How to Display and Understand Nonprofit Overhead Expenses
I get the question all the time about nonprofit overhead costs. From nonprofits - how do we show our finances to our donors in a compelling way? How do we visually display this when we don't have an annual report? People cannot understand tax filings, what is a better way to to do this? And from donors - what is too much overhead? 20% - that is so much, isn't it? In the spirit of #GivingTuesday, I thought it would be helpful to go into a bit of detail around what overhead means.
First and foremost, overhead is NOT a bad thing. It is a necessary component of running a nonprofit. Overhead consists of administrative and fundraising expenses. When a nonprofit reports out on its finances, these categories, along with program expenses, are what they must divulge. If you look at Charitynavigator.org, Charity Watch, or GuideStar USA, Inc., you'll see a breakdown of these expenses listed as percentages. My recommendation—for both nonprofits and donors—is not to be scared off about overhead expenses in the 20-30% range (meaning program expenses would be 70-80%).
For nonprofits that are not on these sites—and there are many because the requirements to be added are lengthy requirements—I highly recommend dedicating a page on your website to financial transparency. Typically, this is a page located under the "About" section of your site, and includes previous tax filings, as well as annual reports. If you don't have a robust annual report, that's fine. However, taking the time to put together a bit of information about the previous year's finances will go a long way in reassuring potential donors and funders. This can be as simple as using excel to make some charts that display:
Expenses - broken down by program, fundraising, and general/admin and
Revenue - broken down by any combination of the following: foundation grants, individual contributions, government grants, corporation contributions, and professional service fees.
Revenue increase by year (if you are able to).
For donors. Before donating, I recommend looking a nonprofit up on one of the aforementioned watchdog websites and looking at their budget breakdown. Some smaller nonprofits will not be listed on those sites, or will not have a detailed budget breakdown. That is because many of the sites require nonprofits to submit detailed applications, including multiple years of tax filings, and much more. Don't be deterred from donating simply because of an organization's absence on one of those websites. The next step is to look at the nonprofit's website and see if you can find their tax filings or their annual reports. Both of these documents should lay out their financial status from year's prior and provide you with transparency.
Now go out and give. #GivingTuesday