It’s hard to avoid the frequent discussion among nonprofit staff and even donors about overhead. While some insist overhead is not a true measure of an organization’s effectiveness (and we won’t argue that), the reality is that overhead is a fairly simply yardstick that donors generally understand – even if their understanding isn’t fully informed.

So let’s answer a few questions first about overhead.

What is overhead? In its simplest form, overhead is the cost of doing business by your nonprofit organization. Basically, it is management and general expenses (salaries and benefits, utilities, rent or mortgage, the annual staff party, insurance and much more) plus fundraising expenses. When all those are covered, what’s left is what you can spend on program – the work your mission says you do.

How is overhead calculated? Calculating overhead is not open for negotiation! While it is not a law, there is a “generally accepted accounting principle” (GAAP) for determining what is and what isn’t overhead. For a nonprofit organization, the standard is:

Management and General Expenses + Fundraising Expenses

Divided by Total Expenses = Overhead

Where can I find these numbers? Every year, most nonprofit organizations are required to file a Form 990, Return of Organization Exempt From Income Tax, with the IRS. (Very small organizations in terms of revenues do not have to file; nor do some religious organizations or government organizations.) These numbers are found on Part IX, Statement of Functional Expenses.

Where can I get a 990? By law, the 990 must be made available to anyone upon request. It is not a secret document! Many nonprofits have started putting it on their website as a sign of transparency. Guidestar (www.guidestar.org) also provides some (but not all; after all there are 1.5 million nonprofits in the U.S.). Or you can just ask; even though you are an employee, by law you are entitled to a copy upon request.

Why read the 990? As noted, the 990 is a public document. There is always a possibility that your donors have obtained and read a copy – and you may be asked questions about the contents of the 990. Just like you study your donor’s profile before approaching them for a major gift, you should study your organization’s 990 “profile” to be as informed as possible about the work you believe in and are asking your donor to believe in, too.

How often do 990s change? A nonprofit required to file the 990 must do so annually. It is due the 15^th day of the 5^th month following the close of the fiscal year. An organization can also file an extension, so don’t jump to conclusions if the latest 990 is more than 17 months old.

Wise fundraisers try to know at least as much about their organization as their donors could potentially know. While familiarizing yourself with the 990 may not be the most exciting work you do, your knowledge can save you some embarrassment later on if an informed donor starts to question you about something he or she read on this public document or about your overhead rate.