That question is…what are your costs?
I do a significant number of business plans and grant
applications, and they all require some sort of budget or financial
forecasting. For some reason, almost everyone can tell me how much money they
think they need for a given program or to start their business. When it comes
to filling in the other side, i.e. what costs will that money pay for, less
than 50% can provide the information. Added to that is that often they really
don't seem to know how to calculate costs. It's almost as though they feel that
if they don't think about the costs, they won't have any. If only that were
true!
Costs are not just paper plates, postage, and computers. When
I ask about things like taxes, the answer is, "We are a nonprofit so we
don't pay taxes". Are you sure? What about sales tax, property tax and
payroll or self-employment taxes? What about your rent, mortgage and property
insurance, even if your operation is
housed in your private home? If you use
your private vehicle in your business or nonprofit, what percentage of its cost
of operation can be attributed to business use as transportation costs? Even
your internet access fees can be prorated to your operations.
Every single dollar of revenue generates some non-program costs. If you need
$5,000 to run a certain program, then you have to know how much of that will truly
reach your clients. When you are asked to send in a report on the uses of the
funds, it better be accurate.
Donors want to see that you have a grasp on costs and you
know where to allocate them. If you don't understand the difference between
program costs and administrative costs, there is a good chance that the money
the donor thinks is going strictly to programs is actually being used to keep
the lights on. Most donors don't like that if they didn't know about it in
advance.
Grant applications, loan applications and business plans always have a section for
financial data. Some of them are extremely detailed, while others may just want
a total cost figure. Some people try to plug in a number that sounds good, but
if pressed for details, they can't provide them. Accurate, detailed financial reporting is important.
For instance, one grantor followed up on an application with
a request for the cost breakdown analysis for a program budget line item. The
applicant couldn't provide historical data on the cost to operate a delivery
truck, because they had simply never tracked it.
That's why winging it doesn't
usually work very well for very long. More
importantly, if you do try to wing it, it is usually pretty obvious to both
investors and donors and your funding requests will hit the proverbial round
file.
If you aren't sure whether your financial reporting will
pass inspection, drop me a line and we'll look it over together.
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