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Streetsmart Financial Basics for Nonprofit Managers by Thomas A. McLaughlin

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Chapter 16The Milestones of Spending on Overhead Costs

One of the permanent paradoxes of the nonprofit management field is that while everyone would prefer to spend resources on programs rather than on administration, spending on administration is essential to a nonprofit's well-being. Moreover, as an organization develops, administrative spending changes in amount, and it also changes in focus. The argument here is that, within broad bounds, it's possible to describe typical spending patterns as an organization moves through distinct phases of growth.

The following is based on observation and experience, not statistical research. For that reason, the applicability will vary across organizations. For some, the thumbnails provided here will no doubt apply closely. Others will only match different situations at very different times because of the unique nature of their operations. For all organizations, however, the general concept of incremental increases in administrative spending will be proportionately accurate.

Some nonprofits minimize their reported overhead spending for public relations purposes: While a given nonprofit may or may not do this, we focus here on functional overhead, irrespective of how it may be reported. For analytical purposes, we'll assume that about 10 to 15 percent of every revenue dollar goes toward administrative costs. Again, the details may be different in each case; what matters is the underlying proportionality.

$0–$750,000

This kind of small organization ...

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