean, those two things are opposed to each other. And so it leaves nonprofits in such a hard position of having to put themselves in a mindset of making choices that aren't community-based. And that's really the problem, is that nonprofits are not able to or or don't feel like they're able to make decisions that are truly based on what the community needs because they're so worried about this random arbitrary thing that they think donors want. I'll tell a story that illustrates that point. Um, when I during the pandemic, we were working with an organization that provided basic needs for people. And during the pandemic, as it should have been, um funders and donors were really pouring into organizations that provided basic needs. And so this non-particular nonprofit grew a tremendous amount during the pandemic because the the demand for their services went up, which was, you know, good and donors were good about providing the funding for it. Um, and all of that growth really stressed their accounting department because more growth, more people on payroll, more POs to pay, you know, more of everything.
SPEAKER_02Right.
SPEAKER_01And typically, I mean, you have exponential growth in a short amount of time, you hire more staff to do more work, right? Well, this particular nonprofit didn't want to hire another person for their accounting department, which was the obvious solution, because their CEO told me, she said, Oh, our donors don't like that. And so we don't, we don't want to add to administration. Like we don't want to have more administrative costs, so we're not gonna do that. But they still had all this work, and so what they did instead was they assigned accounting tasks to their program people. Oh my, who are not trained to do accounting, who are absolutely gonna mismanage funds because they just don't know. Right.
SPEAKER_00Not not not in a bad not because they're unethical, but because they literally don't understand accounting or right.
SPEAKER_01And and truly, I mean, that's uh that's unethical in eight different ways because it's still accounting expenses, even if you're having your program people do it. Right. But anyway, that aside, so they assigned these accounting tasks to their program staff, and they had a program team that was young and hungry and talented, and they were like the next generation of leadership for this nonprofit. Um and so you know what happened with all those program people. I don't have to tell you what happened.
SPEAKER_00They got burned out. Of course, and they thought I didn't sign up to this. I'm not passionate about accounting. I'm a passionate about teaching these people to do these things or help them during this time. Right. And they left. And so they left.
Defining Program Costs That Actually Work
SPEAKER_01They all left in mass. And so the organization actually had a break in services to the community because they didn't have program people. Because they ran them all off during the pandemic. And the irony is that some of their funders that they were worried about pleasing with this administrative versus program stuff, some of those funders were corporate funders whose employees needed those services. But it's a big aha. So your employees don't have services from this nonprofit because the nonprofit's trying to please you by evading this arbitrary administration versus program idea. Um, and they lost a whole generation of talent that would have been their next, you know, program managers, leaders. And so it was really heartbreaking to see. And that's the kind of thing that happens when you're making decisions based on something other than what the community needs.
SPEAKER_00Goodness. I mean, and that breaks my heart because they were passionate, they were fired up, and they were making a difference. Yes. But someone said, okay, now at the end of every day, you need to do these tasks that they didn't go to school for, they're not trained for.
SPEAKER_01But what are you gonna do? There's more work to be done, and we can't increase administration.
SPEAKER_00And that's just wrong. I know. We need to be able, we as nonprofits need to be able to say, you know what? We've we have we have expanded and we've done so um well and we've figured out this whole group of people that we can serve now, but we need to add these two other people to help us meet the need. Sure. But no, we have to then sit back and decide, you know, what if, and I don't know, and administrative and it's gonna cost us more.
SPEAKER_01And and they had the money. That's the heartbreaking thing about that case. They had all these donors giving them, you know, so much money. And so they had the money to hire another accountant. It wasn't a matter of they didn't have the budget for it.
SPEAKER_00Now, so connect the dots there. Yes. This is one thing she went over in the session, like things that we don't typically think of as program costs because of this mindset, this old-fashioned old way of thinking, or however it was set up. It's a perfect example. We need a new accountant. There are people that don't see the connection to that to the programs. Correct. So they immediately think admin or overhead or extra. But explain how we connect the dots to how that does benefit the program.
SPEAKER_01Yes. So the really interesting thing, and and we talked about this in the session, is the other thing I could not find anywhere was a sort of collectively agreed upon definition of program expense or admin expense.
SPEAKER_00Interesting. I looked for that. Right.
SPEAKER_01What you would think there was stacks and stacks of journals and books and who defines what is a program expense and what is an admin or overhead expense? And I couldn't find anything. I asked funders, how do you define funders that ask this question? How do you define program expense? They don't have a definition.
SPEAKER_00They don't even know. No. So no one said, well, here's what I think it is.
SPEAKER_01No.
unknownNo.
SPEAKER_00Maybe we should ask Judge Judy. Does she know? Judge Judy would give us an answer. She would give us an answer and get to the bottom of this. But that is frustrating. It's so frustrating. It's like we've all just walked around with this shadow belief that this is how it should be for nonprofits. And it ri there is not one book, one rule, one thing. The 990 started it, but no one knows why. Right. No one knows why. Not even the IRS. Correct.
SPEAKER_01So so I set out to say, okay, well, what would the definition of program expense be? Um I was just trying to think about all the organization we work with 30 organizations a year, and all the organizations that we work with, and my background as a certified grant professional, like how would we define program expense in an ideal way? And so I thought, well, I would say, I mean, this is just the Melanie Palmer definition. Again, there's no universal. But I would say any expense that an organization's programming cannot function well without is a programming expense. So in other words, if you take this expense out, the program either can't function or it doesn't function well. That's my definition of program expense. And so when you put that to the test of an organization's budget, okay, well, what if there is no accounting department to process payroll? What happens to your program? Well, none of your program people are paid. They probably leave and it's done, right?
SPEAKER_00Or they're paid and it's the wrong amount every month because we don't have the right person doing accounting. Right.
SPEAKER_01What happens if we don't market this program and the community doesn't know about it? Well, nobody will come make use of it, and so it will probably go away. What happens if there is no executive director to provide staff recruitment, professional development, support, strategic direction for the organization to decide that we're gonna do this program in the first place, partnership building. If no one does any of that, what happens to the program? If there's no board of directors that had that's trained, you know, and that has had strategic planning facilitation to decide that this is what the community needs, the program never exists in the first place. So once you start looking at it from that lens, every single thing in the nonprofit budget is a program expense because the programs cannot function well without them. No.
Everything The Program Needs Counts
SPEAKER_00I I mean I bring up copy paper again, which is getting really boring, but copy paper, folks, you cannot run a nonprofit without having copy paper or office supplies or the light bill or the you know comfortable, you know, heating and air. Like all of that stuff is needed in order to have a great program. Of course. And I know I keep saying save the children. I mean it in the sense of literally there are organizations out there that are trying to keep children from harm and help them recover if they have been harmed. And they literally need the appropriate people, facility and resources to do that. Sure. So I can't think of one thing that those organizations um would have at their disposal that wouldn't be benefiting those children. Of course. And I'm talking accounting, audits. Um one thing that came up at the session was very interesting, is um the executive director's cell phone bill. Yeah that one stood out to me, and it also created a there was a not an discrepancy in certain people thought absolutely that's a program expense. And then there were a couple of others that did not had never experienced that before where the executive director had their cell phone paid for, right? But you y'all explained it so well, you know, when you said you've got to think of it this way if you run an emergency shelter, you know, whether it's domestic violence or uh child abuse, any any kind of emergency shelter, and it's three o'clock in the morning and the police need to call, you know, to get them into the shelter, how are they gonna get a hold of that person? Because if you do it to their personal phone, which is what some some would argue, do it to their personal personal cell phone, they leave the organization, but the next person may not be able to provide that. Or it is you need to know they need to know as executive director, we expect you to be on call 24-7. And the way we're gonna do this is we're going to give you a stipend for your cell phone bill, sure, or we're going to give you a center bill, a center phone that is, you know, it has to always be on, you have to always be ready and always be on call. And that's why we're providing you with this phone, because it is the work phone that you have to have. Sure. Because we run a sh an emergency situation here.
SPEAKER_01Yeah. Or even if you're not an emergency shelter, I mean, if you're an executive director and you're doing your job, you're not in the office very much. True. So I mean, how are your staff supposed to get a hold of you if you're not sitting at your desk, right?
SPEAKER_00Right.
SPEAKER_01So I mean, you can everything goes back to everything is in service of the impact that the organization is doing. And the other thing that drives me nuts about the this administrative versus program costs is that, you know, some funders and donors use it as a metric to measure a nonprofit's, you know, worthiness of being funded when they should be asking about their impact. Right. I mean, if I give money, if I'm a donor and I give money to an organization that is eliminating domestic violence, if they are truly eliminating domestic violence in the community I live in and my daughters live in, what do I care what they use it for internally? You know, why do I care what my dollar specifically goes to if they're making the impact that they are promising?
SPEAKER_00If literally women are able to get there and be safe and not be killed.
SPEAKER_01Of course. I don't care what you if it pays for the fundraiser or for your light bill or for toilet paper for the clients. I don't care. Fancy toilet paper or fancy copy paper. Like are you making a difference? That's the question donors should be asking. And that's the accountability that nonprofits should have. So I'm not arguing that nonprofits should not be accountable, but the accountability comes in their impact, not in some arbitrary, you know, yeah ratio of expenses.
Budgets That Tell The Real Story
SPEAKER_00Yeah. Now can you see people why Melanie and I are so passionate about this? We see the bigger picture or we see, we see it's not even a bigger picture. And it's not a naysayer of everybody's been doing it wrong, wham, wham, wham. It's literally how did it get started and adopted as the gold seal way of doing it when really, if we really peel it all back, it's really it was not set in stone by some expert in 1962 that said thou shalt not spend such and such for the dollar or whatever on the dollar. There, you know, our organization that helped a lot of us back in the day when you and I were, you know. First getting started, that was a big thing that they they showed the picture of the dollar. If you remember this. No, I'm not remembering this, but I'm imagining it. Uh-huh. The picture of the dollar was always in the in the slides and stuff. And then how much of that dollar went to services?
SPEAKER_01All of it. All of it. Unless you're engaging in fraud. All of it. Right.
SPEAKER_00And but we all, you know, people oo'd and awed at the at the year, the rally every year at the how low their cost to, you know. And I look back and think, you know, and at that time, I thought, oh, you know, I was young. I didn't understand that. I thought, oh, oh, but as I kept going, you know, growing and learning in my career, it just started, you know, I just kept thinking, we need all these things. We need all these things to provide the services. So why is it bad that we want a copy paper or we want a copy machine just as efficient and wonderful as the bank right across the street from us? Right. They don't just get something that's gonna break down every or second hand that is not working well. We have to have repaired every second. Right. They they get what they need to run their business. Right. And that nonprofits should be allowed, of course, the basic things that they need. And it it shouldn't have to be called luxury. Right. When we're just getting something that helps us do our jobs.
SPEAKER_01Right. That's true. And again, that dollar thing, we're talking about something that's not the impact. Right. We were in a session recently and and uh somebody said, a funder said, Well, I'm I should I ask for the financials because I want to see the financials, which is fine. I mean, that's a reasonable request. But nobody, she didn't ask about like the impact report. Don't you want to know whether or not it's working, like this organization that you're funding? Isn't that the bottom line that you should be asking for? Is my investment making the community better?
SPEAKER_02Right.
SPEAKER_01How do you know? Right? Nonprofits can tell you that story and they can tell you in a million different ways. Why are we nitpicking apart where each dollar has gone in this bucket or that bucket? It's all one bucket. It's just one bucket.
SPEAKER_00Yeah, yeah. Well, one of the exciting things that we we will go into some detail right now, but um, that excited me is that you figured out how to help nonprofits. And you're not saying go to accounting and to to the uh CFO and yell, we're gonna redo how we do everything because they their eyes will spin and smoke will come out of their ears. But literally how we as when we're writing our grants or presenting those budgets for the program, there are there's an easy way to put all the expenses in there so that the funder sees the true cost of the program. Right. And you'll also explain, if they end up saying, which they will because we we haven't shifted the universe yet, but that's what we're gonna do at the end of this podcast. We're gonna shift the universe. I'm so glad to be here for that. But there they still may say, Well, how much is admin? And you'll be able to still pull that out for them. But tell just a little bit about that, you know, what you were saying that day. Of course, you had slides and graphics that day, which you'll I'm sure you would share with anybody that wanted to see them. Of course. Explain how a nonprofit can shift their way of thinking to actually report the light bill and the copy paper and all that as part of the program.
SPEAKER_01Sure. And I want to say, first of all, I mean, your grant professional knows how to do this. If you have one on staff, I mean, I didn't invent this. Um I just am urging nonprofits to do it. To adapt it. To adapt it. Um, but uh what you want is let's say you have four programs at your organization. What you want is program one budget plus program two budget plus program three budget plus fro program four budget equals your entire budget for the organization. Right.
SPEAKER_00So like the whole bottom line should be split between those four programs.
SPEAKER_01Correct. Okay. Now, if you're a CPA listening to this, you are already twitching. Yeah.
SPEAKER_00We understand.
Allocating Costs With Simple Methods
SPEAKER_01So I want to say very clearly that we're not suggesting any changes to the way that you manage your finances. We're not suggesting any any difference in your chart of accounts, no, in how you do your taxes. I mean, none of that is gonna change. We're not changing anything about any of that. What we're suggesting is adding a step two to your budget. So after your board has approved your budget, the laundry list kitchen sink budget, um, the step two is to is to break those expenses down, the same expenses, down into their programs, the way they actually function. That's what we're doing. I always think of it in terms of if you're not a if you're not a numbers person, and I'm really not, um honestly.
SPEAKER_00No, because we did laugh about that. Neither one of us are good at math. No.
SPEAKER_01Um, we're not fundraising, but I'm not speaking as someone with a finance background. If you're not good at numbers as I am not, I always think of it in terms of Legos. I have a 10 and a seven-year-old daughters, and so I think about Legos a lot. Um, I step on Legos a lot, and I really think about them then.
SPEAKER_00Uh maybe I can get a podiatrist sponsor.
SPEAKER_01That's right. It will not ask about our admin versus program costs. Um, but I think of it in terms of Legos. I mean, think about your budget that your board approves, right? And think about each line item being a, you know, a connected series of the same color Lego. So let's say like your personnel line item is all red blocks, and your supply line item is all green blocks, and your occupancy line item, your rent and utilities, are all blue blocks, blue blocks, and so forth like that. Um so if you think of it that way, the blocks that you have are what your board has approved. So we're not adding blocks, we're not subtracting blocks, the total, your budget total is gonna be identical to the board approved budget, because the board has given you the blocks to work with.
SPEAKER_02Right.
SPEAKER_01All we are doing is taking those blocks and rearranging them into their actual function, into each of your program. So you're gonna end up with a program budget to take our Legos a step further. That's a rainbow of different colors. Because you're gonna have some of your personnel in this program, some of your rent, some of your utilities, some of your supplies, some of your travel, et cetera. So it's all the same blocks. We're just rearranging them. I did this presentation for Grant Professionals Association national conference last year. And somebody in my session said, Oh, this is just this is marketing for your budget. And I was like, Yes, it's exactly what it is. You're creating a marketing piece for your budget.
SPEAKER_00Yeah.
SPEAKER_01So this is not changing anything about the way your accounting department works. This is just the development department, the accounting department, the um program department, so forth, so-called, all getting together and just dividing those into their function. Right. And that's the budget that your good your development department's gonna use to fundraise, that your executive director is gonna use to fundraise your board, because it shows donors here is exactly how each of these expenses, the copy paper, exactly how that drives our impact in this program. And then you also know how much your program costs, right? In reality, in truly in reality.
SPEAKER_00Yeah, exactly how much it costs to do the things we're doing every day. And like the four programs, you might have four different expertise. Because if it's four different programs, that the people that are, you know, driving those four programs may be four different backgrounds or fields. So those salaries, sometimes it's easy where you can say, Well, this salary is this because that's their background. Right. And that goes in that one program. Sometimes all four people have the same background and have the same salary and may work on all four programs. Right. So I'm thinking I'm hearing it right. You would divide those Legos evenly between the four. Yes. Because it's just it's four salaries that work in all four programs, and they probably work the same amount of time. But if not, there's probably a way to figure out their hours and how much they put it. Like if one is more into program three, but uh 10% of their time is in program four, you can figure all that out as close pretty close. Right.
SPEAKER_01You really can by the percentage of their time and effort and take that same percentage of their salary and benefits. So if I spend 50% of my time in program A, 50% of my salary and benefits go in program A. Yeah. 50% of my office costs go in program A, et cetera.
SPEAKER_00And once again, it doesn't really have anything to do with the actual budget of the organization. This is literally an internal budget. The word budget is is the correct word, but it's really an internal plan or um snapshot of where the dollars go to provide each program. Right. So uh, okay, here's the let's let's play guess the so you know you've got your your um electric bill for the whole uh campus where you do the programs. So how would you take the utilities and put that in the four programs? Right.
Using Full-Cost Budgets In Fundraising
SPEAKER_01So I would, and there's there's several right ways to do this. All you need is a system that you've documented and that it's a reasonable way to do it. So there's not a right and wrong way, and different organizations with different missions and different expenses, it makes sense to do them a little differently. You want to document how you came up with the numbers, right? You're not guessing. No. This is a calculation, but there is there's more than one right way. Um but in but most in most cases, I would take a look at your space that you have, which spaces are used for which programs. If you have a space, for example, that is only used for one program, all the costs of that space go in that program's budget. So, in other words, if it's if a third of your total space that you have is this this room that you only use for one program, a third of your rent goes in that program. A third of your utilities go in that program. You just prorate everything based on the square footage of the spaces that your programs use. If you have a space that is used equally by two programs, split it in half between those two programs. It's it's pretty logical when you think about it. And you may need your finance department to help you with the calculations if you're not a math person, which is fine. But just the basic logic of it is pretty simple. You're just figuring out, okay, what's a good faith estimate of how much of our costs are gonna be allocated to these various programs.
SPEAKER_00And I mean, I'm getting in the weeds, I know I am. But like, you know, you've got your admin people that we're never gonna call them admin people again. We're never using that word again. Henceforth. Henceforth, uh, I say as of now, uh the time here is 142. Um, but the the uh staff members, the the partners, everybody that's housed in the building, their offices are part of that square footage. Yep. So you could get in the weeds as to this amount, you know, that that person runs program A, and their office is this many square feet. So what's our cost? So what's our cost to have that office and to heat it, cool it, light it, maintenance, maintenance, computer it, technology it.
SPEAKER_01Which is not that complicated. You just take your total costs and divide it by the square footage, your total square footage, and then what's the square footage of that room? That's all.
SPEAKER_00That's it. And now I know there are people out there that may have had to pull over because they're if they're not. You're no longer driving. You're no longer able to drive because you you have literally been overwhelmed with this budget talk. Um, but I will say that um you can reach out to Melanie and her team. They have templates, I believe. Um, and then they would love, if that's not your forte, there's probably a way, if you don't have enough staff, there's a way for you to put this in your budget. Oh, for sure. To get them to help you dial all this down and and uh get specific with your square footage and get pus specific with your utilities and all these things to show you how to get it done. And and then after you do it the first time, I'm sure that's the hardest one where everybody's mapping it out on a big whiteboard. But then the next year, it's just tweaking what changed this year. Right. We had more participants in program C. Um, we spent more on more um food and snacks in program A. Sure. And like you're able just to tweak the hard work, probably comes the first year, and then maybe after five years, you might need to reevaluate. Right. You know, but but honestly, just coming back, once you get that the first thing set, your mind starts to think more like that.
SPEAKER_01Right. Yeah, it's absolutely a service we provide. We're happy to facilitate that kind of chopping up of your budget. Um, but I also have a template that I'm happy to give anybody free, just reach out to me. Um, Melanie at Melaniepalmerconsulting.com. That's M-E-L-A-N-I-E, Palmer Consulting. Um, I'm happy to share it. So please reach out to me for that. But I think that the the onus is really on nonprofits to push back against this false idea. But it's not enough for us just to say, hey, that's not right. We need to actually show funders how expenses function within our programs. And the organizations that we have worked with that have divided their budgets this way and gone to their funders, the funders have been very receptive to that. They're like, oh, I get it. Okay. But no one has ever educated them on that. And if you're not in the nonprofit world, you don't know how things work. True.
SPEAKER_00And so I think Because you're also in the shadow belief that you've just always heard they're not supposed to spend very much money on overhead. Right. It's supposed to go straight to the people.
SPEAKER_01But we're not providing any kind of alternative narrative to that, we're not challenging that. Um, and it's on us to do that. But also, I'm big on bringing this back to fundraising because I'm a fundraiser. You don't raise what you don't see. And so if you give your donors a so-called program budget that only includes a few staff and some supplies, first of all, that's not truthful. I mean, I would say that that's an ethical issue, even though we've all done it. Okay. Yeah. Um, be real. But I would say that that's not entirely truthful. But also, if you don't show your donors your other costs, your donors can't fund them. Right? Whereas if you go to your donors with the full program budget, then they're gonna be willing to fund a portion of your ED salary, a portion of your rent, you know, all your insurance, all those things. And so insurance. If you don't see it, you don't raise it. So it's on us to put it on paper and show our donors this is exactly how these expenses function. We have to have all these to drive this impact, and this is the impact we're gonna deliver.
Educating Donors As Partners
SPEAKER_00And my fun, you know, my fundraising brain is always on. Yes. But just now I had like a you know, moment, this is a great way to then go talk. You know, a lot of times we are we're not doing donor stewardship as much as we want to or should because of time constraints and and it gets put on the back burner because of the day-to-day stuff. Sure. But what a great way if, say, your organization decides we're gonna adapt, we're gonna do better, and we're gonna peel this back, just like Melanie saying, we're gonna do this, then you can't just send it over with this jump and what looks like, oh my goodness, it's costing a you know, a hundred thousand more than it did last year, because you've decided to put all these. So it's going to take communication with more than just emailing it over, but we really need to visit with you because we have we have figured out something that for years and years and years we weren't considering. And here's why. Yeah. Because we've always been taught that we can't put these costs in as program costs, right? But we can't run the program without these costs. So this is the true picture of what it costs to fund. Right. And that gives them the chance to say, I can only do the amount I've always done. And I'm glad to, and I'm so glad you explained this to me. Yeah. Or they can say, Oh my goodness, let's give you more money. We I did not realize this. Let we want to fund more, so we'd like to give more towards this. And thank you so much for sharing it with me. They could say, I I don't, I just, I don't agree with this, and I don't think the light bill should be in there. And you may leave it as, you know, I I think I worry about those that are listening right now and they're thinking, but what if they say we just can't fund it with this new, this newfangled way of showing our expenses?
SPEAKER_01Here's the thing though, your donors can still fund the thing that they want to fund. Just because you're putting it in your total program budget doesn't mean that they can't still say, Well, okay, but we're only gonna fund program staff and supplies. They can still do that. True. But now you have they know what the total cost is. You know, as a fundraiser or an executive director or a board member, what your total cost is, and you know how much you have to raise.
SPEAKER_00And you know that that's what they're they're passionate about, those two things. Which is fine. All their gifts can be restricted to that. Of course. And you will be a great steward of that and you will you will make sure that restricted gift stays the same. Of course. But it gives you great talking points to then say to them, okay, we appreciate you so much. Who do you know out there that would be passionate about these things that are still on the table that we need funding for? Do we have friends at the utility company? Do we have friends at the copy paper place and the fancy toilet paper place? Like, do how can we connect the dots? And they may think of three people right then, or they may say, Oh, I'll I'll keep thinking about that. But then you can go back and say, you know, donor Susie Q wants to only do this, so we just have to figure out how to do this. And we will have I mean, I I have happiness thinking about if we would just report it like it truly is. Yes, and like bolder, bolder in our confidence of saying this is what it really costs to fund this program, then our nonprofits would go from scarcity, right, which is how we lived, and it all started from this mentality that we're not supposed to spend any money to save the children. Give us$10 and we will cure poverty. Yes, and it just doesn't happen like that. We have to have resources to do what we're trying to do.
SPEAKER_01Right. And I think donor trust is a big part of that conversation too. Yes. We have to trust our donors to be receptive to that communication. And I'm a big adherent to um community-centric fundraising, which is an organization based in Seattle that advocates for more equitable fundraising practices. And one of their basic tenants, one of their principles, is we treat donors as partners. And that means that sometimes we have to have hard conversations, but we're willing to do that because they're our partner. Right. Right. And so I think we have to come to our donors that way and say, our relationship with you is valuable. We have to be honest about what this takes.
unknownYeah.
SPEAKER_01I mean, I think we have to trust our donors enough to do that rather than dancing around like some arbitrary thing because we're afraid of what they might think. I mean, we just have to tell them like it, tell it like it is.
Templates, Training, And Next Steps
SPEAKER_00And just like you were saying, we have to find the confidence and the boldness to do it because we are the experts in nonprofit work. Of course. And a lot of times, just like we're walking around with this shadow belief that we can't spend any money on a program or we can't spend any money on something that's not programmed, I've got my quote error quotes up. They have been taught that any nonprofit that spends a lot of extra is bad. Right. And that's their shadow belief. Right. And so if we come, you know, but if they're passionate, truly passionate about the organization, they're just gonna be so glad that you came to talk to them and give them the inside scoop. Of course. And you're being so transparent. And I think you can literally say to start the conversation, we heard this podcast, or we went to a session, or I was reading an article about grants. And I came back to the organization and I figured out that we've not been reporting accurate numbers or accurate costs to fund our programs. Right. And I was just blown away, and I want to talk to you about it because I think with your experience and years of donating and and being a partner with us, right, I think you should see what I've what I've come up with or what I've heard, I want to share with you to show you so that we can begin to change this mindset. Right. And it's that thing that we always say ask someone for advice and you get a gift down the road. But if we go in and say, we've made changes, here's the thing, and it's a hundred thousand more, give it, you know, leave it or take, you know, take it or leave it, whatever. That's not the approach. It literally is a partnership of we've found out that the way we've been thinking is there's not really a basis for it. Right. And we want to be bold and educate others, and we need you to help us. How can we share that we've been you know thinking about it, going about it the you know, the wrong way without an accurate snapshot of the costs? Can how can we how can we tell others and can you be one of our helpers to do that? Like it's a way to also partner with them, not just asking them for more or showing them that the true costs, but now, you know, this is this is what other people think too, right? How are we gonna change it?
SPEAKER_01And this is a great time for change because my goodness, if you're a fundraiser or a donor and you have gone through the pandemic and gone through all of the upheavals and federal funding we're experiencing now, I mean, this is the time to make positive changes in the way that you do things. And so, I mean, I find that so many organizations could raise so much more money if they would just budget in a different way. Or or do that step two. Don't worry, CPAs. Yeah, leaving you alone. Yeah, doing that step two.
SPEAKER_00Yes, CPAs, you're our friends, and we love you, and we understand. We're just saying there's a whole nother internal budget that would help us. Yeah. Um, in our area, Northwest Arkansas, we have lots of large funders. Really? Yeah. Yes. I hadn't heard. And um a lot of them, I think, don't quite understand this concept either. No. And so it will be hard for some of our organizations to go back and say, but I hope we can some sometime have a conversation to help them understand as well. For sure. Because the mentality, they have the same mentality.
SPEAKER_01Yeah.
SPEAKER_00Um, one of them is a corporation and they have that mentality for their corporation as well. I found that most for-profit corporations don't think, like if they need a marketing budget that seems ridiculous in price, they do it because they need that for their product. Of course. And so I think there's a way for fundraisers to help them see, and and and one of our friends even said that when someone questioned their marketing budget at her organization, she just said back to them, not in a mean way or snarky way. She just said, Explain to me your corporate marketing budget. What is that percentage of your overall budget? And when she said that, the board members at the table said, Oh, you know, they had a realization. Right. And that's what I think that's what we're trying to say is why is it so different for a nonprofit? It's not. It's not. It's not. Bottom line, it's not. And what was the the main thing I wanted to be sure we we're gonna end with this phrase before I is my favorite thing from that day. Um, all expenses are program expenses, period. Yes. All expenses are program expenses, period. And that's that. That's the the gist of today's lesson, boys and girls. Yes. Oh my goodness, I cannot believe an hour has gone by or almost. It's very fast. I know. I hope that you will reach out to Melanie one more time before we sign off. Tell them how they can get a hold of you, your favorite way of communication. Sure. And um give them, give them that so that they can find you because like they've pulled over to the side of the road to have a moment. They need to be able to jot this down and find you. Get get the templates or and get more information about how to change this mindset.
SPEAKER_01Absolutely. So my my email is Melanie M E L A N I E at Melaniepalmer Consulting.com. Um, you're welcome to go on our website, Mel Melaniepalmerconsulting.com. We've got contact forms. However, however, you'd like to reach out to me, be happy to talk to you. We also do a lot of board training. So if your board might be opposed to this or could use some more explanation of how this works, be happy to come talk to your board. Allison does board training as well, that is fabulous. So her as well. Um, either one of us, I won't I want to speak for both of us by saying we'd be happy to talk about this.
Final Rally: All Expenses Are Program
SPEAKER_00We really want to talk about this. And yeah, and the last thing I want to say before I close out is we want to, like she said, it's uncomfortable to be bold and say, but tell yourself you're the expert in nonprofits. Of course you are. You're the expert. You're in the trenches, you are doing the work to better our communities and to help people who are truly in need. And it is time for us as the experts in nonprofit to say, wait a second, just let me get my word straight. But we need to shift the way of thinking. Yes. Because this was based on a made-up something from somewhere that no one even knows, and there's not a journal, there's not a book, there is not any kind of jurisdiction or it's the 990, but no one even knows why the 990 is set up like that. Right. And and we'll say one more time if you do know the answer, yes, we're we want to hear it because it will help us in the future.
SPEAKER_01Yes, and to shift the narrative back where it belongs, which is on the impact that our nonprofits have. What is the impact? Is the bottom line?
SPEAKER_00That's the bottom line. Okay. Well, thank you so much for being here. Thank you for having me. I heard that presentation, and I just have to tell you that I got so fired up, it pushed me out of my comfort zone. I have been saying I was gonna do this forever. That presentation did it, pushed me out of my comfort zone, and made me think this has to be my first episode of a podcast for my nonprofit brothers and sisters. I love that. Yeah, because it it's been something I've been thinking. I just couldn't put it into words or figure out how to explain it to others. And you have done that. And so I'm so glad that you did that. I appreciate your work. I'm thankful for all you do for nonprofits. And to those of you that are still with us, you made it. You made it. We are done, and thank you for listening. Uh, join me next month. Um, gonna do this again uh once a month. And just a reminder I'm here when you need me, and all you have to do is ask Allison.