A Helpful Guide to the Complete List of Expenses for a Nonprofit
Although nonprofits use their revenue to provide valuable support to their beneficiaries, they still have to cover a wide range of expenses, just as for-profit companies do. Most nonprofits rely on funding to finance staff salaries; afford office space rentals, legal fees, and program costs; and manage other day-to-day operations. For small- to medium-sized charities that are beginning to grow and accrue more expenses, narrowing down their list of necessary expenditures can prove challenging.
But it does not have to be!
If your nonprofit falls into this category and you are looking for guidance, this overview of nonprofit expenses will teach you how to categorize them, and better yet, how to account for them. Then you can be well on your way to creating a thorough, concise annual budget and filing your yearly taxes with ease.
- Why Understanding Your Nonprofit’s Expenses Matters
- How Do We Define an Expense?
- A Complete List of Nonprofit Expenses + How To Navigate Them
- Final Thoughts
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Why Understanding Your Nonprofit’s Expenses Matters
No nonprofits are built the same — and their methods of operation certainly are not either. Understanding the mechanisms behind both your nonprofit’s income and expenses is the first step to figuring out just how it can operate at peak efficiency with a reasonable amount of overhead and direct costs. Essentially, if you have a grasp on your accounting, you can easily identify the health of your organization.
Tristan is excited to dive in and learn about all his nonprofit's potential expenses!
It will also make your nonprofit stand out among organizations that measure accountability and transparency, such as GuideStar. Having top-notch accounting garners high ratings on these charity databases. This is good for your branding because you can highlight your credibility to potential members, donors, or other supporters by pointing them in the direction of these objective, third-party sources.
How Do We Define an Expense?
According to Generally Accepted Accounting Practices (GAAP), expenses are the cost of operations a company incurs to generate revenue, in connection with products produced or services provided. Those who make financial decisions within your organization will want to ensure your expense and revenue reporting is as accurate as possible so that all sectors, such as your HR department that pays out salaries, can fully understand your nonprofit’s budget goals.
Pro Tip: While many nonprofits make or sell products, others do not. For those that fall into the latter category, their money-making model will rely on fundraising rather than a balance of spending and selling. When you create your annual budget, first assess what operations model your nonprofit falls under, and then go from there.
A Complete List of Nonprofit Expenses + How To Navigate Them
A cost is the amount of money a company pays to manufacture and sell its product or service.
Several types of costs are associated with nonprofits.
Functional costs are related to specific departments within a nonprofit.
Your nonprofit’s finance team will want to create a process for functional expense allocation. This keeps track of all functional costs for easy sharing with stakeholders, such as donors. Of course, you also want to make sure your nonprofit has the basics covered in the eyes of the government. These resources can ensure that:
Your nonprofit’s bookkeeper is essentially working to impress both the IRS and funders, so give them a big thank you when you can!
Pro Tip: Calling all nonprofit accountants. Work smarter, not harder! Search the web for tools, methods, and other resources that can keep your (likely very long) list of numbers organized and accessible to anyone who may be reviewing it. On that note, Springly offers a full accounting suite that helps automate a lot of these entries.
Operational costs are expenses a nonprofit incurs — whether it is actively generating a product or service or not generating one at all. Essentially, operating expenses are the "keep the lights on" costs of the nonprofit world.
Literally keeping the lights on — meaning electricity and other utilities
Office supplies and equipment
Cleaning supplies or services
When recording costs for an operating budget — or any category of costs mentioned in this article, for that matter, — note that the IRS does not indicate how much you should spend, as this varies from nonprofit to nonprofit.
Administrative costs refer to money spent on a nonprofit organization’s management and operation. These are typically costs that only the people within an organization, such as the staff and board, see.
These costs include:
Any expenses related to board meetings
Human resources platforms
Administrative costs are often a nonprofit’s largest source of overhead because they frequently involve services that are outsourced to other companies. These expenses cannot be allocated and should be grouped with other general costs. However, paying attention to these costs separately within the organization can give bookkeepers a better understanding of asset allocation.
Trish is pondering all the administrative costs her nonprofit might be incurring!
Development costs are expenses that directly relate to achieving the goal of your nonprofit’s mission.
Examples of development costs can include:
Community fundraisers at restaurants or other businesses
Any expenses associated with advertising for fundraising events, such as postage and printing
Development costs fall under the umbrella of administrative expenses. They can be recorded as such on your tax form.
Fixed expenses within your nonprofit do not change. Generally speaking, if your nonprofit’s bookkeeper records a cost that remains consistent for multiple months in a row, it is considered a fixed cost.
Examples of fixed costs include:
Fixed costs should be recorded as a lump sum at the end of each fiscal year or when your nonprofit undergoes an audit.
Pro Tip: Grants can help take the stress off many fixed costs, saving your nonprofit hundreds of dollars. Do research for applicable grants in your area.
Variable costs are nonprofit expenses that change regularly. These costs need to be recorded according to each month’s individual data.
There is quite a bit of crossover here with utilities, which are also considered operational costs above. These costs change based on usage. For example, your office’s heating bill is higher in the winter and practically nonexistent in the summer.
Pro Tip: You may be able to write off several expenses on your nonprofit’s tax returns. See what you can declare on your 990 tax form to find out how your nonprofit could be saving money each fiscal year.
And there you have it! We hope this guide has proved useful in helping you navigate the many categories (as well as the twists and turns) of nonprofit costs. Incorporating these principles can help you run your organization smoothly and create a stellar reputation in the eyes of the public.
As nonprofits grow, and their list of costs grows in tandem, keeping everything organized can prove difficult. The good news? You are not the first organization to go through this economic journey, and you certainly will not be the last. Resources are everywhere — and many of them are on Springly’s website! We wish you the best of luck as you learn to handle your nonprofit’s expenses so that you can bring your humanitarian vision to life.
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💡What is the GAAP definition of an expense?
Expenses are all of the funds a company spends to make and sell their product or service. Find out more.
🔑 What expenses do nonprofits have?
Nonprofit expenses can fall into one or more of these categories: functional, operational, administrative, development, fixed, and variable costs. Find out more.
📝 Why is it important to understand the expenses of your nonprofit?
If you understand the types of expenses your nonprofit has, you can determine how much to invest in each to strike a balance between running efficiently and spending wisely. This accountability also looks attractive to potential and current supporters. Find out more.