We have all heard the saying “it takes money to make money.” In the nonprofit sector we could say” it takes overhead to provide programs.”
IRS Form 990
What does “overhead” mean? To answer that question, let’s go to the source, the IRS Form 990, Part IX. All nonprofits, except ones with very small budgets, are required to file this form each year. Part IX, Statement of Functional Expenses has four columns:
Management/General Expenses are generally considered to be “overhead” or indirect costs. Fundraising expenses are typically included in overhead. The question is, what is an appropriate percentage of the annual operating budget to be counted as overhead?
The best answer I’ve found dependent on the source and size of the organization, the services provided, and whether fundraising expenses are included or not. The percentage range I found was between 10-35% for both Management and Fundraising expenses. Charity Navigator, the Better Business Bureau, and Guidestar have all written and published extensively on this topic. Click HERE for an article on this topic by Charity Navigator.
As an example, if your organization has a $500,000 budget, you could be expected to spend $175,000 on Management and Fundraising expenses, which is 35%. Your fundraising expenses would vary based on the types of fundraising activities you have. Keep in mind, that if your nonprofit is doing a capital campaign, then your fundraising expenses would appropriately raise during that time period.
Fairly or not, nonprofits are judged on their overhead rates. Overhead percentages, including fundraising expenses, can influence a funder’s impression of your organization’s financial stability and their decision to donate. Check out my previous article HERE on How to Calculate Your Overhead Rate.
This is not a comprehensive list.
Development staff salary and benefits
Fundraising consultants’ fees
Direct mail printing and postage
Other fundraising related software
Special event expenses
The bottom line is any nonprofit organization will need to spend money on overhead and fundraising, and these costs are necessary to build and maintain a thriving organization that delivers their mission.
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.