Do you value your volunteers?

Volunteers are an asset to any organization. Most nonprofits literally could not exist without them. These are the too-often unsung heroes that prop up your programs and provide the most effective community outreach there is…leading people to support your mission through their dedication to it.

But did you know they are also a monetary asset? Their hours can be the nearest thing you will ever find to a pot of gold at the end of the rainbow. It's one of the first things I ask for when preparing a grant proposal for a client if it isn't recorded in the financials or annual report.

Many grant applications also ask for the number of volunteers supporting your mission, or the number of volunteer hours contributed annually. Many smaller entities can't answer that question because they don't track that number.

This is why you should.

In 2014, the average value of a volunteer hour was reported by Independent Sector to be $23.07 an hour nationally and well over $24 in some states. While your state might be above or below the average, it's still evident that these good people save you a lot of money vs. having to hire help.

Most grantors feel that excessive paid labor expenses detract from the impact of their support.

Grantors understand that some programs require paid staff. Any program that needs degreed or certified staff will have labor costs.

However, if you are paying a social worker with a masters to hand out paper and crayons and act as a room monitor for an early childhood learning program or hiring paid staff to do that, it's not seen as a wise use of funds.

If  your program description shows that the licensed or degreed expert is designing and evaluating a curriculum to be taught by trained volunteers, the grantor knows that you are budget and value conscious, and the kids are going to get the maximum amount of hands-on help and the necessary supplies at the lowest possible cost per student.

Ideally, you should have a volunteer coordinator that not only assigns and recruits volunteers but makes sure they actually show up and knows what they did, where and for how long. That means you should be classifying their input as either program or administrative for budget purposes.

The value of a volunteer hour can also positively impact your bottom line. By recording their value, you may be able to meet the requirement for matching funds for grants requiring them, or increase your book value net worth.

For instance,  if you have them build a shed, the materials might cost $500, but the value of the volunteer labor could push that value to $2000.

That can help you qualify for grantors that have a minimum balance sheet requirement. Check with a qualified nonprofit-savvy accountant for the proper journal entries.

So there you go. You always knew you were happy to have volunteers, and now you have a reason to love them even more.

BTW – volunteers are not supposed to be practicing their trade or craft as volunteers and then getting a donation slip to offset the cost to their businesses. See the guidance for in-kind contributions at http://www.irs.gov/pub/irs-pdf/p526.pdf, page 7, middle column, example  #3 and #4.

5 Tips to set a true-cost operating budget for your start-up.

Most lenders, investors and even grantors require some sort of business plan when considering whether to invest in a start-up. One of the first things they look at is your cost of doing business projections. If they find that part lacking, they seldom look further.

  

When I'm working on a business plan for a new enterprise, whether nonprofit or for-profit, most of the initial budgets I see fail to include some fairly non-negotiable costs. Here are some areas to consider.

1. Government-required payments

Almost without fail, one area that trips up a lot of new business owners is the amount they have to include for what I call government and legal compliance costs.

Some people do include the FICA costs, i.e. the 7.53% of payroll that the employer must remit to the Feds, but fail to include costs for state and Federal unemployment assessments, workman's compensation premium payments, local taxes and licensing, liability insurance, and any professional association fees or licenses that are beneficial to or required for the business. Also, new costs associated with new laws like the ACA many factor in as well.

2. Advertising and marketing

Another often under-estimated cost is advertising. There is a prevailing attitude that everything can be done online, and it's free. No matter how wide-ranging your business plans are, all businesses have a local component, and this is particularly true for nonprofits or small retailers.

Revving up local interest can be expensive.

Websites and domains cost money. One of the popular web hosting sites that advertises ".99 cent" websites has initial start-up costs for the domain and the initial website hosting starting at around $75.00/yr for a completely static site. Add any sort of customer interaction (blog, email sign-up, mobile friendly,  etc) , and the price can triple.

As great as it is, the internet isn't a foolproof business growth tool. Running a few spots on the radio, a 15-second spot during your local news program, or utilizing any other form of "traditional" advertising avenues may be necessary just to drive traffic to your site or social media page.

3. Legal or professional costs

Sure, you may be able to get some sort of generic business document template and file it for a few dollars, but that's just the start. All states have specific documents, i.e. non-discrimination clauses, by-laws, and a multitude of other things that you may need the help of an attorney or other professional to complete or at least explain.

4. Wages

Believe it or not, you won't be able to "do it all" for very long. Even nonprofits usually find themselves at the point of needing at least one employee that they can count on being where they are supposed to be when they're supposed to be there.

5. Daily expenses

Things like utilities, phones, office supplies and equipment aren't free. Even donated equipment has to be maintained and replaced when it breaks. Having an allowance for these items is not optional.

Almost without exception, when I am working on a business plan for a client I find that they need to increase their annual cost projections by 25-40%, and that naturally affects the amount of revenue they need to break even as well.

Are your cost projections reasonable?  If you'd like a review, drop me a line at rightwords@ida.net and we can discuss them. 

How to make your first budget work for you

One of the things that seems to frustrate most new businesses, especially nonprofits, is the "imaginary budget," also known as the projected budget, an exercise required by most lenders and grantors.

Of all the sections of a business or strategic plan, this is the most one often ignored or done badly.

Having looked at too many start-up budgets to count, I find that most people tend to pick a desired revenue number and make the budget arbitrarily fit that figure.

I see a lot of grant requests from new nonprofits that begin "We need $1.3 million dollars this year  to accomplish our goals." In reality, that's what they will need a few years down the road, not now.

That leads to things like allowances for a $20,000 website, $1 million buildings and marketing budgets that would be the envy of a lot of Fortune 1000 companies.

Budgets like this turn off donors, grantors and bankers. They advertise that the person or organization hasn't done their due diligence, or that they have no concept of financial development and management.

That's a bad place for you to start.

A beginning budget isn't going to look anything like your eventual goal.

 

You have to start with where you are, not where you want to be in the future, and then build up to your desired goal.

Let's inject a modicum of realism into the process.

Let's take the $20,000 website. There is no doubt that you can sink that much money into developing a website, but do you really need it in your first year? I would submit that given all the hosting companies that want to capture your business, you can probably get one that will suffice for the first year or two free or nearly free, and many of them don't require any coding knowledge at all.  Even if you need to process payments or donations at the start, most of the major players offer e-commerce packages for under $50.00 a month, sometimes substantially under.

Investors and supporters know that too, so your line item of $20K for a website simply tells them that you won't be spending that money on your core business or program.

Good budgets start with realistic planning. You may eventually want to feed 10,000 hungry people or sell 100,000 handbags, but you aren't going to do it today, next week, or this year.

Take the time to find out what things actually cost.  I well remember getting a budget for a charity wanting to provide a safe after-school environment that allowed $10/day for a single snack for each child. A quick check of the national averages showed that the range was from $.60 to $1.50/day, making it impossible for me to sell the $10 snack to any grantor.

Your dream may be to have a 20-room building for sheltering domestic violence victims, but you may have to budget for vouchers at a motel in the beginning.

The other side of any budget is the revenue side, and your base revenue target is dependent on your break-even cost.

If your initial costs are out of line, then your revenue target will also be out of line.

I once got a request to construct an investor-grade proposal from someone with one of those ideas to manufacture something that makes you say "Wow! Why hasn't anybody thought of this before?"

The marketing and manufacturing process side of the proposal was well done, but when it came to manufacturing costs the client had made some very unrealistic assumptions. That resulted in his costs of manufacture being some 2.5 times higher than he could cover with his targeted selling price.

That impacted the whole proposal. Now instead of a product with a cost that was easily manageable by almost anyone, his target market shrank to upper-middle class and above customers, shrinking his projected sales figures and thus his revenues, by more than half.

If you don't know how to fact-check costs, or simply don't have the patience to do it, hire someone that can do it for you.

In conclusion, budgets aren't sexy or inspiring, but doing them right will pay off big in the long run. The first thing you need to sell is yourself or your organization, and good budgets make good first impressions.