Decoding Nonprofits: Your Guide to Finding the Operating Budget on a 990 Form

The Form 990 is a treasure trove of information about a nonprofit organization, but navigating it can feel like deciphering an ancient scroll. One of the most sought-after pieces of data is the operating budget. Luckily, finding it isn’t as daunting as it seems. The operating budget is essentially the organization’s planned expenses for the year, reflecting how much they anticipate spending to achieve their mission. Look for Part I, Line 12, “Total Expenses” on the core Form 990. This line provides the overall figure representing the organization’s operating budget, reflecting all expenditures for the fiscal year covered by the return.

Understanding the Form 990: A Nonprofit’s Financial DNA

The Form 990, officially titled “Return of Organization Exempt From Income Tax,” is an annual information return that most tax-exempt organizations in the United States must file with the IRS. It provides the public and the IRS with a detailed overview of the organization’s activities, finances, and governance. Think of it as the nonprofit’s financial DNA, revealing its strengths, weaknesses, and overall health.

Why is Finding the Operating Budget Important?

Understanding a nonprofit’s operating budget is crucial for several reasons:

• Donors: Potential donors use it to assess the organization’s financial responsibility and efficiency. Does a high percentage of donations go directly to program services, or is it eaten up by administrative costs?
• Grantmakers: Granting foundations rely on budget information to determine if the organization is a good fit for their funding priorities and if it has the capacity to manage a grant effectively.
• Researchers: Academics and researchers use 990 data to analyze trends in the nonprofit sector and to understand how nonprofits operate.
• Board Members: Board members need a clear understanding of the operating budget to effectively govern the organization and ensure its financial sustainability.
• The Public: The public has a right to know how nonprofits are using their tax-exempt status and donated funds.

Deciphering Part I, Line 12: Total Expenses

As mentioned earlier, Part I, Line 12 is the primary place to find the total expenses, which represents the operating budget. However, a closer look at the Statement of Functional Expenses (Part IX) provides a much more granular view. Part IX breaks down expenses into three key categories:

• Program Services: Expenses directly related to the organization’s mission and programs. This is often considered the most important metric for donors and grantmakers.
• Management and General: Administrative expenses, including salaries for executive staff, office rent, and accounting fees.
• Fundraising: Expenses related to soliciting contributions, including direct mail campaigns, fundraising events, and grant writing.

Analyzing the allocation of expenses across these categories provides a much richer understanding of how the nonprofit operates. For example, a nonprofit with a high percentage of expenses allocated to program services is generally viewed more favorably than one with a large percentage allocated to management and general or fundraising.

Beyond the Basics: Other Relevant Sections

While Part I, Line 12 and Part IX are the primary sources for understanding the operating budget, other sections of the 990 can provide additional context:

• Part VIII: Statement of Revenue: Provides information on the organization’s revenue streams, including contributions, program service revenue, and investment income. Comparing revenue and expenses can reveal whether the organization is operating at a surplus or deficit.
• Schedule A: Public Charity Status and Public Support: Details the organization’s sources of public support, which is important for determining its public charity status.
• Schedule O: Supplemental Information to Form 990: This schedule allows the organization to provide explanations or additional information about any item on the Form 990. It can be a valuable source of context and clarification.

Frequently Asked Questions (FAQs) About Finding Operating Budget on a 990

Here are 12 frequently asked questions (FAQs) to help you navigate the Form 990 and find the information you need.

1. What if the 990 is a shorter form, like a 990-EZ?

   The Form 990-EZ is a simplified version of the Form 990 for smaller nonprofits. On the 990-EZ, look for Line 17, “Total Expenses.” Similar to the full 990, this line represents the organization’s operating budget. A detailed breakdown of expenses is not provided on the 990-EZ, so your analysis will be limited to this single figure.

2. How can I find past operating budgets to analyze trends?

   You can access past 990 forms through online databases such as Guidestar, ProPublica’s Nonprofit Explorer, and the IRS website. By comparing operating budgets over several years, you can identify trends in the organization’s financial performance, such as revenue growth, expense increases, or changes in program spending.

3. What is considered a “healthy” operating budget for a nonprofit?

   There is no single definition of a “healthy” operating budget, as it depends on the organization’s size, mission, and operating environment. However, a general rule of thumb is that a nonprofit should have a balanced budget or a slight surplus. A consistent deficit can indicate financial instability. Furthermore, a healthy organization typically allocates a high percentage of its expenses to program services. Aim for at least 75%.

4. What does it mean if a nonprofit has a very high fundraising expense ratio?

   A high fundraising expense ratio (fundraising expenses divided by total expenses) can be a red flag. It suggests that the organization is spending a significant amount of money to raise funds, which could raise concerns about efficiency. However, it’s important to consider the context. For example, a new organization or one that is undertaking a major fundraising campaign may have a higher fundraising expense ratio than usual.

5. How can I tell if a nonprofit is being transparent with its finances?

   Transparency is key. A nonprofit that provides detailed information on its Form 990, including clear explanations in Schedule O, is generally considered to be more transparent. Furthermore, a nonprofit that makes its audited financial statements available to the public demonstrates a commitment to accountability.

6. What is the difference between “expenses” and “program expenses”?

   Expenses represent the total cost of operating the nonprofit, including program services, management and general, and fundraising. Program expenses are specifically those expenses directly related to the organization’s mission and programs. Donors and grantmakers often focus on program expenses as a measure of the organization’s impact.

7. Why do some nonprofits have significantly different operating budgets than others, even if they have similar missions?

   Several factors can explain differences in operating budgets. These include the organization’s size, geographic location, staffing levels, and the complexity of its programs. An organization with a national scope and a large staff will likely have a higher operating budget than a smaller, local organization.

8. Where can I find information on executive compensation on the 990?

   Information on executive compensation can be found in Part VII of the Form 990, titled “Compensation of Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.” This section lists the names, titles, and compensation of the organization’s key personnel.

9. What if I don’t understand something on the 990?

   Don’t hesitate to seek help. You can consult with a financial advisor, a nonprofit consultant, or an expert in nonprofit accounting. Many resources are available online, including articles, webinars, and tutorials.

10. How reliable is the information on the 990?

    Nonprofits are legally required to file accurate and complete 990 forms. However, errors can occur. It is always a good idea to cross-reference information from multiple sources and to exercise due diligence when evaluating a nonprofit.

11. Can a 990 tell me if a nonprofit is effective at achieving its mission?

    The 990 primarily provides financial information. While it can offer insights into how efficiently a nonprofit is operating, it doesn’t directly measure its effectiveness in achieving its mission. To assess impact, you’ll need to look at the organization’s program evaluations, annual reports, and other sources of information.

12. Where can I find a sample Form 990 to practice with?

    The IRS website provides access to blank Form 990 forms and instructions. You can also find sample 990 forms for various nonprofits on Guidestar and ProPublica’s Nonprofit Explorer. Analyzing these examples can help you become more familiar with the structure and content of the form.

By understanding how to find and interpret the operating budget on a Form 990, you can gain valuable insights into a nonprofit’s financial health, transparency, and efficiency. This knowledge empowers you to make informed decisions as a donor, grantmaker, board member, or simply a concerned citizen. Remember, the 990 is a public document designed to promote accountability and transparency in the nonprofit sector – use it to your advantage!