Build Confidence with Every Dollar: The Power of the Functional Expenses Report

Show your donors exactly how their contributions are making a difference with the Statement of Functional Expenses.

Donors want to know where their money goes. Are you showing them the full picture? With a detailed Statement of Functional Expenses, you can demonstrate exactly how each dollar is spent, building trust and securing ongoing

support for your non-profit.

Why the Statement of Functional Expenses Matters

The Statement of Functional Expenses isn’t just another piece of

paperwork—it’s a powerful tool that breaks down your spending into key areas like program services, administration, and fundraising. This level of detail helps you, your donors, and Grant makers see exactly where your resources are going and how they’re being used to further your mission.

For instance, if your non-profit dedicates 70% or more of its funds to program services, you’re sending a strong message that your focus is on what truly matters: your mission. This kind of transparency can make all the difference when it comes to gaining and retaining donor support.

How to Create the Statement of Functional Expenses in QuickBooks Online (QBO)

Creating this report in QuickBooks Online is easier than you might think. Here’s how to get started:

Set Up Classes in QBO:

• Go to Settings (the gear icon) > Account and Settings >Advanced.
• In the Categories section, turn on Track classes.

Create Functional Classes:

• Head to Settings > Lists > All Lists > Classes.
• Set up classes for each functional area: Program Services, Administrative Expenses, and Fundraising Expenses.

Assign Classes to Expenses:

• When entering expenses (like bills or checks), assign the right class to each line item. For example:
• Program Services: $1,200
• Administrative Expenses: $400
• Fundraising Expenses: $200

Generate the Statement:

• Go to Reports and search for the Profit and Loss by Class report.
• Customize the report by selecting the appropriate date range and ensuring it displays columns by class.

This simple process will help you not only stay compliant with IRS requirements, such as Form 990, but also provide a clear view of how your funds are being used. This transparency is key to building and maintaining trust with your donors.

Real-Life Success: SIDES

Take SIDES (Sydney's Incredible Defeat of Ewing Sarcoma) as an example. They’ve used the Statement of Functional Expenses to be more transparent with their donors, showing that a large portion of their budget goes directly to life-saving programs. This kind of transparency has strengthened their relationships with donors and helped them secure ongoing support.

Want to see how your non-profit stacks up? Try our Self-Diagnostic Tool: