Perception Change of Overhead
Overhead has received a bad rap, I think because it’s associated with accounting terminology, and that’s hard to get excited about. Indirect costs are a part of any business or organization, large or small, for-profit or not-for-profit. The 990 classifies overhead as management and general costs, indirect program costs, and fundraising expenses as overhead.
Organizations need overhead to be financially sustainable and indirect costs are not an accurate measurement for an organization’s effectiveness. Rather than measuring overhead and operational costs, we should measure the not-for-profits impact on the community and long-term effectiveness. There are costs associated with doing business, staff need to be paid an equitable rate, the lights must be on, and operational bills must be paid.
How can we change the perception of overhead? Ideas for change:
- Communicate your costs in relationship to your outcomes to your board, the community and grantors.
- Define your overhead costs with explanations. It’s hard to judge an organization negatively for paying their electric bills. Being transparent will be help trust with your funders.
- Engage your board in the development of the operational budget. Most board members work in for-profit companies that understand overhead and the direct impact and importance on the organization.
Read More: Economic Efficiency by The Bridgespan Group
Elle Benson is the Director of Capacity Building for ABN. She is originally from Denver, Colorado and came to Tennessee via UT Knoxville where she graduated from the College of Business. She recently completed her MBA in Leadership at Tiffin University. Before joining ABN, Benson served as Marketing Supervisor for LBMC, PC and was the Director of Operations for the YWCA Knoxville. She is the past President of Young Professionals of Knoxville (YPK) and served as the Curriculum Chair for the Inaugural YPK Leadership Certificate program. Benson serves on the board for the Friends of Literacy, Knoxville Marketing Association and the United Way Young Leaders Society.