List of expenses for nonprofits and tips for tracking them

Nonprofit organizations need to be mindful of their expenses and capital budget. After all, the more a nonprofit spends on non-essential costs, the less funding is available to use toward fulfilling its stated goal. Likewise, maintaining tax-exempt status means that nonprofits need to adhere to certain spending requirements, in addition to accurately tracking spending. 

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In our research, we’ve found that nonprofits typically incur costs in the following expense categories:

• Personnel expenses
• Operating expenses
• Functional expenses
• Administrative expenses
• Developmental expenses

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In this article, we’ll take a closer look at each of these expense categories, and offer advice to help you think about your expense management strategy.

Why nonprofits need to keep track of expenses

Expense tracking and management are an important part of effectively running a nonprofit organization for a number of reasons, including: 

• It helps you see how you are spending your money. Knowing where your money is going on a monthly, quarterly, and annual basis makes it easier to create accurate cash flow projections and a good budget for both the short and long term.
• It helps you identify unnecessary costs. These non-mission critical costs can then be cut from your budget to free up cash flow you can use to work toward your organization’s mission.
• It provides transparency. Transparency about your organization’s revenue and expenses can help you in fundraising conversations with donors, as well as strategic conversations with your board of directors.
• It’s necessary to gain and retain a 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

No two nonprofit organizations are exactly alike. Your organization’s mission, focus, donor base, and structure are unique to you. So, likely, are your expenses. That said, here’s a list of some of the categories a nonprofit is likely to encounter.

Operating expenses

Operating expenses, as a category, broadly refers to any direct overhead costs that a nonprofit incurs as a part of running its operations. This includes a wide range of costs related to a nonprofit’s overhead expenses, including:

• 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.)

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If your organization actually creates a product—whether to sell or donate—your operational budget would also include associated costs, such as the cost of materials or components. 

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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 can 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

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Depending on the size of your nonprofit, how many workers it employs, and whether those workers are employed on a full-time or part-time basis, personnel expenses can account for a significant amount of your organization’s cash flow. 

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 chooses to outsource them to a third-party vendor or partner. Some examples of functional expenses include those related to:

• Marketing
• Advertising
• Public relations
• Sales
• IT services 

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

• Program expenses, which are directly related to fulfilling your organization’s mission
• Fundraising expenses, which are related to how your organization raises funds via grants or donations from donors
• Management and general expenses, which are related to 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 your nonprofit may incur include:

• Administrative staff salary and wages
• Accounting services and accounting software (bookkeeping)
• Legal services
• Human resources (HR) services
• Business and property insurance
• Business travel expenses
• Depreciation and amortization 

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This expense category also includes miscellaneous costs, such as those related to permitting, licensing, and compliance. 

Developmental expenses

Finally, developmental expenses refer to any cost related to how you actually fund your nonprofit’s operations. This can include program costs related to specific fundraising events your organization hosts, such as:

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

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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)

One-time vs. variable vs. recurring costs

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

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Recurring costs are any expenses that your organization incurs on a regular, repeating schedule—such as on a weekly, monthly, quarterly, or yearly basis. They are also called regular or fixed costs. In addition to occurring on a predictable schedule, recurring costs do not fluctuate in dollar amount; they’re the same cost each time. This regularity makes it easy to work them into your projections and budgets. Examples of recurring expenses can include rent payments, salaries, phone and internet bills, and software subscriptions. 

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Variable costs, on the other hand, are less predictable. That’s because they fluctuate over time—sometimes higher and sometimes lower—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. 

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Finally, one-time costs are exactly what they sound like: Expenses that your nonprofit incurs on a one-time basis. They’re also sometimes called extraordinary expenses. One-time costs can be easy or difficult to predict and budget for, depending on the circumstances. If you know that a one-time cost is on the horizon, you can easily work it into your organization’s budget for the quarter or year; if it pops up as a surprise, however, it has the potential to blow a hole in your budget. Examples of one-time costs can include surprise equipment purchases or legal expenses. 

How to keep track of 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 doing so and allowing that person to shape your policies, and help generate financial reports and financial statements. 

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That being said, here is some advice to help guide you as you begin thinking about your budgeting process and how your organization tracks and manages its expenses. 

Establish expense, reimbursement, and credit card policies

Making your nonprofit dollars go further requires discipline when it comes to expenses. Having 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. 

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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

In order to retain a tax-exempt status with the IRS, your organization must keep accurate records of both its revenue and expenses. Properly categorizing your nonprofit’s expenses is a key part of meeting this documentation requirement. 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 your organization losing its 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 its financial management, Ramp offers a number of solutions that can help you do expenses right.

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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. 

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