Charity Financials on the Back of an Envelope

Any business or charity needs money to operate. I recently wrote about how to do a back-of-the-envelope calculation to determine the financial feasibility of your business. In this article we look at your non-profit project or organization. We will focus on the question:

How much money do I need to create my non-profit and sustain it over time?

We will start by considering the sources of money coming into your charity. Then we consider the expenses to be incurred. Finally, we will compare the two so you can estimate the answer to the question above.

Sources of Income

EnvelopeThe sources of income for your charity will vary tremendously depending on the nature of your operations. Here are some to consider:

  1. Program/Participation fees – Income from people receiving services, such as entry fees, class registration fees, membership, or materials fees.
  2. Charitable Grants – Money received from other charities or foundations to support your work.
  3. Government Grants – Money received from local, regional, state, or Federal agencies.
  4. Event Income – Fundraising event revenue. Don’t forget the cost of putting on the event.
  5. Individual Donors – Small or large gifts raised from individuals, either through direct solicitation, mail campaigns, or online. Consider legacy gifts for the long term.
  6. Other Operation Revenue – Includes other sources of income, such as renting out your facilities or sales of product (ex. Gift store).
  7. Income produced by endowments or other long term funding.

Each revenue stream requires it own distinct effort, and the payoff will vary. Consider the amount of money raised versus the effort involved. Some sources may be recurring once established and some may be one-time raises.

It is best to strategically decide what sources to pursue rather than taking a shotgun approach. Putting a token effort into lots of different things hoping one will succeed does not replace a thoughtful approach and plan to fund raising. It is good to keep an open mind and try different approaches from time to time, in order to find the best fit for your organization.

Expenses

moneyThere are many possible expenses for your organization. Try to come up with a ballpark estimate for each one. Here are some ideas to get you started:

  1. Services – What services do you offer? How often? What is the cost per event, service, or time period? Is there also an Outreach cost?
  2. Staffing – How many people, how much does each work (full-time/part-time), what are typical pay scales? Don’t forget benefits, taxes, etc.
  3. Location – Rent, Buy, Build, be Virtual? How many square feet for staff and services? How much per square foot? How much does it cost to maintain it as well?
  4. Hardware/Equpment – Items needed to run your programs or support your organization.
  5. Materials/Supplies – What do you need to run your charity or program?
  6. Fundraising – Consider staffing, mailings, web site, social media, grant writing, etc.
  7. Other Items – Food, Travel, Insurance.

Are you an organization that can start small and grow, or do you have significant startup costs before you can launch?

Create a basic timeline for the roll out and first years of your organization. Choose a unit of size appropriate for your organization (# events, staff size, # clients, etc). How big can you reasonably expect to be the first month, the first quarter, the first year, and after three years?

Estimate how each expense scales with size. Then combine your size estimate and expense scaling to map out your start up expenses and your annual expenses for the first few years.

Putting It All Together

If your start up expenses are large (building something, setting up an infrastructure, etc), you will need to have a capital campaign. This is really hard for a new organization without a track record. See if you can start small and grow into this once you have base operations established. Otherwise, get some experience on your team and build a compelling story.

The natural operating cycle duration for most charities is the annual basis. Let’s focus on your initial operations budget framework.

Your program fees and some operations revenue typically scale with your expenses and size of operations. Calculate those right away and look at the gap. Your annual fundraising need can be determined using your size estimates and your expense scaling.

Evaluate your income sources and pick two or three that seem the most promising to close the gap. Does it seem reasonable to raise that much money from those sources? Based on your own fundraising experience, similar organizations, or research you have performed you should be able to evaluate the feasibility of your project. Try some market research – talk to potential donors, grant organizations, etc to see if they have the level of interest needed to support your goals.

If it doesn’t seem promising, can you alter the model or rollout to be more achievable? Once the numbers work you are ready to put together a full budget and go for it.

Good luck!

  2 comments for “Charity Financials on the Back of an Envelope

  1. March 26, 2016 at 3:10 am

    I don’t know who Poncho’s Mom is but she and I are right on the same flight schedule.
    Another great post of information Professor.

    Hoping that this will lead us to the path of success!

    Thank you for your wisdom.

    Lynn Houston
    A Different Point of View

  2. April 3, 2015 at 7:02 pm

    Just last night I was brainstorming an idea I had for a nonprofit company I would want to possibly launch, sometime in the future. Your outline and prompts are great starting points for me to consider while formulating the BMC in my head and on paper. I’m bookmarking your post! Thank you, Ron!

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