Non Profit Facility Costs

Understanding Facility Costs on the Statement of Activities for Nonprofit Executive Directors and Board Members

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The Statement of Activities, often referred to as the income statement, provides a comprehensive view of a nonprofit organization's revenues and expenses over a specific period. Facility costs are a critical component of this statement, representing the expenses related to renting, leasing, or maintaining facilities where the organization’s programs and operations take place. For executive directors and board members, understanding facility costs is essential for financial planning, operational efficiency, and ensuring the organization’s sustainability. Here’s what you need to know and understand about facility costs on the Statement of Activities:

Key Components of Facility Costs:

Rent and Lease Payments

Purpose: Regular payments for the use of office spaces, program sites, and other facilities.

Importance: Understanding rent and lease payments is crucial for budgeting and ensuring that the organization can maintain its facilities without financial strain.

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Purpose: Costs for essential services such as electricity, water, gas, and telecommunications.

Importance: Recognizing utility expenses helps in planning for these ongoing costs and ensuring that facilities remain operational and comfortable for staff and beneficiaries.

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Maintenance and Repairs

Purpose: Expenses for keeping facilities in good condition, including routine maintenance and unexpected repairs.

Importance: Understanding maintenance and repair costs ensures that facilities are safe and functional, supporting uninterrupted program delivery and operations.

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Purpose: Premiums for insurance policies that protect the organization’s property, including general liability, property, and disaster insurance.

Importance: Recognizing insurance costs is crucial for risk management and ensuring that the organization is protected against potential liabilities and damages.

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Property Taxes and Fees

Purpose: Taxes and fees associated with property ownership or use, where applicable.

Importance: Understanding property taxes and fees ensures compliance with local regulations and helps in budgeting for these necessary expenses.

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Why It Matters:

Financial Planning and Budgeting

Facility costs can represent a significant portion of the organization’s expenses. Understanding these components helps leaders develop realistic budgets, allocate resources effectively, and plan for future facility needs.

Resource Allocation

Effective management of facility costs ensures that resources are used efficiently to support the organization’s mission. Understanding these costs helps leaders allocate funds where they are most needed, enhancing program delivery and operational effectiveness.

Transparency and Accountability

Transparent reporting of facility costs fosters trust with donors, grantors, regulators, and other stakeholders. It demonstrates the organization’s commitment to financial accountability and effective resource management.

Operational Efficiency

Analyzing facility costs provides insights into the organization’s operational efficiency. Understanding these components helps leaders identify areas for cost savings and process improvements, enhancing overall efficiency.

Strategic Decision-Making

Expense analysis informs strategic decision-making. Understanding these costs helps leaders make informed decisions about facility investments, leasing versus buying, and long-term planning.

Program Effectiveness

Detailed knowledge of facility costs helps ensure that programs have the necessary space and environment to achieve their objectives. It supports the effective delivery of services and enhances program impact.

Compliance and Governance

Proper management and reporting of facility costs ensure compliance with accounting standards, legal requirements, and best practices in nonprofit financial management. It supports strong governance by providing clear insights into the organization’s financial health.

Risk Management

Understanding and managing facility costs helps mitigate financial and operational risks. It ensures that the organization can maintain its financial health and sustainability while effectively managing its physical assets.

Cost Control

Recognizing and analyzing facility costs helps identify opportunities for cost savings and efficiency improvements. It supports the development of cost-effective strategies that enhance the organization’s financial health and sustainability.

Investing the time to understand facility costs on the Statement of Activities is crucial for nonprofit leaders to fulfill their fiduciary responsibilities and guide their organizations towards sustainable success.

Contact Know Your Numbers today for expert guidance and support in mastering the intricacies of financial statements. Together, we can ensure your organization's financial health and stability.