I’ve not yet touched on what are among your charity’s major expenses: rent, utilities, and fundraising and administrative personnel. You can help cover the costs of these overhead expenses by including a portion of them as indirect expenses in every program grant proposal. If you work for a large charity, you can just ask your finance officer to give you the indirect rate. If you have to figure the rate yourself, read on.

To get started, add up all the expenses that can be considered indirect—that is, everything not specifically related to your programs, including the following:

For each of these items, exclude the cost of anything used solely for a particular program. So if the gym is used only for the physical fitness program, or the art supplies are only used by the after-school program, or your executive director spends half of his time teaching an after-school class, do not include those costs as part of your indirect costs.

Divide the amount of all indirect costs by your total budget to come up with your overall indirect rate. It’ll likely be at least 20 percent of your total budget. If it’s more than 30 percent, reexamine your expenses to see which can be attributed to a program. Few funders will accept indirect costs as more than 30 percent.

Now multiply the total direct costs for your program by your indirect rate. This is the amount you should include in your program budget. Obviously, the amount will be different for each program because each program’s direct costs will be different. Here’s an example:

Let’s assume the total of all the indirect expense items listed earlier is $120,000. However, your executive director spends 20 percent of her time teaching a literacy class. She makes $80,000, so that’s $16,000 you can’t count with your other indirects (20 percent of 80,000 = 16,000). Therefore, your true indirect expenses are $120,000–16,000, or $104,000.

The organization’s total budget is $640,000, so, 104,000 ÷ 640,000 = 0.1875 or rounded up, 19 percent, which is your indirect rate.

Your direct project costs add up to $95,000, so multiply $95,000 by 19 percent, which equals $18,050, which is the amount of indirect expenses to include in your project budget. Remember: the indirect expenses include all your occupancy costs, so you can’t use any of those items as a direct cost.

Having figured all that out, I have to warn you there are two exceptions. The first has to do with indirect rates on government grants and contracts, which I discussed in Chapter 5. These official indirect rates must be negotiated before you apply (many months before, to allow for the negotiating and processing). If you don’t have a negotiated indirect rate, you can still include an allocation of your rent, utilities, etc. in a government grant budget by itemizing them as direct expenses.

The second exception is with foundation and corporate funders who have a maximum indirect rate they’ll accept in a budget. I’ve dealt with funders who allowed as much as 20 percent or as little as 9 percent. There’s no way to know how much they’ll accept without asking the foundation’s program officer. It’s unfortunate that you can’t always cover all your indirect costs in a project budget, but hopefully, your general operating grants will cover any gaps.

Don’t try to double-dip on your basic expenses. If you’re using an indirect rate, you cannot also include any of the expenses that go into that indirect rate as direct program expenses.