Working in a nonprofit, it’s important to understand how to calculate overhead correctly, and even more important to be sure the organization’s leaders understand and agree on what it is, and how it’s shown in financial statements.
There are so many ways of classifying overhead. Separating it out into Program Expense, Fundraising, Administrative or Executive costs can be tricky; especially when you’re talking about a service-driven organization where the greatest expenditure is sometimes staff. It’s a challenge, but understanding overhead can be one of the most important pieces of information Board members and Executive staff to get right.
I appreciated this article by Jan Masaoka & Steve Zimmerman, through Blue Avocado. Give it a read, and look again at how your overhead is calculated. Have you got it right? Need help with this? We’ve got lots of experience with different models. Give us a call, and we’ll help you figure it out.