What is overhead and why do some donors believe nonprofits can operate with these funds?
Overhead refers to the indirect expenses that are incurred in the day-to-day operation of a nonprofit organization. These expenses are essential for the organization to function effectively. While these expenses are not directly related to the mission of the organization, they are necessary for the organization to be able to carry out its work.
Overhead examples include:
Salaries and benefits
Opponents say that all monies should be spent on providing direct programs or services.
Here are four reasons why nonprofit organizations need overhead expenditures in their budgets:
To build and maintain a professional infrastructure.
To attract and retain quality staff.
To maintain accountability and transparency.
To grow and sustain its programs and services.
To build and maintain a professional infrastructure
A nonprofit that does not have adequate office space, equipment, or technology will struggle to carry out its day-to-day operations. This could delay the delivery of services and result in other inefficiencies. On the other hand, a nonprofit that invests in a professional infrastructure is better equipped to carry out its mission effectively and achieve its goals.
To attract and retain quality staff
Nonprofits, like any other employer, must provide fair and competitive compensation packages to attract and retain the best talent.
To maintain accountability and transparency
Trust between a nonprofit and its stakeholders is paramount. By investing in overhead, a charity can build systems and develop processes that ensure accountability and transparency. They will be better equipped to manage their financial and legal responsibilities, which will minimize risk and ensure long-term sustainability.
To grow and sustain its programs and services
Nonprofits that focus solely on direct service delivery are often unable to scale their operations or to respond to changing needs and opportunities. When a nonprofit invests in overhead, they are better equipped to adapt to changing circumstances and grow and sustain their operations over the long term.
Overhead is an essential part of the operation of a nonprofit organization and is critical to the success and sustainability of these organizations.
By investing in overhead, nonprofits can build and maintain a professional infrastructure, attract and retain quality staff, maintain accountability and transparency, and grow and sustain their operations over the long term. Donors and other stakeholders should understand the importance of overhead and should support nonprofits in their efforts to build and maintain a professional infrastructure that is essential for the effective delivery of their services.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.