While we can’t avoid the costs of overhead if we want to keep a nonprofit running, we also wouldn’t want to completely avoid overhead costs either. In the following paragraphs, I will explain a bit more about what overhead means exactly, and more importantly why it is so important to Non-profit organizations.  

What is Overhead?  

Generally overhead costs are the costs necessary for the non-profits existence but are not in direct relation to the organizations’ mission. These kinds of costs may include: administrative expenses, office supplies, transportation and fundraising expenses, professional fees and virtually any costs indirect but essential for the nonprofit’s goals.  

Why is Overhead so Important for Nonprofits?  

Non-profits tend to operate through the funds given to them by grants or donations. Many of the donors and sponsors select which non-profit organizations to donate to, as well as how much monetary fund to give, based on an organizations overhead rate. These sponsors sometimes set limits on what an organization maintains its rate at, and refuse funding organizations with too high of an overhead rate.  

How Do I Find My Overhead Rate?  

Overhead rate of an organization is found by:  

What Should my overhead rate be?  

In theory, a good overhead rate falls within 10%-35%. While having an evident overhead rate shows Sponsors that you are meeting your needs and allocating funds well for running the organization and meeting its legal and operational needs. Reducing the overhead rate to as low as possible while still meeting your organization's basic needs often results in more funding.  

Tips for Overhead Management  

• When Funds do not cover overhead costs effectively, bring additional cash into the organization through generating a source of income as a traditional business would  
• Hire a professional Accountant or employ good accounting software to help maintain your overhead expenses effectively and orderly—these will help when it comes time to file your Form 990 to receive all tax benefits entitled to your organization  
• Categorize overhead costs so it is visible to see which are contributing most to the overhead expense  
• When trying to lower an overhead rate, try negotiating prices on contracts, shopping around for the best deals on supplies, and going green.  

HTH & Accounting Associates help organizations and business owners with accounting and/or financial consulting services.

For Help with accounting or Bookkeeping contact us at accounting@thaddeus.org or call us at 909-599-2111.  

Thanks for reading

Eliza

‍