Operating expenses, also known as overhead, are any cost associated with operating your organization. These costs can then be divided into two subcategories, direct costs and indirect costs. Direct costs can be defined as any expense that is required to develop a project. Indirect costs are expenses that are not related to the actual project. Salaries and office rent are examples of indirect cost. It is important for the grantmaker and grantee to agree on what percentage of the grant is being allocated towards overhead. In the past, grantmakers have put a 15% cap on the amount used towards overhead. The overhead will vary depending on the project.
Interested in more information about operating expenses? Chect out these resources?
- “What is Overhead, Anyway?” In this piece, Kylie Musolf defines overhead and provides different scenarios of when overhead might vary. this article also contains insight from philanthropic experts.
- “What drives foundation expenses and compensation: Results of a three-year study.” This report describes in detail how foundation expenses can vary based on a number of factors.
- “Why we must stand up for overhead.” Katherine Lorenz, a family foundation CEO and fellow at NCFP, argues that any business, including a nonprofit, cannot productively operate until overhead expenses are paid. In the article, she stresses the importance of covering the operating expenses for the organizations you support.