List of expenses for nonprofits and tips for tracking them

When you’re managing a nonprofit organization, you need to be mindful of your expenses and capital budget. You know very well that when you spend more on non-essential costs, there’s less funding available for fulfilling your stated goals.

Likewise, maintaining tax-exempt status means nonprofits need to adhere to certain spending requirements, in addition to accurately tracking spending.

Typically, nonprofits incur costs in five main expense categories:

• Personnel
• Operating
• Functional
• Administrative
• Developmental

In this article, we take a closer look at each of these expense categories, and provide tips to help you with your expense management strategy.

Why nonprofits need to track expenses

Expense tracking and management is an important part of effectively running a nonprofit organization. Some of the main reasons include:

• Visibility into your costs: Knowing where your money is going on a monthly, quarterly, and annual basis makes it easier to create accurate cash flow projections and to budget for both the short- and long-term
• Identifying cuts: Non-mission critical costs can then be cut from your budget allocations to free up cash flow you can use to work toward your organization’s mission
• Transparency: A clear view into your organization’s revenue and expenses helps with fundraising conversations with donors, and strategic conversations with your board of directors
• Retaining tax-exempt status: The Internal Revenue Service (IRS) requires a nonprofit (i.e., “exempt organization”) to document its income and expenses on an annual basis

List of nonprofit expenses

Your nonprofit organization’s mission, focus, donor base, and structure are unique to you, and so, likely, are your expenses. But there are some commonalities across all nonprofits.

This is a list of some of the categories your nonprofit is likely to encounter.

Operating expenses

Operating expenses broadly refers to any direct overhead costs for running your business. The direct costs include:

• Rent, lease, or mortgage payments for office space
• Utilities (electricity, gas, water)
• Debt financing and interest payments
• Local taxes and property taxes
• Office supplies and cleaning supplies
• Electronics and equipment (laptops, printers, scanners, etc.)

If your organization actually creates a product—whether to sell or donate—your operational budget also includes associated costs, like materials or components.

As a note, operating budgets also often include personnel, functional, and administrative expenses, which we’ve broken out below for more detail.

Personnel expenses

Personnel expenses are any costs related to how your organization compensates its employees and staff. Examples of these types of expenses include:

• Salaries
• Performance bonuses and incentives
• Health care coverage
• Life insurance and disability coverage
• Tuition reimbursement
• Employer contributions to retirement accounts
• Any other employee perk or benefit

Personnel expenses can account for a significant amount of your organization’s cash flow depending on the size, the number of people on your team, and whether they are employed on a full-time or part-time basis,

Functional expenses

Functional expenses are any expenditures related to specific departments or functions within your organization. This is true whether your organization handles these functions in-house or outsources them to a third-party vendor or partner. Some examples of functional expenses include:

• Marketing
• Advertising
• Public relations
• Social media
• Sales
• IT services and website maintenance

From a nonprofit accounting perspective, functional expenses typically fall into one of three broad categories:

• Program expenses: These are directly related to fulfilling your organization’s mission
• Fundraising expenses: How your organization raises funds via grants or donations from donors
• Management and general expenses: Theses have to do with the day-to-day operations of your organization

Administrative expenses

Administrative expenses are the costs associated with how your nonprofit manages (i.e., administers) its operations. Examples of administrative costs include:

• Administrative staff salary and wages
• Board costs for travel or accommodations
• Accounting services and accounting software (bookkeeping)
• Legal services
• Human resources (HR) services
• Team training and development
• Memberships and subscriptions
• Business and property insurance
• Business travel expenses
• Depreciation and amortization

This expense category also includes miscellaneous costs, like permitting, licensing, and compliance.

Developmental expenses

Developmental expenses include program costs for fundraising at specific events like:

• Volunteer recruitment
• Volunteer appreciation
• Fundraising costs, like dinners, galas, and banquets
• Walk-a-thons, 5k, and 10k races
• Silent auctions
• Phone-a-thons
• Community fundraisers
• Capital campaigns
• Thank you gifts

It can also include non-event related expenses, such as costs associated with:

• Grant proposals (employing a grant writer, purchasing software)
• Soliciting donors (email marketing, online donation platforms)

Recurring vs. variable vs. one-time costs

As you can see, potentially there can be some overlap in these categories, so how you categorize your expenses should be based on the needs of your nonprofit.

In addition to the expense categories outlined above, your nonprofits expenses can also be broken out into recurring, variable, and one-time costs:

• Recurring costs: Any expenses that your organization incurs on a regular, repeating schedule—such as on a weekly, monthly, quarterly, or yearly basis. Recurring costs are also called regular or fixed costs. They’re the same cost each time, so they’re easy to work into your projections and budgets. Examples of recurring expenses include rent payments, salaries, phone and internet bills, and software subscriptions.
• Variable costs: Variable costs, on the other hand, are less predictable. That’s because they fluctuate over time, making them more difficult to account for in your budget. Examples of variable costs can include utility bills, the cost of raw materials, shipping costs, food costs (for fundraising events), travel expenses, and more.
• One-time costs: And finally, one-time costs are expenses your nonprofit incurs on a one-time basis. They’re also sometimes called extraordinary expenses. If you know a one-time cost is on the horizon, you can easily work it into your organization’s budget for the quarter or year, but if it pops up as a surprise, it has the potential to blow a hole in your budget. Examples of one-time costs can include surprise equipment purchases or legal expenses.

Tips for tracking nonprofit expenses

Nonprofit accounting can be complicated, and requires a thorough understanding of both accounting best practices, nonprofit law, and tax law. If you are not already employing a nonprofit accountant, you may want to consider it so that person can help shape your policies, and generate financial reports and financial statements.

But as you’re thinking about your budgeting process and how your organization tracks and manages expenses, here are a few best practices to guide your process:

Establish expense, reimbursement, and credit card policies

Establishing a clear and thorough expense policy, reimbursement policy, and credit card policy can go far in helping your employees and stakeholders understand the difference between necessary and inappropriate spending.

These documents together outline a lot of key information related to how your organization spends its funds, including:

• Expense categories
• Your expense approval process
• Documentation requirements (i.e., receipts)
• Reimbursable vs non-reimbursable expenses
• Authorized actions
• Spending limits
• Terms of use

Accurately categorize expenses

To retain a tax-exempt status with the IRS, you need accurate records of both your revenue and your expenses. Properly categorizing your nonprofit’s expenses is a key part of meeting documentation requirements. It also gives you clearer insight into how your organization spends its funds.

Require receipts and documentation for all expenses

Documenting your nonprofit’s expenses with receipts (invoices, etc.) isn’t just a best practice. It’s a necessity. Failure to properly document expenses can result in losing your tax-exempt status. Likewise, failing to document employee reimbursements with receipts means that those reimbursements risk becoming taxable income.

Easy nonprofit expense management with Ramp

Whether your nonprofit is just getting off the ground, or it’s well-established and looking for ways to improve your financial management, Ramp offers solutions for managing expenses right.

Use Ramp’s corporate cards to set spending categories and spending limits on an individual basis so that you can facilitate authorized spending while minimizing unauthorized purchases—with no annual fees and no interest charges. Likewise, use Ramp’s expense management software to submit, categorize, document, approve, reimburse, and track expenses all from a single, central platform.

Interested in learning more about how Ramp can help your nonprofit manage its expenses? Request a demo, or try Ramp for free today.