One of the biggest challenges for not for profit organizations is how to fund the administrative or overhead costs of the organization. These are the indirect costs you can’t attribute directly to the program. It includes items such as accounting, audit, insurance, IT costs, board governance among others. Some people call this administrative costs, other overhead costs but whatever term you use the challenge is the same.
The first step in convincing people to pay for these costs is to educate them on what they are and why they are critical to the operation of your organization. Funders often want to pay only for direct programming costs. These are usually the type of expenses that are tangible and they can see in action. In reality the program would not be able to operate without the supporting administrative expenses.
For example, not many people want to pay for insurance but you wouldn’t be able to run your programs if you didn’t have insurance and as we know insurance costs are significant. Everyone expects the organizations to be accountable for the funds they receive and to use them effectively. In order to do this you have to have good financial systems and controls. We are all dependent on our IT systems working. Legally we are required to have a board. All of these things require funding.
There are funders who will provide some funding for administrative expenses but they generally want a description of what this includes. What I have found useful is to have a document that lists the components of the administrative or overhead costs along with a description of what these expenses contribute to the organization. This can be very beneficial to you internally as well as externally. In my experience program staff within the organization often have little knowledge of the importance of the administrative costs to the existence of their program. They have no idea of the true cost of running a program. If we want external stakeholders to understand and fund these costs we need to make sure the people within our own organization have the same knowledge.
In a future blog I will talk in more detail about how to budget for administrative costs both for internal organizations budgets and project proposals.