In this webinar, Sarah Olivieri will help you feel empowered about spending money and making meaningful budgets at your nonprofit.


Full Transcript:

Steven: Nice. Okay, Sarah. I think we are ready to get started. So is it okay if I go ahead and kick us off officially?

Sarah: Please do.

Steven: All right, awesome. Well, good afternoon, everyone if you’re out on the East Coast, I should say. Good morning if you’re out on the West Coast or in between. Thanks for being here for today’s Bloomerang webinar, “Money That Matters.” And my name is Steven Shattuck, and I’m the chief engagement officer over here at Bloomerang, and I’ll be moderating today’s discussion as always.

And just a couple of housekeeping items real quick, just want to let you all know that we are recording this session, and I’ll be sending out the recording as well as the slides later on this afternoon. So if you have to leave early or maybe you get interrupted, don’t worry, I’ll send you all that good stuff later today. You’ll be able to watch the recording on your own time or maybe even share it with a friend or a colleague or a boss. Anything you want to do there, it’d make me happy.

Most importantly, please feel free to chat in on the chat box there on your Zoom screen. We’d love for these sessions to be as interactive as possible. So don’t be shy. We’re going to save some time for Q&A. So send in your questions along the way. We’ll keep an eye on those and we’ll try to answer just as many as we can before the 2:00 Eastern hour. You can also do that on Twitter. I’ll keep an eye on the Twitter feed as well or you can just use the #Bloomerang if you want to send us a Tweet during the session.

And speaking of Bloomerang, if Bloomerang is new to you, we do these webinars just about every week throughout the year. Sometimes we do two webinars like this week. We love it. It’s one of our favorite things we do here at Bloomerang.

But if this is your first webinar, welcome. Happy for you to be here. If you don’t know what Bloomerang is, we are actually a provider of donor management software. And if you’re interested in that or just kind of want to learn more about us, check out our website. You can even watch a quick video demo and see the software in action if you want to.

So check that out later. Don’t do that right now because we’re in for a real treat here. I am really happy to welcome Sarah. First timer on our webinar program. Sarah is joining us from beautiful New York State. Sarah, are you doing okay? How’s it going?

Sarah: Yeah, I’m great. I’m having a great day. Can’t wait to discuss this with you guys.

Steven: Yeah, I’m excited. I’ve been looking forward to this. Sarah and I, we got introduced by a mutual friend, another former webinar presenter for us. And, wow, we just hit it off. We were talking. I feel like it was about a five-minute conversation, but it was actually maybe an hour an hour and a half. We were just talking about fundraising and nonprofits and super cool person. And she was saying things that I was just nodding my head like, “Yeah, that’s right. That’s right.” So I got a feeling you all are going to feel the same way after hearing Sarah’s presentation. But check her out.

Check her out at PivotGround later on. That’s her awesome consultancy. She’s got a lot of experience. Over 15 years of leadership experience in nonprofit. She’s been a founder and ED, so she knows her stuff. That’s one thing I always look for in our guests is that they’ve kind of been in your shoes before and speaks a lot, does a lot of training, does a lot of writing and is just a super cool person. So, Sarah, I don’t want to take any more time away from you. I’m going to stop sharing my screen and let you pull up your awesome slides to tell us all about budgeting. So the floor is yours, my friend. Take it away.

Sarah: Awesome. Well, I am so excited to be here. We’re going to be talking about money that matters. And I’ll give you my contact information at the end if you want to reach out to me, but I want to dive right in with some Helen Keller, one of my favorite people. “The only thing worse than being blind is having sight but no vision.” I’m starting off with this quote because I feel like this captures what happens for so many of us with our budgets. There are a list of numbers but they don’t really culminate in a plan. They don’t really have meaning for everybody in the organization. So my goal is to send you on a track where you have vision when you think about budgeting and financial planning.

But first, I want to just take the temperature. I asked some of you earlier before the webinar started, “How do you feel about budgets?” And I have a picture over here of an outboard engine with its cover off. And why is that here? You want to know? Well, I in my “free time,” as all the people who work with nonprofits have so much of. I’m actually a very avid sailor. I race sailboats. I grew up sailing with my dad. And starting last year and again this year, I have had the honor to teach outboard motor troubleshooting at our local women’s sailing conference.

And what I find is most women when it comes to outboard motors, I ask them how they feel about that outboard motor when we start the class. And they describe this story of they see guys just pulling on the cord and pulling and they’re wondering what this magic is that allows these guys to start these motors. And throughout the class, we break down just how simple an outboard motor, a small outboard motor really is. And the missing piece that most women have is just tenacity. There’s very little that you can do to troubleshoot an outboard motor that is small for a sailboat, but just to keep trying and to keep at it and not to be afraid of this machine is what people need. And that’s how I feel lot of people who are nervous about budgets or feel uncomfortable are. They need the tenacity to just keep going.

So I pulled this image. If you’re feeling nervous about budgets, or if you’re feeling like you love budgets, but you want everybody else in your nonprofit to love budgets too, then this is for you. And I’m going to give you a whole bunch of information, come back and watch the recording or ask lots of questions if I’m going fast because everybody’s at a different level. But I’m going to try to give everybody something to takeaway. And if you’re still lost at the end, you can schedule a call with me and I’ll go over things with you one on one.

So, budgets. This is eye-spy a secret code book. The problem is there’s actually two sets of numbers that you need in your budgets and a lot of budgets are missing one of the sets of numbers. So in the typical old-fashioned budget, there is a set of numbers that measures the amount of money that you have. But the second set of numbers that a lot of budgets are missing and unfortunately, if I only had one set of numbers, I’d take the second set. And that is the set of numbers that measures your financial plan. So I’m going to be breaking up these two sets of numbers for you so that you can get a sense of when you’re thinking about budgets that there’s the numbers that are measuring your money and the numbers that some measuring your plan about money.

So let’s talk about the numbers that measure the money. So you basically if you are tracking your money, bookkeeping and accounting, that’s the trade of tracking money, making sure you don’t lose money or finding out if somebody is stealing money, that’s not what we’re going to be talking about today and you definitely should be tracking your money. Good accounting and bookkeeping is important. When you do that, you probably have some sort of tool. It might be QuickBooks, it might be another program. And those things are going to generate basically two types of reports. They’re going to be really helpful when you’re doing budgeting and measuring your money. One is a profit and loss report, frequently called the P&L. If you’re in the in club, but you don’t need to be in the in club because as I’m going to tell you later on, people make up terms all the time and use them in different ways that have different meanings. So don’t stress.

If you hear a term and you’re like, “I don’t know what it means.” The most important thing is that you assign clear meaning to any financial term you use, because chances are somebody else won’t understand if you don’t spell it out. So profit and loss report simply tells you how much money is going in and how much money is going out and basically where it’s coming in and where it’s going. And then balance sheets, which can be a little more mysterious, but these just tell you how much money you have available. And it’s helpful to get some of these reports and kind of compare how you’ve done year over year.

Here’s your vocabulary lesson. And, again, I want to emphasize that people use terms interchangeably and to mean different things. So spell it out for what you mean in your budget. There’s two basic words that describe money coming in. Revenue and income. Revenue and income. It basically means exactly the same thing. Two common words for money going out, expenses and cost of goods. Now expenses, oftentimes, there might be a modifier with this word like direct expenses or program expenses, but expense is money going out. Cost of goods is a special type of expense that means that it’s an expense that you incurred specifically because you delivered something. So if you delivered a service to somebody and let’s say you validated their parking for $5, that you wouldn’t have had to spend that $5 if you didn’t serve that person. So that’s a cost of goods. This is kind of an IRS accounting term. But you’ll see I actually don’t use it and I just replace it with program expenses generally.

And your money available. There’s three basic types of words that describe money being available: cash, assets, and credit. Cash is what’s in your bank or what’s laying around. It’s available money. Assets is stuff that you have that’s worth money that you could sell or trade in some way to get money. And credit is your ability to borrow money.

So the other day, as I was updating my slides, I went ahead and googled nonprofit budget template. And these images are actually from the very first image I believe that popped up. And this is what I don’t want you to do anymore. If you have been doing it, no need to feel bad. Obviously, this is the first search result on Google. It must be great, right? But basically what this is, this is just measuring your money, not measuring your plan. And so essentially, to me, what you have here is a list. Not quite a complete plan. And it’s just we’ve got the revenue piece and we’ve got the expenses piece. And the way it’s divided up isn’t especially helpful for us to make financial plans.

Now, unfortunately, a lot of budget templates are basically derived off what the IRS is looking from you when they get reports from you. And what I want to tell you today is I don’t want . . . the IRS does not get to determine how you do your financial planning. Your funders like foundations that you’ll get grants from, their budget templates, that should not be determining how you do your financial planning. You need to, first and foremost, make the financial plan and organize it in a way that makes sense for your nonprofit. And everybody else can take a backseat. Yes, you’ll get to them. You can take your master plan and make a version that meets their needs. But your financial plan is for your success, not somebody else’s success.

So let’s get to measuring the plan. And here we’re going to talk about basically how good are we at making pie. For-profits, they make one type of pie. They make money pie. So with money pie we’re just asking, “How good are we at making more money? How much pie can we deliver with spending the least amount of money?” So that’s money pie. And yes, as nonprofits, we need to be able to make money pie to a certain degree. But all nonprofits in addition to making money pie, we also specialize in making mission pie. And mission pie is where, “How good are we at delivering our mission? How good are we at solving the problem that we have set out to solve? How good are we at helping people? How many people can we help per each pie we make? How much does it cost us to make a slice of mission pie?”

So as you can see, nonprofits are more complicated financially than for-profits. And so our budgets, our financial plans are going to have to be a little more complex. And that can be a little unsettling, but it is doable. But we have to remember that what works for-profits in measuring the plan is not the same as what’s going to work in a nonprofit because we have to account for mission pie as well as money pie. And mission pie does not necessarily correlate to more money coming in.

So, I told you there was a second set of numbers and this is really where we’re measuring the pie, how good we are at making money pie and how good we are at making mission pie. And so the second set of numbers that we need to build into our budgets typically have these types of words. So we have margin. Margin is either represented as a number or as a percentage or often both. And the word margin itself does not necessarily imply that we’re talking about a number or a percentage. You need to specify. So if you’re getting into a he said, she said, margin is used interchangeably. And so please clarify in your budget what you mean.

And basically, typically, when we’re talking about margin, we’re talking about how much pie is left. And so we can either say, well, three slices of pie are left or we can say 30% of the pie is left. Those are two ways we can say it. Now, there’s some other words that get thrown around next to the word margin, gross margin, net margin, profit margin. Typically, profit is that kind of bottom line but where people actually call their profit their bottom line varies. I’ve seen people switch net and gross around. There is no like standard. So define it in your budget. Do not assume that people know what you mean, make sure it is clear. And if you’ve ever felt like, “These words are so confusing,” it’s because they are because people don’t use them consistently the same way.

Another word that’s used, two words here, ratio or factor. These are not maybe as common but these can be really helpful. And they’re another way of looking at how good we are at making money pie or mission pie. And in the fundraising world, we actually use factors or ratios a little more often. So a ratio is like, “How much it costs to make a slice of pie?” And a factor is kind of just the same thing but said in reverse. “How many slices of pie can we make per dollar for each dollar that we spend?” So in fundraising, you may be familiar with this term, it takes for every dollar we spend, we can raise $1.30 or $2, or maybe $3 if you’re really good. Or you might say, “How much does it cost to raise $1?” The cost to raise $1 is it a common measurement we might use.

So I want to just take a look. This is from the budget template I’m going to give you and I just quickly highlighted in this kind of orange, yellow color some of these numbers that are really measuring the plan instead of measuring the money that you have. And I’m actually going to open this budget template live so you can see in some of the cells and get a little sense for it before you’re working with it yourself. So as you can see, here’s just some . . . I have added as much description as I could fit in here for the moment. So GR, I am using an abbreviation, but usually I only use abbreviations if the word I’m abbreviating is really close by. So gross revenue as a percentage of total revenue. So see I did use the word gross, but it’s pretty clear the way this is laid out that I’m referring to this line. And I haven’t used the word margin because I just wanted to define it. I’m just defining this number as a percentage of the total program revenue. So I get 96.64%. So that’s telling me that after direct expenses, 96.64% of the money is left over. So far it looks like I’m pretty good at taking my programs and making money pie.

And here I’ve added in program labor as an expense. And so here’s program labor as a percentage of program revenue. So still I’m pretty good at both making mission pie assuming my program is achieving good mission results and money pie at the same time. And that is really the sweet spot we’re looking for is can we make mission pie and money pie at the same time because money pie lets us deliver more mission and innovate more and grow more and stay alive as organizations. So this says, “After I’ve taken all the money that came in for the program and then spent the money for its direct expenses and then paid the program, correlated labor, I have 51% of the original money is left over.” So that is great.

Ratios, right, factors and ratios. This is one that is really helpful for thinking about both mission pie and money pie. This is a labor efficiency ratio. So it’s talking about how for every dollar you spend on labor, how much program revenue comes in. So for every dollar we spend on program labor, $1.90 comes in. So if you’re an organization who has a very labor intensive program, you need a lot of humans to help serve the people that you’re serving, then this is a number that helps you justify that having more people often you’ll see if you add people, this number will go up. You’ll bring in more money, you’ll be serving more people, and it’ll kind of you’ll reach a plateau where you can start using that for planning.

So you’ll actually find that you have a maximum efficiency. And at that point, when you reach your plateau number, you’ll know that it’s time to hire more people. And that’s a way where you can actually plan farther into the future without having to have some sort of magic future machine to get into. And so the difference between this number and let’s say your bottom-line profit is your profit margin tells you how well you did in the past, whereas your labor efficiency ratio is, it’s called a leading indicator. It tells you how likely you’re going to do how well you’re going to do in the future. And so it’s really important to have those two types of numbers.

I’ve circled down here just to bring your attention to, we’re measuring not just money pie, but mission pie. So we want to make sure we add in our key mission metrics and think about their dollar correlations in our budgets. And you’ll see in the template that I’m going to show you that I’ve actually included this in each tab for each program budget. And these are some examples. So you could have the cost per day per client. And this is just some random numbers. Labor efficiency ratio, we just talked about that one. Number of clients referred to program B. So from program A to another program. That’s really relevant. Cost per client referred to program B. So the question, “Can I define program revenue as opposed to fundraising?” Yes. So when we pull up the budget, I’m going to show you how we deal with fundraising revenue and whether or not it’s considered program revenue or not.

And another question is, “If we are not numbers people, where do we find the equations to determine these metrics?” I have a cheat sheet for you. And that is why I am giving you a working template with the equations already in them. So you can copy those equations from the template. So let’s talk about . . . Yay, yes, yay. So, yes, we’ll email you the template. I have a link where you can grab it if you don’t want to wait for the email. And here’s what I’ll say about the template because this goes with these next couple slides is I have built many, many budgets over the years and I have been given budgets from the Small Business Association, from other nonprofits, from teeny nonprofits, from multimillion dollar nonprofits, and I love spreadsheets.

So take my word for it when I tell you that I have tried a few different layouts and a few different tools. And what I am telling you to do now in these suggestions, and what I have included in my budget template is the result of years and years and hours and hours of figuring out the best layout in a spreadsheet. So save your time. From my pain and suffering, actually, it was joyous because I love working with spreadsheets. I won’t lie. But save your time and follow these suggestions.

So we’re going to talk about tabs, columns, and rows. And the tools we’re using here is basically an Excel or Google Sheets. I’m a big fan of Google Sheets but Excel works well too, especially the online version. Yay, team spreadsheets. So tabs, and you’ll see in the template budget or if you feel like you want to create your own, you should have a summary tab which is kind of your high-level budget. This is probably the tab that the board is going to be approving when we “approve” the budget. You’re going to have a tab for each program where you get specific about the income and expenses for those programs and any program related metrics and you’re going to have a tab for additional information.

So you’ll see in the template I’m providing there’s a tab for human expenses where we’re going to kind of track actually our contractors and our employees and pull some numbers around employee expenses, employment expenses. But you might have additional tabs. Let’s say you have some research about trends in your industry and you’re tracking to see if you’re on trend compared to the national, regional, or local trends for your industry, you might add that in there. Anything that’s relevant that you want to be able to quickly reference as you’re doing your budget planning work, just make a new tab and pop that in there.

Or let’s say you have a program expense that just says “supplies,” but you want to make sure that the supplies are right, that the total is roughly accurate, make a new tab that’s specifically for that information, plan it all out, tally it up, and then put it into that program line item or link it dynamically which I’m going to show you it’s when you pull in the information from one cell into another cell in a spreadsheet. It’s pretty cool. And helps prevent making mistakes, which I love.

Columns and rows. So spreadsheet, right, has columns and has rows. For the columns, I want you to use these except for that you’ll have description columns, but other than that, stick to months, years, or versions of your budget. So it’s perfectly fine.

You’re not going to have access to the spreadsheet right now, but I’m going to show it to you. And when you rewatch the recording, you’ll have all this information that’s I’m going to show it to you live. But don’t add in, don’t use your columns to compare different programs. You’re going to use tabs for that. Trust me. And then your rows is where you’re going to have your dollar amounts. If you want to compare this year to last year, do that in a row and any other metrics that you want to add in, use rows for that.

So, one more slide before we jump into the live version of the budget. I made a little cheat sheet here for you. Just some basics for you to know and to know that in your head as you work with budgets, it will get easier because some of these things will get memorized. But just some helpful things to know is 20% is the same as 0.20. 3% is the same as point 0.03. So you just have a zero if it’s a single digit number between the point and the number. Things like there are 52 weeks in a year, you come to memorize these things when you start thinking about, “Well, how many people do we serve per week or per day?”

Employment costs. So as you may or may not be aware, when you pay somebody on payroll, you also have to pay the government on top of that, certain employment taxes and often there are benefits. There are people who love who kind of calculate averages. I took a broad average because it ranges depending on where you are in the country and everything. But on average, if you don’t already know what your employment costs are, you can know that they’re going to be between 18% and 28% of the salary that you pay somebody. So if you pay somebody a specific salary, take 18% to 28% of that salary and add it on top. That’s how much it’s actually going to cost you to hire them.

That’s one of the big mistakes. Some formula basics. It all starts whether you’re using Excel or Google Sheets is, when you’re in a box, you’re going to press the equal sign, and I’m going to show this to you. And then you’re going to have all sorts of formulas. And usually it will kind of start guessing what formula you’re trying to put in. But for budgets, the most common is you’re either doing equals and a sum, that means you’re adding up a bunch of things that are between these parentheses, and usually you’re just selecting the boxes.

You’re equaling another cell, which means it’s always going to pull in the information from that other cells. If you change the other cell, then this cell will be updated as well. And for those of you who really are scared or forgotten your high school math, the star button or star symbol is the same as time. So this is the same as saying equals 184 times 0.2, also times 20%. So those are some basics. There’s other cheats you can definitely keep from the spreadsheet. I’m going to show you.

So let’s open that up. So again, you’re going to have access to this so don’t get scared, and you’ll be able to have this recording as well. Yeah, you will get access after. So we have the tabs. Right here I have a summary of revenue and expenses. This, by the way, is Google Sheets. It is very, very similar to Excel. And if you need this as an Excel, you’re going to download it as an Excel document. When you get this template, you’re going to need to make a copy for yourself. You won’t be able to edit this version, you’re going to have to make a copy in Google Sheets, and then it will be fully editable. I have a sample of a school program, two samples of non-school programs. And I’ve done year one, year two, year three, but this could just as easily be version one, version two, version three, or you can go all the months of the year. It really depends on the type of program you have. Program B is just similar. I wanted to give you some more examples and human expenses. So I will give you a little review of each of these.

So in our summary, you can see I have program revenue, and you can see what’s in the cell pops up here or I can also double click. So what I’ve done is I’ve added up the program revenue from the three tabs here. And you can make a copy of one of these tabs and duplicate it if you have more programs. If you have many programs, hopefully you have a little bit of spreadsheet sophistication. And if not, by all means, feel free to schedule a call with me and I can double check your work as you add stuff into this budget version. So we had a question, which I’ll answer now about program revenue and which is from fundraising and how do we deal with that?

So if I look at program two, I’ve just put in here quick program metric, our enrollment. And you’ll see there are fees collected from clients, fees collected from the government, if that’s relevant to you per enrollee, and restricted revenue from grants. So this is any restricted revenue. So if someone is only giving you money for this program and you can’t spend it anywhere else, then that fundraising money, whether it’s a grant or if it’s a restricted donation is going to go in here. And in case you offer discounts or scholarships, that would be in here. So here’s our total program revenue that is getting pulled into this tab here.

The other place where we have fundraising is down at the bottom. So you see I like to have a net operating income so that you know how much money your program is in the pot, your whole organization is in the positive or the negative before you do your fundraising. I think it’s really helpful to pull those out. And then we have all your unrestricted fundraising income. So recurring here doesn’t mean it’s a recurring donation necessarily. This is just basically what you tend to get each year. Unrestricted fundraising income, here we have your actual fundraising expense.

So for example, if you are using Bloomerang or some other tool, marketing specifically for fundraising, things like that would go in here, and then your fundraising labor. So if you have staff who are dedicated or let’s say more than 50% focused on fundraising, they would go in here. And then you have your net fundraising income. So here, what is net mean? We just checked this formula. It means your fundraising income minus your fundraising expense minus your fundraising labor.

And from there we have our measuring the plan. This is our return on investment, our cost to raise $1. And so again, the formulas are in here, people, so you have them and your fundraising labor efficiency ratio. So if you’re making an argument to hire more fundraising people, this number is going to tell you that spending more money on people to do the fundraising is actually going to result in more money for your organization to use.

And so then we have our net, net, net after our fundraising income and a few miscellaneous things. And then special things that are only one-off for that year. Those are here and not even calculate into the total because we don’t want people to get confused that just because we got an extra hundred and 50,000 this year, doesn’t mean we’re probably not getting that next year. And we don’t want to think that we’re saved and we’re good for next year when we are not.

How do we account for members who are not paid at the end of the financial year? That is a good question. And that really falls into the domain of accounting and bookkeeping. So typically there’s a way of kind of marking those things as they didn’t happen this year and maybe they’ll happen next year. So we’re going to kind of hold on to them for a bit.

And then you want to make sure you’re not when you’re thinking about your financial plan overall, that you aren’t just thinking about how much money is coming in and going out, we want to think about what your assets are. And so I haven’t filled in samples here, but you want to think about how much money you have in the bank already how much money you have available.

If you have a ton of money available, it’s perfectly okay for your net income to be negative if you’ve planned an investment for the future, that isn’t going to pay off for a year or two and you’re going to use essentially your own savings to pay for that investment and the money will come back down the line.

And then down here, I love to add in target salary adjustments. So you’ll see in this human expenses tab, which I will pull up in a moment that in addition to everybody’s actual salary, I have listed target salaries or market rate salaries. Because one of the largest untracked sources of donations to your nonprofit is the amount of money that your employees are actually giving you every year by being willing to be underpaid. Yes, yes, yes.

So we want to account for that, especially when we are applying for money so we know how much money we really need to raise or ask for. And also just to know if we’re trying to not underpay our employees. And if you’re an organization who in some way works against poverty, you do not want to underpay your employees because you’re defeating your own mission by doing so. So here we can just kind of track this and you can know I’ve just put in a few adjustments here. I’ll let you play with those numbers. So those are just a few things here and we have a question about is the labor efficiency ratio above $1, considered an indicator that the staff person was a good investment?

So yes, you want it to be above $1. And you want it to be . . . It really depends on the nature of exactly what you’re doing about what how much above $1 is good. If it’s below $1, then it may or may not be bad. It’s bad if you don’t have enough fundraising income to cover that and it’s an expense directly for your mission that doesn’t actually bring in revenue. So that just means that you don’t have enough fundraising. So you want to just kind of think about that number carefully. But let’s say for every dollar you spend on social worker, you bring in $3 program revenue because you’re raising that much money to cover people who are in your programs or maybe that you have a government contract that pays you per person that you serve.

So in that case, it would be good. But how good is your best? All I can tell you for sure is that your best labor efficiency ratio will be unique to you, and you should find it out, you will have a best. And if you think about it this way, if you have 50 caseworkers, if they serve 10 people each, they’re probably giving great service. If they’re serving 15 people each or maybe depending on the industry, maybe your numbers are more like 50 people each, but a certain point, one case worker, if they add more to their load, the quality of their service and the outcomes that you get are going to start to be diminished. So that number is telling you kind of the ideal amount of people you need to have for however many people you’re serving.

I’m going to just touch on this tab quickly and then get back to my slides. So we have some time for questions because we have to talk about how we actually figure out what numbers to put in here. But this is how I deal with human expenses. And I’ve put a lot of thought into how to do this. So basically, for a particular staff member, we just put their total salary here, which is the sum of the proportion of their salary that goes to each program and then to operations overall. If you don’t have a way of tracking this to break it up between programs, then my recommendation is you take the rule of thumb is wherever they spend more than 50% of their time, then just put them squarely in that column and use a little note feature, you can add a comment if you’ve chosen to do it that way. So it’s clear.

Here’s where you can see the target salary. So that calculation is happening there. Sometimes people switch between contractor/employee. So just have a select here. This is calculating the taxes. This is actually at 14%. The numbers I told you earlier are more accurate. They’ve gone up since this older number. Benefits. And so this gives you your total employment expenses. And so this is year one and this is year two. So that’s what’s happening there. And then all these numbers are getting referenced in these different tabs.

So let’s go back here and talk about how do we know what to put in these budgets in the first place. We tend at nonprofits to think about spending money like throwing money down the toilet, just flushing it down. But I’m here to tell you that that is just not true. There are a number of things which I call leavers. This is areas where we spend money to get something back. And then there’s the actual place where I think you’re kind of flushing money down the toilet but you’re forced to flushing money down your toilet. And this is required overhead that doesn’t really bring much benefit back to you necessarily. So what are these four leavers, or as I like to call them, what four things can money buy?

So first is money can buy more money coming in? So, for example, if you spend money on good marketing, or good fundraising strategy, or you make some sort of investment, then usually you get more money than you spent coming back in. And typically, the more you spend, the more money comes back in. And you will notice in my template I use these little symbols, money bags for meaning this is a lever that’s bringing in more money in that template. And I highly recommend you use an icon or a word if you don’t want to use my silly icons to make you smile when you’re doing your budgeting. Something that reminds everybody who’s reading that is that that expense line item, if you cut it, it means less money coming in.

So that should prevent your board and people cutting expense line items that are actually cutting off your ability to bring money in. You don’t want to do that. You’ve probably heard in the for-profit space, you got to spend money to make money and it’s every bit is true in the nonprofit space.

Another thing that money can buy is savings or less money going out. So, again, I’m using the moneybags icon in the template. And you’ll decide which line items are these levers for your nonprofit. But typically you can spend money to increase your team efficiency. You can hire an expert or consultant to help you do this or you can change the way you operate and spend a little money doing the change. And then you’ll be more efficient. You can improve your organizational structures. And it often has a diminishing returns after a certain point. So you can only make yourself so efficient. So definitely run the numbers and check and make sure if this is really helping.

This is one area where a tool like Bloomerang actually can help you save money because it can make your team more efficient. Oftentimes, using a digital tool can have this effect. But be aware, I have definitely seen nonprofits who had relatively light fundraising needs use a tool that was way overkill and the tool ended up costing more money than it was saving them. So I remember one example where I talked to a nonprofit and they’re spending about $30,000 a year on a tool and their whole fundraising program didn’t even bring in twice that much. So you definitely want to run the numbers on that.

You can also buy impact on your mission. So I like to indicate these with a heart. And I want you to be really careful in your budget that you indicate that while spending money in a certain area might not bring more money in, it might have a huge impact on delivering your mission. So you don’t want to cut those if you can help it because you’re here to deliver a mission. So you could be opening a new service location. You could be hiring people you serve. If you are an organization that helps people get jobs and you hire a certain percentage of those people and pay them a living wage, then that’s not just a regular expense in your budget. That is also a mission delivering expense. You’re getting mission return for that. So make sure you count that in some way. Again, I love the icons because they’re easy to put into a budget and remember, but you can add a comment or some words to describe that.

You can hire more people to do the serving. You could give out cash. This has actually been found, if you run the numbers, it has been shown that sometimes rather than hiring a bunch of people to help people become un-poor, it’s actually more cost efficient and a bigger return on mission to just give out cash with little or no strings attached. But you wouldn’t know that if you didn’t run the numbers.

And what’s the fourth thing money can buy? Money can buy an opportunity in the future. And this could be a financial opportunity or a mission opportunity. So you could invest money into research and development for innovations. This gives you the opportunity to serve more people or serve people better in the future. You could spend money to gain access to a new network, you could go to events, you could travel, you could meet more people. And that network of people will be there for you when you need them. You’ll be exposed to more opportunities that way.

You could think about investing in liquid assets or cash reserves. Now, we don’t want to have a lot of money just hanging around without a plan for it. Because we’re going to have inflation and that money is going to become worth less while it’s sitting there. But we always want to have a pool of cash if we can or something that can quickly become cash that we can spend all of a sudden when a time sensitive opportunity comes our way. And if we don’t have that money available when that deal comes around or that opportunity comes around, we will miss that opportunity. So having a certain amount of cash available allows us. And if we think about reserving a specific set of cash for taking advantage of opportunities, we’ll be able to do that when the time comes.

So what happened to the money that we’re flushing down the toilet? Well, you could argue that any of these has a certain benefit to our organization. But at the end of the day, we’re required to spend them whether we like them or not. So these things I call the toilet bowl items, payroll taxes and expenses. So, you know, we’re going to pay the federal government if you’re in the U.S., and it’s going to provide the things that we get as citizens, hopefully, and hopefully some as not citizens. Permits and licenses, we’re required to have those if we’re required to have them and insurance, liability insurance, workers comp insurance, anything that we’re required to have.

And so if you have that poverty mindset or that scarcity mindset and you feel like spending money is like flushing it down the toilet. From now on, if it’s not one of these three types of things, know that it is an investment and you should know the numbers about roughly how much return on mission are you getting or how much return in actual money are you getting? So that money going out, you should be like, “Yeah, ching, ching.” Every time you spend money, you should be super excited, because you know you’re either succeeding at your mission with it or you’re bringing in more money than you just spent.

So just a few tips on optimizing your budget and then I will take some questions. Is it worth it? Determine your estimated return on investment. ROI is a term used in the for-profit industry a lot. It basically just means how much money you get minus how much money you spent. So it’s the total amount that comes back to you as a result of spending that money.

Also determine the cost of not taking action. We often think that we’re saving money by not spending it but that’s rarely true. So I’m calling this return on scarcity. And it’s basically how much are you losing by not taking action. And as I said before, if you’re letting money sit in your bank and not spending it or investing it in some way, it is losing roughly 3% every year because of inflation. So you are just letting it become less and less valuable by not spending it.

And finally, just ask yourself, “Can we afford it?” If you can afford to spend the money then spend it, invest it in some way so that you’re getting more money back in the future or at the very least, you’re not losing due to inflation. And if you can’t afford it, tell your fundraising team because they need to know so that they can raise the money for you.

So, now what? This is a new way of thinking about budgets and you’re going to have to think about your relationship to money if this is really different for you and I would be so happy to help you. As I said, you can hop on a free call with me if you would like to talk about your budget. Please if you’re going to use my template, move it into that template as best you can first and bring it to the call with you. If you want to grab the budget template, you can go to or Steven will also make sure you get a link to it. And you can also just email me [email protected] I’ll hand it over to you, Steven.

Steven: Nice. That was awesome. Thank you, Sarah. Thanks for doing this by the way. Lots of great info. Love seeing the spreadsheet live and thanks for the template too. We’ll send a link out in the email. Folks go and grab that right now. But yeah, we got we got some questions here. I know you answered a lot along the way. But while people may be typed out questions, I got about five minutes for questions, folks. So now’s the time. But Sarah, we were talking before we went live just about the impact of a good budget that can have on your grant prospects. Would you mind kind of sharing what you shared with me earlier about how those grantmakers may look at a budget and kind of decide?

Sarah: Sure. Absolutely interesting. So I recently gave a similar talk at a United Way Chapter and the executive director there told me that they had asked me to come in and talk about budgets because the number one reason why they turned down funding was because the way people’s budgets were laid out. She said that it was so clear that people just didn’t really think about what was going into their budget or hadn’t really put the time in to present something that was meaningful as far as a budget. It wasn’t that they thought the plan was bad, they just look at it and they go, “If somebody can’t write a meaningful budget, then they probably don’t really know how to spend and invest money very well. And in which case, they’re not a good candidate to give money to.”

Steven: Yeah, that makes sense. This is important, folks. I’m going to shoot the link to that template in the chat if folks didn’t grab that. So click it now to get it. Sarah, what do you think of the idea of maybe setting aside a little bit of money and each budget just for like weird experimentations or R&D? Would you recommend that maybe there’d be a small line item for that kind of thing? Just kind of in the spirit of investments and, you know, trying new things. What do you think about that concept?

Sarah: Yes, absolutely and maybe not small. So I would definitely put into your program budget. You should have, I would in any program that you think could ever be improved, you should have some sort of edit whether you call it research and development or education and training. Or you could lump those two things together. You want that in all of your programs and you want that probably at an operations level as well for improving how you operate. So I would highly encourage that. I think that as an industry, we have been hammered into our minds that we must follow best practices or proven processes. And I’m sorry. But if you’re following a proven process, you are not necessarily innovating. In fact, it’s likely that you are not innovating and how in the world are we supposed to solve the world’s most complex challenges if we’re not innovating?

Steven: I love it.

Sarah: So yeah, do that.

Steven: Similarly, Meredith just asked, “What about a reserve fund?” I assume that she kind of means that as maybe your rainy day fund for maybe emergencies or unexpected. What about that?

Sarah: So there’s a couple ways to think about reserves. You might want to have a specific reserve that’s for taking advantage of opportunities. So you might think of it as fast cash so that your executive director doesn’t have to go to the board and can spend depending on the total size of your budget, like a couple grand up to 10,000 maybe to grab an opportunity that is time sensitive or in some way just isn’t going to go through, you know, such a long process. And then another way I want you to think about reserves is watch your LUNA, your liquid unrestricted net assets. So the total amount of money that you have as cash or that could easily become cash and make sure that you have secured yourself.

So a lot of people think about, you know, “Do we want to have three months of operating expenses on hand it anytime?” A way I like to think about it is if your net is less than 5%, if at the end of the day, you know, after all expenses are taken out and all income is accounted for, if you’re under 5% profit margin, that’s like how much pie is left after everything is said and done for like Santa Claus to come and sneak in the middle of the night and eat, like if you’re at zero, you are shrinking. You think you’re okay because you’re at zero but because of inflation, because of growth, you’re actually sinking and shrinking. So you want to be at least 5% in order to say, “Yes, I’m okay.”

So actually my training I did earlier I talked about how to think about setting your budget. And for that bottom-line piece, I encourage people to set three ranges. So if you’re below a certain profit margin percentage or number that you’re in trouble and you need to come back and redo your budget. If you’re within kind of like a 5%, let’s say to 15% range that you’re healthy and you should just stay on track. And then if you’re above 15%, that you’re bringing in more excess than you anticipated and you should make a plan for how to invest that excess.

Steven: I love it. This is awesome. Wow, Sarah, this has been really cool. And we’re running out of time. It’s almost 2:00 so I wanted to give you the last word. Where can people find out more about you? How can they get in touch with you? Just I think is a good starting point. But what else?

Sarah: Yeah, You can find me on LinkedIn. You can find me on Facebook. Technically, I’m on Twitter but I’m terrible at tweeting. Or you can just email me [email protected] There’s also you can schedule with me through my website.

Steven: Awesome. Do that folks. She’s obviously a wealth of knowledge. So thanks for doing this, Sarah. This is really cool. You made it happen on kind of short notice. I appreciate you coming on board and sharing all your knowledge. Thank you.

Sarah: My pleasure. I see one last question came in. “Can nonprofits ever be a balanced budget?” I mean, yes, you can. If you don’t plan, if you’re always in the negative, you’re going to go under and you’re not going to help anybody. The money is important. It’s not everything in the nonprofit but you do have to have money that’s left over at end of the day so that you can do it again tomorrow.

Steven: What a great way to end. This is awesome, Sarah. Thanks for doing this.

Sarah: You’re welcome. Thank you. Thank you, everybody.

Steven: Yeah, thanks to all of you. Sarah and I were chatting how awesome it was to get, you know, over 500 people to register for a budgeting webinar. Makes me happy. I think it makes Sarah happy too. So thanks to all of you for taking time out of your day to be here. And if you’re free on Thursday, we got another webinar coming up just a couple days from now. Donor Advised Funds. Kind of a mysterious topic, kind of a hot topic these days. We’ve kind of got the economic budgeting kind of theme going this week. But my buddy, Greg, from Louisville, if any of you are from Louisville, you might recognize his name. He ran the nonprofit association down there, going to be talking about donor advised funds.

So join us if you’re free, if you’re interested in that topic. Same place Thursday afternoon 2.00 p.m., totally free. And if you’re not free at that time, no worries, we’ve got lots of other webinars scheduled throughout the spring and the summer. Just check out our webinar page and I think you’ll find a session for your interest there. So we will call it a day there. Look for an email from me with the slides, the recording. We’ll send out that template link again. And hopefully, we’ll see you again on another webinar. So have a good rest of your Tuesday. Have a good week. Stay productive, stay warm out there. And we’ll talk to you again soon. Bye now.

Kristen Hay

Kristen Hay

Marketing Manager at Bloomerang
Kristen Hay is the Marketing Manager at Bloomerang. From 2018 - 2020, she served as the Director of Communications for the Public Relations Society of America's local Hoosier chapter. Prior to that she served on several different committees and in committee chair roles.