What are the ongoing expenses of a non-profit? How do you reduce your expenses in a not-for-profit business? Here is everything you need to know. A major component of financial sustainability in a non-profit is the commitment of board and staff to financial management.
One way that the board and staff plan for income and expenses in the future is by creating a budget. Approval of the annual budget is one of the primary building blocks of sound financial management. A non-profit operating budget is a financial document that provides an overview of how a non-profit organization is planning to spend its money.
It also breaks down in detail the non-profit’s operating expenses and overall costs. The non-profit operating budget is essentially the financial reflection of what the non-profit business expects to achieve over a 12-month period (annual budget).
Creating the annual budget is initially the staff’s responsibility, but board members are known to often review the proposed budget and the board adopts the budget at a full board meeting. The approved budget then serves as a guide for financial activity in the months ahead.
Once adopted, the operating budget also becomes a crucial financial management tool helpful in monitoring ongoing operations and organizational activities throughout the year. With each reporting period, the organization compares actual performance against its plan.
Although a non-profit organization reinvests any incoming profit into its services, research, or local programs, it does require funding to operate on a daily basis. Together, administrative expenses and fundraising expenses make up a non-profit’s “overhead,” or “operating expenses.” However, these costs may vary depending on the non-profit organization in question.
What are the Ongoing Operating Expenses of a Non-Profit?
These expenses are directly related to carrying out the non-profit’s mission, and that result in goods or services being provided—for example, expenses to teach a class, put on a performance, provide healthcare, or deliver food or clothing to the indigent.
While some nonprofits focus on conducting research with the goal of finding a treatment or cure for a specific disease, others focus on providing services or programs to help the local community. All these programs cost money to operate and will vary depending on the size and scope.
They are called flexible expenses because they change each month but play a role in the general operations of a non-profit.
Flexible expenses include rental car fees when attending conferences out of town, hiring temporary help for the office or programs, and costs associated with hosting events and fundraisers. While one month may not have any flexible expenses, other months may exceed the fixed expenses.
These expenses are for the non-profit’s overall operation and management—for example, cost of the board of directors’ meetings, general legal services, accounting, insurance, office management, auditing, human resources, and other centralized services. A non-profit organization hires employees to keep the organization operating smoothly.
Common employees include a board of executive members, a CEO, office employees, and representatives. Larger non-profit organizations may also hire managers for the office. Each of these workers requires payment for their work. Larger nonprofits may offer benefit packages and health coverage, meaning that these factors also contribute to operation costs.
The term “fixed expenses” simply refers to those payments that are continuous each month. These figures do not necessarily change month-to-month.
Rent, bills, utilities, Internet and telephone bills are all fixed expenses. These expenses are the most common operating costs, as a non-profit organization may not be able to perform general services, programs, or tasks without these readily available.
Fundraising costs are supporting expenses associated with an organization’s call for financial support or monetary contributions. This would include all expenses related to fundraising events, direct mail campaigns requesting donations, and the salaries of employees working on fundraising.
Running a non-profit organization is a constant balancing act. Nonprofit professionals continuously balance the current needs and demands of internal and external stakeholders, short-term priorities, and long-term vision. For that, financial leadership is necessary.
It helps non-profit professionals adapt to the demands of the changing environment and maintain the balance needed for mission impact and sustained financial health.