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Jan 15 2019

Nonprofit Support Services: Impact On Bottom Line

Nonprofit Support Services expenses include administrative and fundraising costs. These cost categories are essential for the operation of your nonprofit, and for the management and fulfillment of your mission based programs.

Nonprofit Support Services vs Program Costs

Nonprofit administrative costs are necessary to run your organization. Fundraising expenses are the expenses incurred to raise the funds from donors and fundraising events. Program expenses are the costs necessary to operate your mission based programs. It is the money spent to further your mission.

Nonprofits who are required to file the annual IRS 990 must be able to segregate their expenses into three main functional areas: Program Services, Management and General and Fundraising.

Keeping a watchful eye on expenses

While there is no mandate on the maximum percentage of total cost allowed for support services, nonprofits must be pay attention to the amount spent on these costs in relation to their program costs. Even though it may not seem fair but you may not think it is fair, some donors and funding sources will make decisions on their donations to your organization based on the ratio of your support services expenses to your program expenses.

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Addressing the Nonprofit Overhead Myth

Nonprofit administrative expenses are referred to as overhead necessary to run the organization. As defined by the Form 990, this refers to the amount spent annually on management and general expenses. These include the cost of employees who do not work directly in your program, insurance, building maintenance, event planning and marketing.

Ratios that show a high percentage of expenses going to overhead may face challenges obtaining grants, donations and positive ratings. By contrast, when overhead is low, nonprofits may be underfunded and can lead to understaffing, lower productivity and insufficient funds to meet their goals. Overhead expenses are relative and should be viewed in terms of transparency and accountability.

As the saying goes, “Spend money to make money”, the same holds true for nonprofits. Many nonprofits should spend more on overhead. These include investment nonprofits make to improve their mission: investments in employees, training, planning, evaluation, and internal systems — as well as efforts to raise money to operate programs. These expenses promote sustainability.

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Tracking Expenses Using Nonprofit Software

Using online nonprofit accounting software, such as FastFund Accounting, will help your organization keep track of all your functional expenses by program, management and general and fundraising. Its segmented, table-driven chart of accounts easily generates functional expense reports showing the segregation of your expenses and help management properly monitor and manage expenses to make sure your are in compliance with funding sources and can demonstrate proper transparency.


Schedule a FastFund Online Demo: Learn more about our unique software approach to nonprofit accounting, payroll and fundraising.


Bottom Line

The financial data in FastFund Accounting helps management determine the sustainability of your programs with the resources available and help plan for future growth and success for your nonprofit.

Want to read more? Check out these insightful articles:

  • Functional Accounting: Guide to Classifying Expenses
  • Advantages of Fund Accounting Software for Nonprofits
  • Nonprofit Accounting Course: Essential Skills Training
  • Nonprofit Form 990: Essential Information For Preparation
  • Funding Nonprofit Overhead For Functional Expenses
  • Accounting for Nonprofits: Blog Series
  • Investing In Nonprofit Overhead Reaps Rewards
  • Nonprofit Accountability: How Charity Watchdogs Impact Donations

Did you find this article useful? We welcome your thoughts and comments.

Written by Joseph Scarano · Categorized: Accounting for Nonprofits · Tagged: Accounting Software for Nonprofits, Cost Allocations, Functional Accounting, Fund Accounting, Nonprofit Fund Accounting Software

About the Author

Joseph Scarano is the CEO of Araize, Inc., developers of cloud-based FastFund Online Nonprofit accounting, fundraising and payroll software solutions to help your nonprofit become more transparent, accountable and sustainable.

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Comments

  1. Hassan Mowlid Yasin says

    August 14, 2021 at 5:59 am

    It was helpful thanks

    Reply

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