Cost Allocation

Cost Allocation

The full-day "Enabling Resilience: How to Restructure and Revitalize Your Non-Profit Organization" workshop produced by ReStructure Non-Profit Consulting includes an in-depth practical section on understanding how to allocate true costs, understanding direct / indirect costs, as well as a section on financial analysis and reporting.

This excerpt is taken from the NFPAccounting Blog regarding the importance of strategic cost allocation for Non-Profit Organizaitons.

Cost allocation is a method for apportioning shared expenses or shared costs (also called common costs, or directly allocable costs) across functional areas.

Cost allocation is important because, done accurately and consistently, it can provide a realistic picture of what different programs and other activities cost.

There are a number of cost allocation methods out there, and several of the most common are:

- Payroll. Allocations are based on a percentage of the total actual time worked or the total payroll dollars charged by all employees in each functional area. For example, four employees’ time sheet data shows that they spent 15 percent of their aggregated time during the last payroll period on Program A, 35 percent of their aggregated time on Program B, 25 percent on program C, 15 percent on Administration and 10 percent on Fundraising.

- Cost-to-cost or direct cost. Allocations are based on the previous year’s percentage breakdowns for each functional area.

- Square footage. Allocations are based on the proportionate space occupied by each functional area in your office or worksite. For example, Program A occupies 10 percent of your office space, Program B occupies 20 percent, Program C 50 percent, Administration 5 percent and Fundraising 15 percent. This method is useful for allocating rent, utilities and other occupancy-related costs.

San Francisco Foundation's Nonprofit Transitions Fund Accepting Applications for "Intentional Change"

As part of the San Francisco Foundation's emergency response grantmaking, the foundation created the Nonprofit Transitions Fund to help nonprofit organizations rethink and regroup in response to the downturn in the economy.

The goal of the Nonprofit Transitions Fund is to help nonprofits reduce costs and time spent on administrative work, as well as increase productivity.

The fund will provide a total of $350,000 to support: serious planning efforts, consultants, due diligence, and other expenses related to the following activities: back office collaborations between two or more organizations (including rent, equipment, and group insurance joint purchasing, as well as centralizing human resources, payroll, benefits administration, and financial and grants management); service delivery joint ventures between two or more organizations; merger/acquisition/consolidation; post-merger integration or closure costs; dissolution (voluntary/involuntary); and bankruptcy.

This fund is intended for activities such as strategic planning and fund development. It is not intended for organizations engaging in staff transitions, capacity building work (such as streamlining internal operations), and/or establishing fiscal sponsorship.

Applicant organizations must have 501(c)(3) nonprofit status (or a fiscal sponsor) and must primarily serve residents in at least one of the five Bay Area counties served by the foundation: Alameda, Contra Costa, Marin, San Francisco, and San Mateo.

Requests will only be considered from organizations that have received programmatic or operational support from the San Francisco Foundation within the last five years.

Grants will generally range from $10,000 to $30,000 each.

Visit the SFF Web site for complete program information.

Contact:Link to Complete RFP

Funders and Non-Profit Organization's response to the Recession

As most of us are back to work from our summer vacations, information and research regarding the contiued impact of the recession on funders and non-profit organizations is becoming increasingly available.

ReStructure is completing an informal survey of existing research regarding the non-profit sector's response to the recession and will post this synthesis of information from time-to-time on this blog. Some fo the research we are reviewing consists of individual and synthesis research from various geographic regoins in Canada, USA, UK and Australia.

The information that will be collected, synthesized and reported to you will be information that has been made public by various funders and non-profit associations and organizations and can be found on various internet websites. As there is a lot of information on a number of sites, we will look to synthesizing this information to provide you with a summary of this research!

Ontario nonprofits encouraged to apply for infrastructure stimulus funding -- August 4, 2009

This update is directly taken from the Charity Village - Village Vibes eNewsletter

Ontario not-for-profit organizations interested in upgrading their infrastructure can now apply for funding through the federal government's Stimulus Fund.

The Government of Canada will contribute up to one-third of eligible project costs, and in exceptional cases up to half of eligible project costs, with the funding being matched by the Province of Ontario. Priority will be given to the rehabilitation of existing infrastructure, but new construction will be considered provided it can be fully completed by March 31, 2011.

Eligible project categories include: temporary housing structures, community centres, community services, and cultural infrastructure. Applications are due by August 18, 2009. For more information, visit: www.buildingcanada-chantierscanada.gc.ca.

Strategies to proactively assess the impact of the growing recession on your organization

Better start planning how you are going to manage the impact of the recession

"Credit crunch" and "economic downturn" - How will this affect Canada and Canadian nonprofits?

Podcast: The financial crisis and its effects on microfinance

Podcast: The financial crisis and its effects on microfinance
A video message on the effects of the crisis on microfinance institutions from Elizabeth Littlefield, CEO - CGAP.
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Non-Profit Recession Watch: Which organizations will withstand the recession?

Non-Profit Recession Watch: Which organizations will withstand the recession?

Which organizations will withstand the recession?

In late January 2009, a study authored by Retriever Development Counsel LLC, was conducted in the US, assessing the impact of the economy on the fundraising efforts of over 180 organizations. The survey was conducted in partnership with Nonprofit Association of Oregon, Grantmakers of Oregon and Southwest Washington, Oregon and SW Washington Chapter of the Association of Fundraising Professionals, Meyer Memorial Trust.

Although this survey focused on the Oregon and South West Washington area, the results are likely applicable to non-profits across North America. Respondents were primarily executive directors and development directors representing a range of organizations and sectors across the board. The results were illuminating and provide an interesting insiders look on how nonprofits perceive to be faring during the current economic situation.

First and foremost, there was a significant amount of good news coming out of the survey, which should give nonprofits, whether in the US or Canada, reason to pause. For one thing, fundraising trends tended to be higher in 2008 than in 2007. For another, the majority of nonprofits surveyed predicted a recovery time of two years or less. And many organizations said they were looking to the economic downturn as an opportune time to reconnect with their mission, re-align their strategic vision, establish new partnerships and introduce a higher level of creativity into their overall approach. What’s more, many have witnessed an increase in the use of their services and are planning to expand their offerings in the coming year.

Interestingly, however, the organizations who claim to be doing well aren’t boasting the largest budgets or the most effective fundraising efforts in 2008, but they do share some of the following criteria:

• A diversified revenue stream.
• An engaged leadership—including executive, development/fundraising and board— ready, willing and able to take on any new challenges that lie ahead.
• Greater efforts at relationship-building and donor outreach.
• Emphasis on development staff or resources.
• They are proactive, always looking for ways to improve and increase their planning and their efforts.

On the downside, however, the survey found that, for those organizations who witnessed a decline in their fundraising dollars, most attributed it to the economy. Many nonprofits also approached the new year with short-term solutions to the current situation. Those who predicted longer recovery times, cited organizational problems (e.g. leadership) or lack of development/fundraising efforts as the main culprits.

But, in line with the above, and contrary to what many would believe, the organizations who claim not to be doing well are not necessarily those with the smallest budgets or staff. Nor are they the ones decrying 2008 an abysmal year for fundraising.

Yet, they all seem to have a few things in common, such as:

• Problems with leadership or board.
• Reactive as opposed to proactive strategies.
• Little donor stewardship.
• Lack of fundraising efforts.

Another intriguing tidbit is that, overall, nonprofits surveyed said they experienced higher fundraising results in 2008. To what did they attribute the increase? By and large, the answer was simple: a greater focus on the “ask”. Likewise, in order to achieve their 2009 revenue goals, donor stewardship was deemed the top priority, followed by foundation grants and major gifts. It should come as no surprise then that when asked about their priorities for 2009, 81% stated it would be communicating with donors.

Some other noteworthy takeaways from the report include:

• A large percentage of respondents (77%) anticipate recovery in two years or less.
• The impact of the economic crisis appears to vary among nonprofits, with some experiencing greater consequences and others a lot less.
• Nonprofits who appear to be faring better in the economic climate are, by and large, the ones who promote diverse revenue streams and effective management.
• Development activities, particularly individual donor relations, seem to underlie the approach of the more successful organizations.
• Board members need to increase their level of involvement and engagement.
• Non-profit leaders need to take a greater role in communicating the organization’s goals, decisions and vision moving forward.
• A greater focus on internal communication within the organization is necessary.
• Sometimes an organization’s perception of how well they are faring does not reflect the realities of the situation.

Unquestionably, like our neighbours to the south, Canadian nonprofits will feel the effects of the economic downturn and core funding/fundraising efforts will be impacted. But as the survey and its report demonstrates, even in these harder times, a proactive strategy is the key to resilience. Strong leadership, scenario planning, restructuring, donor stewardship, diversity and creativity are just a few of many priorities that can mean the difference between funding and fundraising highs and lows.

Retaining Donors Through Tough Economic Times

Check out this SlideShare Presentation:

Retaining Donors Through Tough Economic Times

View more presentations from Sean Triner.

Non-Profit Recession Watch: NY State Health Foundation providing funding for strategic restructuring

Non-Profit Recession Watch: NY State Health Foundation providing funding for strategic restructuring

NY State Health Foundation providing funding for strategic restructuring

New York State Health Foundation recently announced it will dedicate a portion of its funding to support vital NY health non-profits to “transition to new and reorganized forms” that will be more sustainable over time. This is an excellent example of funders understanding the real impact this recession is having on NPOs and supporting proactive change.

As I have written time and again in this blog and in my articles (see “Strategies to proactively assess the impact of the recession” and “Leaner Times call for Leaner Measures”), tough economic times can be just the catalyst needed for non-profit organizations to develop new strategies to become more efficient. Strategically restructuring operations can strengthen the capacity of organizations.

Assessing your financial status, the cost per program and assessing the impact of these programs as well as implementing strategic cost containment initiatives will allow organizations to have more clarity and impact in their work and it also is often a catalyst to consider innovative approaches and collaborative initiatives such as joint ventures, outsourcing, joint purchasing programs, mergers and management service organizations.

The recession may be the catalyst the non-profit requires to seek innovative approaches to the way they operate, and now funders are starting to fund these new approaches. As non-profits would not have to pay for these services - if money is accessed through restructuring funds made available by funders, than non-profits have nothing to lose by assessing whether they are candidates for strategic and financial restructuring.

In a time where budget deficits are rising and only 12% of US non-profits expect to end the year with an operating surplus (Nonprofit Finance Fund), it’s great to see funders acting progressively to support fundamental and lasting changes in non-profit organizations. Non-profits can leverage this by becoming more intimately acquainted with their programs, assessing their impact and assessing the financial models used to fund programs and services.

Have you heard of any funders in Canada supporting similar initiatives? If so, please share! Email Betty Ferreira at blog@restructure.ca

Click here to read the announcement from NY State Health Foundation.

Collaborate, Collaborate, Collaborate

The article Strengthen key relationships: collaboration and the economic downturn quotes the CEO of the NCVO (The National Council for Voluntary Organisations) as saying

“Charities that diversify their funding streams, collaborate with partners and get their income strategy right are more likely to weather the current economic crisis and emerge financially secure on the other side.”

For more information, tips and strategies on mergers and collaborations please read Strengthen key relationships: collaboration and the economic downturn, and view the collection of articles in the "Restructuring Information & Resources" and "Non-Profit Mergers Information and Resources" sections found below (in the www.nonprofitrecessionwatch.com blog).

Foundations Collaborate to Fortify Against the Recession

One of the many, many things I admire about the non-profit sector is its ability to innovate and survive in the face of adversity. There are many examples that I could provide to demonstrate this resilience, but I will focus on just one of the most recent ones that were profiled in the NYTimes.com in their article "As Detroit Struggles, Foundations Shift Mission".

Over a dozen Detroit foundations have decided to pool their money into an emergency fund for struggling charities, and they are also investigating ways in which they can strategically use funds that have been ravaged by the stock market decline. By pooling their funds, approximately $100 million over years from 10 foundations, this collaborative foundation network will attract skilled workers to the city, fill empty houses, and occupy empty retail storefronts. The impact of collaborating and leveraging expertise and funds has led to a refreshing strategic approach to the issues facing the Detroit economy.

Not only will this pooled fund leverage the capacity to restructure Detroit's economy beyond the capacity of any single foundation, the effort has also attracted additional funding from three national foundations (W.K Kellogg, Kresge, Charles Stewart Mott) which will further enable this collaborative foundation network to fulfill upon its mission.

Do you know of other collaborative initiatives that have arisen as a result of the recession - either on behalf of foundations or non-profits? I would like to profile them - email me at blog [at] restructure.ca.

Ontario Trillium Foundation releases "Challenges and Opportunities for Ontario's Not-for-Profit Sector During Tough Economic Times"

The Ontario Trillium Foundation released the "Challenges and Opportunities for Ontario's Not-for-Profit Sector During Tough Economic Times" report.

Key findings from this report:
- Non-Profit organizations in Ontario are concerned about the potential impact of the recession on the organizations they lead,
- Approximately one-third of the organizations were already experiencing serious economic impacts and there is fear that the recession will get worse,
- A number of community and social service organizations are realizing an increase in the demand for their services,
- Stock market declines have impacted the value of endowment funds
- A number of corporate donors and sponsors are frequently not renewing sponsorship/grants

However, Ontario's non-profit sector is working to develop survival strategies, says Robin Cardozo, CEO of the Ontario Trillium Foundation.

These strategies include:
- sharing best practices,
- looking for new ways to collaborate
- looking for new ways to diversify funding and fundraising
- engaging funders in ways to have greater impact with fewer dollars
- reducing costs

The non-profit sector in Ontario is enriched by this research and as such, I would like to congratulate the Ontario Trillium Foundation for deciding to conduct this research, having this important dialogue with non-profit organizations, and sharing this research with the non-profit sector.

For more details and information on this report please read the full report -"Challenges and Opportunities for Ontario's Not-for-Profit Sector During Tough Economic Times" - on the Ontario Trillium Foundation website.

Fundraisers - Don't call it a crisis!

Kim Klein, fundraising guru and Publisher of the Grassroots Fundraising Journal provides fundraisers with five suggestions for surviving in these difficult times.

Non-Profit Recession Watch: Lessons from a Non-Profit Restructure-er

Non-Profit Recession Watch: Lessons from a Non-Profit Restructure-er

Fundraising in the recession Webinar - The Chronicle of Philanthropy

As the recession deepens, charity executives face growing challenges as they seek to raise money.

Much of the advice that is available to nonprofit leaders is too general to make a difference, so The Chronicle is bringing together three veteran fund-raising experts to talk about what has worked in past downturns — and how to think in new ways about a financial crisis unlike any other in recent history.

The Webinar, to be held on Wednesday, March 25, at 2 p.m. Eastern time, offers a chance for everyone in your office to gather together for one low price to get expert advice. Sign up today to take advantage of special rates for early sign-ups.

Stanford Social Innovation Review : Articles : Ten Nonprofit Funding Models (March 4, 2009)

Stanford Social Innovation Review : Articles : Ten Nonprofit Funding Models (March 4, 2009)

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Lessons from a Non-Profit Restructure-er

Thanks, and...
Thank you to those who replied to my earlier message congratulating me for my soap box rant. My general sense from working with funders in Canada on numerous initiatives is that they recognize the need for change and the need to support the sector through this recession. Now we are challenged with the task of “making it so”.

The ReStructure Conference, held this May in Toronto (date tbd), will help non-profits understand the current economic impact on Canadian non-profits, and to provide information and strategies on how to restructure, funders will sit on a panel at lunch to provide their perspective on how we begin the dialogue that has been brought about as a result of this recession. If you haven’t already registered for information on the conference – please go to http://www.therestructureconference.ca/ and register on the site to receive an invitation to the “Forward Together” Conference held in Toronto in May (date TBD).

Information from CompassPoint?
By the way, CompassPoint has not yet uploaded presentations from their Nonprofit Forum to their website. I will provide a link to the conference presentations as soon as CompassPoint uploads the presentations from the sessions to their website.

In the meantime...
Here are some tips and lessons from a Restructure-er
If you are interested in learning more about what you can do to restructure your organization, and if you have not already read my articles on “Strategies to proactively assess the impact of the recession” and “Leaner Times call for Leaner Measures”, please do so as there is a large amount of information in these articles that may support you with your efforts. You can find also find these articles in the "Restructuring" information box below.

Here is a summary from the Strategies to Proactively Assess the Impact of the Recession on Your Organization:

I recommend that leaders of non-profit organizations assess their situation vis-a-vis the economy, do it now, make a plan based on a careful assessment and involve your management team in the discussions, and follow that plan. Proactive steps today will help you manage the impact of any potential decreases in funding caused by the recession.

Steps to take to proactively assess your situation

STEP 1. Assess if, and how, your organization will be impacted by the recession either by a decrease in funding/donations and/or an increased demand for services.

STEP 2. More precisely assess the potential impact of the recession on your organization. How much will funding decrease? How much will the demand for services increase?
After assessing the potential impact of the recession, organizations should more precisely assess the impact of the decreases in funding or increased demand for services in order to adjust their budgets and strategies.

• Will your organization see an increase in the demand for services?
• Will it also see a decrease in funding?
• If you believe that your organization will see an increase in funding and an increase in the demand for services – have you assessed if the increase in funding and donations will cover your increased cost to deliver more services?
• If your organization will not see an increase in demand for services, will it see a decrease in funding and donations?

See chart 1 and 2 at this link http://www.charityvillage.com/cv/research/rom58.html for more information on how to assess where your organization lands on this funding matrix of “need and loss”.

Questions to ask when assessing the impact
The following list of questions will also assist you to further assess the potential decrease in funding from each source: government, foundations, corporations and individuals.

Re: corporations and foundations

• Are you expecting to receive sponsorships, donations, or grants from corporations that have been heavily hit by the recession, such as those in the auto industry?
• Are you expecting to receive a grants from a foundation whose fund invests in and has consequently been heavily hit by the decrease in the stock market?

Re: individual donations

• Will Canadians feel more or less empathetic to your organization's cause during a recession?
• Does your organization have brand recognition with the average Canadian?
• Do you have a close relationship with your donors?
• Do you know if the pattern in donations from individuals has changed in the last six months?
  

STEP 3. More tips to come...
For information on how to proactively restructure your budget and operations to prevent the need to cut positions or projects/programs or services in light of a decrease in potential funding, read Leaner times call for leaner measures. Here, you will learn 15 tips that you can use to implement leaner measures and safeguard your organization in a time of recession.

That's all for now. Please feel free to submit any questions that you may have about restruturing non-profits - submit questions to blog@restructure.ca.

Thanks.

CompassPoint: The Nonprofit Forum information

I attended the CompassPoint Nonprofit Forum: THE NONPROFIT FORUM: Making an Impact In Today’s Realities, held in San Francisco this week so that I could learn more about how the recession was impacting American non-profit organizations, and learn more about the resources, information, tips and strategies being offered to NPOs to assist them during this difficult time.

Also, as ReStructure is developing a similar conference to be held in May in Toronto (see http://www.therestructureconference.com/), I wanted to visit the sessions, see the information presented, and more importantly, assess how the participants responded to the information provided in the workshops. Information about the recession and what funders and leaders have to say about it...

- Non-profits in the Bay area of San Francisco, and across the US, are being hit hard. Unfortunately, the panellists and attendees agreed that as bad as it is currently, that things are likely going to get worse in 2010 for American NPOs, specifically those who are dependent on a limited number of revenue sources.

Although I do not like to provide information that provokes hysteria unnecessarily – this information is not scaremongering, this is why: governments in the US will be drawing on less tax revenue, due to declining property taxes due to the foreclosure crisis and due to declining sales tax revenue as a impact of the layoffs (people are buying less) – this tax revenue finances community programs and other NPO initiatives, and so NPOs should prepare themselves for less government funding.

How much less is still unclear, but NPOs should not ignore this warning sign and start to develop and implement strategies that will stem this tide.

Government representatives openly shared information on how bad the economic situation is, the expected county and state deficits, and warned NPOs that cuts are likely. Their participation in this event is a wonderful sign of collaboration, transparency and accountability. In addition, it is also a good sign of further collaboration between NPOs and funders to work together to brainstorm on effective ways to protect the sector.

My thoughts..
While the situation is Canada is not as dire as that in the states, Canada (as we now know by the number of layoffs already announced), is not immune to the recession. In addition, as Canada has traditionally lagged 12 – 18 months behind the US in realizing the full impact of a recession centered in the US, and as diminished revenue from taxes impact government this year - it is likely that both Canadian and American non-profit organizations will experience difficult times in 2010.

Funders and leaders of non-profit organizations should keep updated on the economic impact on government, foundations and individuals and work with together throughout this journey to collaborate on more resilient funding and operating models that will seek to support and protect non-profit organizations at this time AND use this opportunity to leverage change to fortify the sector in the long-term.

Current program specific funding models, funding requirements and government legislation to limit necessary operating infrastructure need to be given a hard, serious and look, and changes must be made that understand the basic principles of organizational resiliency and enhance the value that the NPO provides this country.

It’s time to look at measures that are based on outcomes and impact – isn’t that what our sector is all about? Yes, it is – so, let’s work on this together to align the sector’s purpose with its reality, and the reality of what it takes to operate a social business. All too often non-profits are assessed against administrative ratios that have nothing to do with effectiveness and that minimize an already fragile and stressed operating model.

True measures of effectiveness as well as funding and operating models that are based on the short and long-term resiliency of the sector are required to protect the NPOs ability to further contribute to a healthy, socially just and democratic society – it’s in all of our best interest.

Funders in the US appear to be responding relatively well to the current economic crisis in the US. Their participation in this forum is one sign as is the research reports highlighted in my blog of March 10th demonstrate that (scroll down).

Stay tuned for my blog update tomorrow where I provide you with some of the tips, strategies and resources provided during the Nonprofit Forum, and some of the strategies and tips that I have used in restructuring organizations as well.

If you are looking for some information and strategies on restructuring, and can’t wait until tomorrow, check out the articles provided in the restructuring sections in the http://www.nonprofitrecessionwatch.com/blog.

As a final note – I just wanted to thank CompassPoint for coordinating this day. The forum was well attended and well coordinated – kudos to all who participated in its development.

Betty

US Foundations Announce Expectations for Future Giving

US Foundations Provide an Overview of their Plans for Future Giving in Light of the Recession:

• "Grantmakers Describe the Impact of the Economic Crisis on Their Giving," details how some US based foundations expect their 2009 giving to be affected by the recession.

• The Foundation Center has drafted an online compilation of news about it's response to the economic downturn, "In Their Own Words: 2009 Foundation Giving Forecast."

For more information, please visit the links above or go to the Foundation Center website.

Betty

Research on the Impact of the recession on Non-Profits

We are looking to find and share:
1. research (studies, polls, surveys) on the impact of the recession on the non-profit sector, and
2. research on the perceptions of non-profit leaders regarding the potential impact that the recession will have on the non-profit sector this year.

If you are aware of any research, please share!