Unglamorous and Essential: The Case for Funding the Operational Backbone of America's Nonprofits

The Overhead Myth and Its Consequences

For decades, American donors and funders have been conditioned to treat administrative expenses as a measure of organizational waste. Charity watchdog ratings systems, however well-intentioned, reinforced the idea that a virtuous nonprofit is one that spends the maximum possible percentage of its budget on direct services. Overhead—the catch-all category that includes accounting systems, technology infrastructure, staff training, and strategic planning—became something to be minimized, hidden, or apologized for.

The consequences of this cultural bias have been quietly devastating. Across the United States, community organizations are attempting to serve vulnerable populations with accounting software that predates the current decade, boards that have never received formal governance training, and strategic plans that were last updated when a different presidential administration was in office. They are doing meaningful work under conditions that would be considered unacceptable in any comparably sized for-profit enterprise.

And when those organizations struggle to scale, sustain their programs, or survive the departure of a founding executive director, the sector tends to diagnose the problem as a failure of leadership or model—rather than as the predictable consequence of chronic underinvestment in organizational infrastructure.

What Operational Capacity Actually Encompasses

The term "administrative support" undersells what is actually at stake. The operational backbone of a high-functioning nonprofit is not a collection of back-office inconveniences. It is the set of systems and capacities that determine whether an organization can reliably deliver on its mission.

Consider what that includes in practice. A robust financial management system allows leadership to make real-time decisions about resource allocation, identify budget variances before they become crises, and produce the audit-ready financial statements that increasingly sophisticated funders require. Without it, organizations operate in a state of perpetual financial uncertainty that consumes executive attention and creates governance risk.

Board development is another area of profound underinvestment. Nonprofit boards are legally responsible for organizational oversight, financial stewardship, and strategic direction—yet many board members receive no formal orientation, no ongoing education about their fiduciary responsibilities, and no structured support for the governance work they are expected to perform. The result is boards that are passive at best and actively harmful at worst, failing to provide the leadership accountability that organizations need to grow.

Strategic planning, human resources infrastructure, data management systems, staff professional development—each of these represents a domain in which chronic underfunding limits organizational effectiveness in ways that eventually surface as program failures, staff turnover, or organizational collapse.

The Scalability Problem

Perhaps the clearest argument for investing in operational capacity is what happens when organizations that lack it attempt to grow.

A community health initiative that serves 200 families effectively may receive a major grant to expand to 800 families. The program model is sound. The staff is committed. The community need is real. But if the organization's financial systems cannot handle the increased transaction volume, if its human resources infrastructure cannot support the staffing expansion, and if its leadership team has never managed at that scale, the grant that was intended to accelerate impact may instead destabilize the organization entirely.

This is not a hypothetical. Nonprofit practitioners across the country can cite examples of organizations that were harmed—sometimes fatally—by growth they were not operationally prepared to absorb. The funding that enabled that growth was not malicious. It was simply incomplete. A grant for program expansion without a corresponding investment in the organizational infrastructure to support that expansion is a grant with a structural flaw built in.

What Funders Can Do

The shift required of funders is both conceptual and practical. Conceptually, it requires abandoning the overhead myth in favor of a more sophisticated understanding of what organizational health actually requires. Practically, it means building new habits into grantmaking processes.

Offer general operating support. Unrestricted funding remains the single most impactful thing most foundations can offer to well-performing grantees. It allows organizations to direct resources toward their highest-priority needs—which are often operational—without requiring a separate application process or justification.

Create dedicated capacity-building grant programs. Some foundations have developed specific grant streams for organizational infrastructure: technology upgrades, accounting system implementations, board retreats, strategic planning processes, and executive coaching. These grants are often smaller in dollar terms than program grants but disproportionately valuable in their impact on organizational trajectory.

Fund peer learning and technical assistance networks. Connecting nonprofits with experienced consultants, peer organizations, and sector-specific expertise can be more cost-effective than each organization independently developing the same internal capacities. Foundations are well-positioned to convene and fund these networks.

Adjust reporting requirements to reduce administrative burden. There is a painful irony in foundations that restrict overhead spending while simultaneously requiring elaborate grant reports that consume significant staff time to produce. Streamlining reporting requirements—particularly for smaller grants—is itself a form of operational support.

Ask organizations directly about their capacity gaps. The most straightforward approach is often the most underutilized. A funder that builds genuine relationships with grantees and asks openly about operational challenges will learn things that no grant application is designed to surface.

A Different Definition of Impact

The nonprofit sector's fixation on direct service outputs—meals served, clients counseled, students tutored—has produced a generation of funders and evaluators who are skilled at measuring what programs produce in the short term, but less practiced at assessing whether the organizations delivering those programs are built to last.

At Lunt Foundations, we have come to believe that organizational sustainability is itself a form of community impact. A nonprofit that survives, grows, and deepens its work over decades creates compounding value in its community that no single program cycle can replicate. Protecting and strengthening the operational foundations of those organizations is not a distraction from community development—it is one of its most essential expressions.

The infrastructure nobody talks about is, in many respects, the infrastructure that makes everything else possible. It is time for the philanthropic sector to start talking about it—and more importantly, to start funding it.