In nonprofit finance, bad information doesn’t just cause confusion — it can delay decisions, limit funding opportunities, and erode trust.
Even in 2025, certain myths continue to show up in board meetings and staff discussions. Let’s put five of the most persistent ones to rest.
A surplus isn’t a sign of greed — it’s a sign of financial health. Nonprofits need margin to build reserves, fund new initiatives, and weather economic downturns. Operating without a surplus leaves the organization living month-to-month, unable to plan for the future or respond to unexpected challenges.
The key is being transparent about how surpluses will be used — whether reinvested into programs, applied to long-term maintenance, or set aside in reserves. This builds trust with donors, board members, and other stakeholders.
Bottom line: A healthy surplus provides stability and flexibility. Remember – nonprofit is a tax status, not a business model.
The audit’s role is to confirm that your financial statements are fairly presented — not to dictate how you manage or operate. GAAP accounting is designed for external reporting, but it’s not always the most effective format for running your nonprofit.
Your internal financial statements should be prepared in whatever way gives management and the board the clearest picture for decision-making. If that means deviating from GAAP in internal reports, that’s fine — just disclose it. For example:
“Capital expenditures are presented as expenses on this Statement of Activities, rather than depreciated, to better reflect cash flow for decision-making purposes.”
Many so-called “audit requirements” are actually internal traditions, outdated policies, or misunderstandings of guidance.
Bottom line: If you’re unsure whether something is truly audit-driven, ask your auditor. You may find you have far more flexibility than you think.
Debt, when used strategically, can be a powerful tool for growth and stability. It can fund capital improvements, smooth cash flow during grant reimbursement cycles, or bridge funding gaps during major campaigns.
For YMCAs in particular, decades of property ownership often mean significant untapped equity. Leveraging these assets can open the door to larger strategic projects — without draining reserves. The key is entering into debt with a clear repayment plan, realistic projections, and a defined return on investment.
Bottom line: Strategic debt can strengthen your organization’s position; unmanaged debt can weaken it. The difference is planning.
Overhead is often misunderstood as waste — but it funds the systems, staff, and infrastructure that make programs possible. Underfunding administration leads to outdated technology, staff burnout, and missed opportunities for growth.
At the same time, don’t disguise overhead by allocating it across programs to make it “disappear.” For example, your HR staff belong in administrative overhead, not buried in program costs. Knowing your true overhead is critical to understanding organizational performance. If you hide it, you mask the scale of administrative resources when presenting to your board.
Our approach: present all costs at the program level as direct costs during the year to see true program performance. If allocations are required for the 990, apply them at year-end as part of the Statement of Functional Expenses.
Bottom line: Strong infrastructure supports stronger programs. Low overhead is not automatically a sign of efficiency — and masking it creates more problems than it solves.
A budget is a guide, not a permanent fixture. Economic shifts, unexpected funding opportunities, or urgent program needs can — and should — prompt revisions. Treating the budget as untouchable can cause missed opportunities or prevent timely responses to emerging risks.
Plans change — sometimes for the better, sometimes for the worse. It’s essential to recalibrate expectations and performance based on current realities so the organization can navigate significant changes effectively. If your board resists adjusting the budget, consider reforecasting the remainder of the year and presenting that side-by-side with the original budget. This approach highlights how the plan has shifted without formally “changing” the budget.
Bottom line: Budgets should be monitored and adjusted regularly to reflect reality.
Surpluses create stability and allow nonprofits to plan ahead.
The audit’s purpose is reporting accuracy, not operational control.
Strategic debt can unlock growth opportunities.
Overhead is mission support — and should be tracked honestly.
Budgets should adapt to real-world changes.
