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 

385 Elle Benson is the Director of Capacity Building for the Alliance for Better Nonprofits (ABN), East Tennessee’s nonprofit resource center. She oversees the educational development and consulting practices at ABN. Elle brought ten years of nonprofit and business consulting experience into assisting in the creation of ABN. Her nonprofit experience includes fundraising, nonprofit program development, nonprofit and corporate marketing, human resources, board governance, and strategic planning. She holds a certification in board governance from BoardSource, a global network advancing board governance practices. She also has a certificate in group facilitation. She earned a business degree from the Haslam College of Business, and she completed her MBA in leadership and organizational change at Tiffin University. She currently teaches nonprofit management for the University of Tennessee Non-Credit Programs. Elle enjoys being involved in the community, having served on eight nonprofit boards. She is currently serving on boards and committees for the Association of Infant Mental Health in Tennessee, Friends of Literacy, United Way of Greater Knoxville, and Young Professionals of Knoxville.