Creating Your Budget

Video Transcript Creating Your Budget

Welcome to Module Four creating your budget. If you're uncomfortable with

numbers, just stick with me. I'm going to do my best to make this simple. Although there T h is a certain amount of complexity inherent in the budgeting process. But if you have e

questions, ask away so I can answer away at the weekly Q&A sessions. And remember u d

if you have a question, it's a pretty good bet that others in the course have similar g e

questions. As a learning strategy, I'm using a somewhat simplified budget without too t many line items. This is a basic format that can be expanded or shrunk to fit your needs. I hope you follow along with the Do Good Society budget throughout this section to see exactly what I'm talking about.

Let's start at the beginning. What is the purpose of a budget? The purpose of budgeting is to create a model of how your fundraising program might perform, if you carry out the four elements of fundraising's enabling ecology: strategies, infrastructure, culture, and guiding principles. It helps you organize your thoughts and strategies from a financial perspective. It's a projection or prediction of your revenues and expenses. Your goal is for your revenue to be higher than your expenses, so the difference or net revenue, can be invested in carrying out the mission of your organization. I want to reinforce this piece because I sometimes see groups that cannot accurately confirm how much their fundraising programs contribute to the mission. That is, they don't necessarily know what their net revenue is or how much the fundraising program contributes to the operations of the organization.

In addition to the basic purpose of creating a budget, to project how much you'll raise, what it will cost you to raise that, and how much money you'll contribute to help your organization deliver its mission, it's also a communication tool for your board and boss. A budget with the right amount of high level information in conjunction with your fundraising plan will demonstrate to your board what activities you do to raise money and what it costs to raise that money. Many board members are unfamiliar with the various elements of the fundraising program, so the budget can be a useful tool to help share what you're doing at a high level. It's also a tool to inspire confidence in the board that you can raise what you've projected at the costs you've estimated when you consider all of those things. Budgets are pretty darn important.

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Creating Your Budget So just like we did with the fundraising plan, let's walk through the fundraising budget, starting at the top. You have access to Do Goods budget in the download

section, so you now have a template you can use that has formulas already calculated T h for you. There's also a blank version of this budget so you can use it to build your own e

budget. Like the fundraising plan, you have your organizations name, the title of the u d

document, that is fundraising budget, the time period that it's covering, in this case, the g e

12 months X to Y and you want to include which draft of the document it is. You may t well go through many iterations of this document, so you want to make sure you're working from or showing the latest. Over in the top right hand corner. I've included a note about the date that the board of directors approve the budget. It's a useful piece of information to have on your document, so you're always assured that you're reviewing the approved budget.

Now let's go and look at the first row. You've got budget, got projected to December 31st, difference, and difference percentage. The budget column is what you're projecting for the coming fiscal year. Just a quick reminder, fiscal year is any 12 month period that an organization uses to track its financial activity. The next column, projected or actual, this going to be one of two things. You can include projected revenue. So here's what that means. If you're developing your budget close to the year end and you're able to project with some certainty how much money you're going to raise by year end, I like to use this real time data because it's a better comparison between what you've raised in the current year and what you hope to raise next year. So let me give you an example. Let's say you're developing your budget in October for the fiscal year. That starts in January. If you can estimate how much you're going to raise in the next three months to the end of this fiscal year, you'll be able to compare what you hope to raise next year to a relatively accurate prediction of what you think you'll raise by this year's end. If on the other hand, you compare it to the last year for which you have complete data, that is the previous year's financial statements, you'll be comparing your budget revenue to data that's 10 months old. You have a lot more up to date information to help you forecast what the following year is going to look like. Alternatively, if you're in the position of developing your budget at the beginning of the fiscal year, you can compare your budgeted revenue to your actual revenue for last year. Here's the thing, you want to get into a routine where you are developing your budget before the end of the fiscal year. I've seen it happen that groups don't get their budgets done until the new fiscal year, but it's not great practice and it means your board doesn't require that budgets get reviewed and approved on a schedule. If you're

director, you may want to move the organization to a more robust budgeting process. T h

Now as a reminder, the first column of numbers is the budget, your estimate or u d

projection or forecast of what you're going to raise and spend next year. The projected g e

column is your projection of how much you're going to raise to the end of your current t fiscal year. The next column, difference, is literally the difference between your budget and your projected revenue in dollars. The following column is the difference in percentages. You want to be able to easily show yourself, your boss and your board how you're performing compared to earlier years. You may recall earlier I said that a budget is a communication tool that both demonstrates the many ways you raise money, but it's also a tool to inspire confidence. These columns showing the difference between budgeted revenue and projected revenue is a key part of inspiring confidence because it quickly shows those reviewing the budget if you're on an upward, downward or stable trend of growth.

The column on the furthest right hand side of the document is what I call the rationale. In this section, you briefly answer common questions that you anticipate leadership will have about the budget. Why is there a big increase or decrease? Provide brief context to the numbers. This is also a piece of the budget that is about inspiring confidence. Without context, the leadership team will be left asking a lot of questions. While they may still have questions and you can bet your bottom dollar they will ask you questions when you present this, offering up brief answers to anticipated questions is a good way to show leadership that you're on top of things. I won't be going through the rationale line by line. You can review it if for when you look at Do Goods fundraising plan to help you as you develop yours.

The last thing to review is the second tab on the bottom of the budget document that is called probabilities. Take a quick peak there now and we'll go into more detail when we get to the foundation giving revenue. Leadership really likes to know what the probability is that you're going to achieve your budget. Of course, you'd like to say that you'll achieve your budget with a 100% certainty, but the truth is that there are lots of moving parts to a fundraising budget and you can never know what unforeseen

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Creating Your Budget circumstances may arise. For instance, maybe there'll be a postal strike that derails your direct marketing campaign or maybe a major donor changes fundraising priorities or T special event revenue suffers because of the weather. Maybe unanticipated staffing h e

changes leave you less able to submit the number of proposals you had planned to do. B u

Not withstanding our inability to predict the future, it is useful to identify any known risks d g and let the board know what you've anticipated. You want them to be fully aware of e t any risks that you know about since they have a responsibility for the finances of the organization and they should have as much information as possible when making decisions like approving the budget.

I like to assign a high, medium, or low, which I usually assign as zero or attrition rating. In the past when I've tried to assign a percentage rating, it gets interpreted this way. If I assigned an 80% probability that some donations will be secured, I often have board members do the math. You forecast that you'll raise $1 million in major gifts at an 80% probability, therefore we can project that we'll receive $800,000. However, the truth is it doesn't work that way. It's usually either a hundred percent or 0% either get the gift so you don't. So I've moved to a high, medium and low ranking. This way the board doesn't try to do the arithmetic to calculate a dollar value based on percentages and it's a great reason for you to think through these scenarios, get an understanding of how much is highly probable, how much is kind of 50/50 and how much is really low or probably in the realm of attrition. When we get to the foundation giving revenue line, we'll go over this in greater detail.

One last thing before we go and look at the budget line by line. I want to say that while I've provided this format for you, you should work with your finance staff and or board treasurer to confirm that this format meets the needs of your organization. I've found this format to be pretty useful and provides a lot of information in one snapshot, but your organization may have a different format that it prefers or additional elements it wants incorporated.

In this section, we toured the budget format at a high level, including an overview of probability rankings. In the next section, we'll go through fundraising revenue in depth. You may want to download the blank template and begin to populate it as we go through the following sections together. See in the next section.

In this section, we'll review the fundraising revenue and we'll talk about assigning

probability rankings to your revenue sources. T h

Let's start by taking a look at Do Good's fundraising revenue on the top left hand u d

side of the page. I hope you noticed that the structure of the revenue reporting exactly g e

mirrors the fundraising plan's revenue. In fact, I went to the fundraising plan and drew t the order of the categories and budgeted numbers directly from the fundraising plan. In essence, in creating the fundraising plan and doing the work of estimating what can be raised in the coming year, you've basically completed the revenue part of the budget.

Here's another thing to keep in mind. The structure is also what you should be using to set up your donor database and it should reflect how your finance or accounting system tracks fundraising revenue. This discussion is a subject for another course altogether, but I want to raise it since it's important that you not be too quick to think you can develop your budget in isolation of your organization's finance or accounting system and of your donor database. These things are all interrelated and you have to be thinking about how they all connect and set up the structure so that the systems will be able to talk to, in air quotes, to each other down the road.

Let's get back to fundraising revenue and walk through this part. In essence, you've already done this part in completing the fundraising plan. The way we did it, Sheila, remember Sheila from the Do Good Society, the director of development there. She took the budgeted column figures directly from the budgeted column on the fundraising plan. Just go through it quickly. $36,000 for individual giving $5,000 from major gifts, $125,000 for foundation giving, $0 for corporate, giving, $65,600 for the golf tournament and $9,500 for third party events. That adds up to $241,100. And if your senior leadership has questions about where these numbers come from, they can refer back to the fundraising plan for the explanations and details.

Now compare that to the projected column, which Sheila also took from the fundraising plan. Individual giving at $30,000, major giving at $5,000, foundation giving at $100,000, golf tournament at $54,700 and party events at $9,500 for a total of $199,200. If you look at the difference column, you'll see the difference in both dollars and percentage for each line item. Sheila is forecasting that she's going to raise $41,900 more than the year before. Again that's 21% more than last year. That's a pretty

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Fundraising Revenue good increase for year over year and it needs to be a pretty big increase in the first year to cover the additional costs of fundraising, salary in some of the other expenses

you'll see in the expenses section of the budget. T h

The next piece of the budget is legacy giving revenue and I do want to get to it, but u d

before we go there, I want to point out the tab at the bottom of the budget that says g e

probabilities. So remember what we were talking about, cause I am going to be coming t back to it. Now in terms of probabilities. In case you're not familiar with tabs. Look at the bottom of the Excel sheet that the budget is on. You'll see a little tabs there. The first one says budget and the one beside it says probabilities.

Take a look at the tab called probabilities. We will take a quick walk through it and we'll spend most of our time looking at the foundation giving revenue since it provides the most detailed example of how this section can work. Here's a quick walkthrough. The first column reflects all of the fundraising strategies and constituents and Do Good's budget: individual, major giving, foundation, corporate, special and third party events. Stick with me here. When we get to foundations, we're going to go over all of the foundations listed there in great detail. The second column mirrors the revenue numbers from the budgeted column in the budget. The third column details is the breakdown of revenue that Sheila is able to provide. I don't typically provide probabilities for expenses because we have a lot of control over them. For the revenue, we are at the mercy of many variables beyond our control, which is why I like to assess the probabilities. Let's go over that now.

For direct marketing because Sheila doesn't have a breakdown of where exactly the money came from last year. The best she can do this year is to put in the total. In the fundraising plan. She already mentioned that Do Good. We'll be tracking more details so she'll be able to distinguish between the two mailings in the future. For now, Sheila thinks the probability of raising $36,000 is high because one, she has confidence that Do Good actually raise $30 grand last year based on the tracking from her volunteer and two, she's pretty clear what elements and best practices she'll add to enhance the direct mail program. Three, she's going to get the letters out earlier than in previous years and four, she's had some experience with direct mail in the past so she feels pretty confident that 20% is achievable. If you're missing any or all of those four reasons for confidence, you may want to be more modest in your projected growth, but Sheila is confident so she confidently says in the explanation column why she feels like

can take a look. T h

Let's review foundations because I think this provides the best example of why and u d

how this probability ranking can be effective. Sheila lists all of the foundation grants g e

and breaks them down by those she thinks has a high, medium or low probability of t securing another donation from. Now, no this implies she's been able to identify all the foundation grants Do Good has received. If not because folks throughout the organization have been applying for grants and the information hasn't been collected centrally yet, it will get more accurate as she collects more information over the coming months. The first grouping, are grants, she thinks have a high probability of renewing. The reasons are either because they've been giving for a few years or because she's had a conversation with them or they have a multiyear agreement. As you can see, they add up to $62,500.` She then has another batch of existing foundation donors that she thinks are medium probabilities because she just doesn't have much information about them, so she can't really assess them or they've given before, but not recently, so it's worth reaching out to them again to see if she can reestablish a relationship with them. Alternatively, she just doesn't know what to think, so she assesses them as medium probabilities. For this group, she thinks there's a 50/50 chance they'll give again. The next grouping is those who she thinks has a low chance of renewing, but there's still a sliver of hope. A long shot is still a shot.

The last group is known attrition. Because they've told her, because a multiyear agreement ended and she's been told she can't reapply or any number of reasons, but attrition is basically those donors who are not going to renew this year. They've dropped off. Here's why it's helpful to understand what your potential attrition rate will be because it demonstrates to your executive director and board that each year you have some foundation donors who will stop giving. Therefore, in order to grow your foundation giving revenue each year, you have to overcome attrition before you can even consider growth. In essence, even maintaining stable revenue means you have to identify and successfully submit proposals to a number of new foundation donors each year. It's good for senior leadership to understand that.

Lastly, Sheila has identified four new foundation donors that shows submit proposals to. At this stage in the process, you may not know exactly who your prospective donors are

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Fundraising Revenue or how much we'll be asking you new perspective donors for the way that Sheila has that information. In that case, you'll have to say your goal will be to identify four T qualified prospective donors for a total of $70,000. In total, you can see that Sheila has h e

$163,000 worth of prospective foundation donors in the pipeline with the hope that B u

125,000 of them will be realized. The rough rule of thumb is that you need to send out d g four proposals to get one successful response. In this case, she feels pretty good about e t the $62,500. She feels not too badly about $22,500 for a total of $85,000. Add in the long shots for a total of $93,000. To me, that means she probably has to secure about $50,000 in new foundation grants in order to overcome the risk in the renewals.

Now, there's no guarantee that the probabilities are accurate. They are based on informed estimates or best guesses. Essentially what you're trying to accomplish by offering probabilities is to demonstrate to your board and boss that you've done your homework and identified the risks as thoroughly as you can. It's also a useful exercise for you to go through to sort of stress test the level of confidence you have in your projections. As you get more nuanced and developing your plan, you can apply this probability lens to major gifts, both individual and corporate, and it's useful to begin to calculate attrition in your direct marketing program. But get through the first year and get some benchmarks under your plan's belt before trying to do too much fancy footwork.

Okay. That was a bit of a sidetrack. Kay. I think this is a good place to take another break before we launch into the legacy revenue and some of the complexities of revenue comparisons. See in the next section.

In the last section, you'll recall Sheila forecasted in her budget that she's going to

raise $41,900 more from the annual giving strategies then the year before. That T h represents 21% increase. But there's still more revenue to include in the budget before e

we start calculating net revenue. That is revenue from bequests or legacy giving. Just a u d

quick reminder about what it bequest is a bequest is a gift made in your will. You may g e

leave money or jewelry or houses to family, to charity, to anyone really. Some folks have t even left bequests to their pets. Now, a quick primer about legacy giving. Bequests are one type of legacy giving and the most common. In fact, most organizations without a formal legacy giving program get 100% of their fundraising revenue from bequests. However, it's good to create a budget that includes the prospect of other types of legacy gifts in the future. Because Sheila knew she was only gonna develop a form of bequest program, she only referenced bequest giving in her fundraising plan. She may decide to go back and update the plan to reflect the categories she's decided she will include in the budget.

Now remember I said the plan and the budget was not a linear process. Each time you work on one of the documents, it can trigger you to remember or identify something that should be included in the other. You may also remember I said I prefer to keep bequest revenue distinct or separate from annual giving revenue. Here's why. You can't really estimate how much you're going to raise each year since A, you never really know how many people have left you in their wills and B revenue from wills is contingent on people passing away and you can't predict that. For what it's worth, in some research, it has been estimated that as many as 90% of bequests are surprises to charities, so we really don't know how much we can expect from year to year.

Since we don't know how much we can expect each year from bequests, I strongly recommend to my clients that they do not include bequest revenue as something they rely on each year. That is, I recommend they do not count it as something they can rely on to contribute to the annual operating budget each year. What I suggest is that at the conclusion of each year, the board can review revenue received including bequests and determine if any undesignated bequests funds can or should be brought into the operating revenue. This is also my recommendation because we know that bequest donors like to leave their money to organizations to support something that may be a special or extraordinary need. So I really like the idea of putting bequests aside in a

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Legacy Giving Revenue reserve fund of sorts to be invested in extraordinary projects or needs. An extraordinary needs may include adding to the operating revenue and years where you're struggling

to meet budget. But I really like the notion of having a pot of money that you can draw T h from to support special projects from time to time. It's a wonderful luxury to have e

access to money for special projects. u d

g e

Okay, let's go back to the budget. As you may recall from developing the fundraising t plan process, Sheila estimated that Do Good can count on $11,000 in bequests or gifts via people's wills in the budgeted year. You can see the $11,000 shown in the bequest line under legacy giving. Add that $11,000 to the total annual fundraising revenue before legacy giving and you now have $252,100 budgeted to be raised in the coming year. That's the last line in the revenue section called total annual fundraising revenue including legacy giving. Compare that to the projected revenue to the end of the current fiscal year. Just a reminder, the budget is being created a few months prior to the new fiscal year, so the projected revenue is a forecast of how much Sheila things will be raised by the end of the fiscal year. Do Good is projecting that they'll raise $199,200 through the annual fundraising program by the end of the current fiscal year. They received $40,000 in bequests, got an extraordinarily large one, and that will bring the total up to $239,200. In total Do Good is budgeting that it will raise in total $12,900 or 5% more in the next fiscal year. If the board were to only look at the total raised and not distinguished between the annual giving and legacy giving, it would appear that Sheila's efforts had not made much of a difference to the gross bottom line in revenues. Nothing could be further from the truth though. In the first year, Sheila is establishing the groundwork for growth. It generally takes a couple of years to really get going with fundraising and distinguishing between annual and legacy giving helps paint this picture to leadership.

Here's another reason Sheila wants to differentiate between annual giving and bequest giving. They represent different types of timelines. In an annual budget, your goal is to raise a relatively reliable amount of money each year. With bequests, the revenue is not easy to predict on an annual basis. In addition to all the other reasons listed about why you want to distinguish between them, this notion of them operating in very different timelines is critically important because it takes a few years for a proactive bequest program to begin to generate more money for the organization. Organizations need to understand that investments in bequest programs are longterm investments and the activity required to generate longterm gifts cannot be compared to annual giving

Video Transcript Legacy Giving Revenue initiatives. The budget can be a tool to help deliver this message of the different

timelines. It's a subtle message, but by hiving legacy giving revenue from annual T h fundraising revenue, it at least demonstrates that the two types of revenue and their e

timelines are distinguished from each other. u d

g e

Sometimes I like to repeat in different ways to help deliver the message, so I want to t reiterate why separating bequests from annual giving is important. Just a quick recap. In the budget revenue from annual giving mirrors, the revenue included in the fundraising plan, it's $241,100 for the budgeted year next year and $199,200 for the projection to the end of the current fiscal year. That represents a $41,900 increase or 21% for annual giving. If you add and bequest revenue, your total revenue raise for the upcoming year is budgeted at $252,100 and the total projected to the end of the current fiscal year is $239,200. That represents a difference of $12,900 or a 5% increase for next year's budgeted revenue.

So here's another reason you want to demonstrate the difference between annual giving revenue and legacy giving revenue. Sheila can and should be proud that she's budgeting a 21% increase next year in annual giving. It demonstrates that she's proactively doing things to raise more money in areas she has immediate influence over. However, when you factor in bequests, it looks like she's only increased revenue by 5% that's not much of an increase when you consider the investment required to generate more revenue. And some board members might question the wisdom of investing in a new staff person if the increase in revenue is very limited. But here's the thing, there is little influence Sheila has over bequests, especially in the early days of her tenure. If she is fortunate enough to be receiving bequests in her first year, it almost 100% is true that it has nothing to do with her actions. I'll talk about why your organization may be getting bequests in a little bit. So that's why you want to make sure the budget clearly reflects and distinguishes the difference between annual revenue which Sheila has influence over and be quest revenue, which if there is any in the early years of your tenure, it has nothing to do with you.

This budget is a classic example of it. If you don't distinguish between annual giving revenue and legacy giving revenue, it could be difficult to demonstrate the budgeted 21% increase in annual revenue, which is based on your efforts. If you only show the total budget which reflects a 5% increase, it looks like you're not making a big

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Legacy Giving Revenue difference in your first year. The fact that the organization received large bequests the year before and is only budgeting a modest sum next year has nothing to do with your T efforts or lack thereof. So that's why it's important. h e

B u

There may be a couple of reasons why Do Good is getting bequest revenue without d g deliberate efforts. And I want to talk about that. Do Good's cause is something that e t really speaks to community members so they include Do Good in their will without much prompting and there are some causes like this. I can think of animal welfare in particular. In some we simply don't know what prompts people to leave gifts in their will. I once worked for an organization serving visually impaired people and we learned of an elderly man who left money to our organization and as well he did not live with visual impairments nor did anyone in his immediate family. When asked, he told the story of being a small boy and seeing a man walk by his house each morning with a white cane and experience from over 70 years earlier made an impact on him and he wanted to help people living with visual impairments because of that childhood experience. So sometimes it has nothing to do with our brilliant marketing material.

The other reason Do Good may be receiving requests is that it's possible that someone years ago created a bequest program and promoted it because bequests takes such a long time to be realized. It can be years from the time someone adds your organization to their will to the time you received the money. If I add a beneficiary to my will when I'm 50 and I lived till I'm 89 that organization has to wait 39 years to get any money I have left to it. I've seen people develop and nurture really great bequest programs. Then they leave the organization and the bequest program kind of dies away, only to learn 10 or 15 years later that that organization benefited from a lot of revenue from bequests. I want to go back to what I said earlier about bequests and annual giving program operating on different timelines. It can take three to five years before an organization will begin to see returns on the development of a formal bequest program. The truth overs that the real returns may be many years in the future developing a bequest program is like planting trees under whose shade you do not expect to sit. I wish that was my quote, but it's no.

To a large degree, developing a legacy giving program is an act of unselfishness where others will benefit from what you've left behind because most staff have usually moved on to other organizations by the time their efforts and promoting requests begin to

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Legacy Giving Revenue really pay off. Okay. Sadly, there's often a nearsightedness in organizations that doesn't recognize the efforts that have come before where bequests are concerned. If you're T receiving many bequests and if it's because someone developed a program to promote h e

them in the past, send that person a note of thanks if you can track her down because B u she planted a tree and while she may not get to sit under, it may be nice for her to d g know she created a lot of shade to sit under for others. It's not often we get e t acknowledged for things we did many years ago.

Okay, we've covered a lot. Let's take a little break. Even if you plan on going to the next section, immediately stop, breathe deeply or get up and walk around. I want you to have brain power for the next section where we're going to review expenses. I'll see you there, after I walk around and maybe stretch a little bit myself.

We have reviewed the revenue. We know it mirrors the numbers from the fundraising

plan. We know that we have to distinguish between annual giving and legacy giving T h revenue for all the reasons cited in the previous sections. e

u d

Now let's review the expenses. In this section, we list all of the expenses directly g e

related to raising funds. Let's dive in and the first line item, and generally the biggest t expense in every fundraising budget is salary. In this case, the salary is for Sheila as she's the only dedicated staff responsible for raising funds. I know someone's going to ask this question, so let me respond right away. In the past at Do Good, many staff throughout the organization were involved in fundraising. However, none of their salaries are allocated to fundraising. In my career, I can't recall seeing an organization allocate the salaries of non fundraising staff to the fundraising budget. Perhaps some organizations do it, but it's essentially a zero sum game. If you allocate more expenses to fundraising, the net revenue is reduced. However, you must include the costs of the dedicated fundraising staff.

So let's look at the salary line. You'll see the salary for this fiscal year. The one that we're in right now is $12,500. Here's how I came to that. The case study says that Sheila has been working for Do Good for three months, so I calculated one quarter of her $50,000 annual salary. You'll see a full year of salary for one staff person in the budgeted year, which I assigned at $50,000 for the sake of putting a number in the budget that seemed reasonable. That salary may be high in some communities and low in others. If you're wondering about what a reasonable salary is for a staff person, it varies from sector to sector. Hospitals typically pay more and social services tend to pay less. The arts, sometimes tend to pay less. And it varies according to where you're located. So for example, Toronto tends to pay a bit more, although not always, than smaller city centers or in more rural communities. The association of fundraising professionals conducts a salary survey each year and it contains some really useful information about salaries. You can access it if you're a member of AFP.

The line below salaries is benefits. This includes things like government remittances, government pension plan or employment insurance. Check with your finance person to see what the accurate percentages for your organization and confirm exactly what this line item consists of. Does it include vacation? Do you have retirement savings plans that you as an employer contribute to? In this case, for Do Good Society, I've had 15% of the value of the annual salary to cover off all of the benefits and extras.

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Expenses and Net Revenue I went on at great length during the planning process. Talking about the importance of professional development. You want to be clear what the budget is for professional

development that your employer allocates to each staff. Just to clarify, professional T h development for Do Good Society will be for Sheila alone since she's the only staff e

dedicated full time to fundraising. And because she was only on the job three months u d

of the year in the first budget period, she didn't get around to any professional g e

development. So the amount for this current year is zero, but next year it's $750. That t may pay for a course from fundraising lab or attend a conference. Or both. Depending on your organization, you may want to subscribe to an online research tool so you can search foundation funders. You may want to join a local association of fundraising professionals or both. You want to make sure there are funds available to support you in your work.

Next line item is telephone, postage, photocopy. You'll need to check in with your finance person to see how these costs are allocated if they are at all.

Purchased equipment. When Sheila started working at Do Good Society, they did not have a computer for so a new laptop was purchased for her use. In the coming budget. They anticipate the purchase of a new printer.

Next line item is database management consulting support. Well Sheila knows a lot about the donor database, she also knows that having someone with expertise to guide her will be really helpful and as was mentioned while working on the plan, she's going to do her best to have the consultant offer advice about things Sheila can do herself to keep the consultant fees minimal.

Direct marketing. The printing and stuffing was done in house in the past and Sheila's not sure the full cost really gets allocated. In fact, she's not convinced they were able to mail 900 letters twice in the year for a cost of $1,200 which is what the cost seems to be, judging from the information gathering she did. To be safe, she's increased the budget for their direct mail to $2,000 to at least cover the cost of mailing to 900 people twice during the year.

Miscellaneous. In an environment of really tight budgets, it's helpful to include a miscellaneous or contingency amount that can be used for unanticipated needs.

Major foundation corporate giving. While there is nothing in this line item right now,

it's included in the budget for the eventual time that Sheila will need to include a T h budget for things like donor stewardship. For instance, taking donors out for coffee. e

Donor prospect research or other costs that may arise as a major giving approach u d

becomes more deliberate. g e

t Special Event expenses. She was surprised to learn that the golf tournament only costs Do Good Society. $13,000 last year, thanks to a persuasive committee volunteer who manages to negotiate great rates at the golf course. She has been assured it will cost the same in the coming year, but Sheila's adding a dollars for unanticipated expenses.

Donor stewardship and donor recognition. Sheila would like to do something to recognize donors and while she doesn't know exactly what she wants to have at least a thousand dollars to be able to implement whatever ideas she comes up with. And as an organization you need to be prepared to invest in stewardship.

Okay. We've covered the expenses part of the budget. We're now going to move down to the total expenses. All right, so total fundraising expenses before legacy giving. In this row. The expenses related to annual giving have been added up as in the revenue section, you want to distinguish between the expenses to raise annual giving funds and those related to legacy giving. The total expenses to raise the annual giving funds add up to $81,000 in the budgeted year and $33,200 for the fiscal year.

If I was a board member, I would want to understand why there's such a large increase in expenses. Of course in this year it's an easy explanation. Do Good, hired a full time director of development to raise more money. She'll may get a few questions about other expenses. That's why we have the column called rationale. I'm not going to go over each line item, but you can see that in this section you have the opportunity to answer questions you might expect board members to ask you about increases or decreases in both revenues and expenses. If we deduct the expenses to raise annual giving from the total raised, you'll have the amount that the annual giving program will contribute to the operations or the net revenue. You'll see that there's only a slight increase, $160,100 in the budgeted year compared to $166,000 net revenue before legacy giving projected to the end of this current fiscal year. Despite a significant

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Expenses and Net Revenue increase in expenses due to Sheila's salary,Do Good will essentially generate the same net revenue in the coming year, if all goes according to plan. Sheila's feeling pretty T good about this budget generating the same net revenue and positioning the h e

organization for fundraising growth. However, she suspects she may be asked to make B u some adjustments when she meets with key stakeholders before the board meeting, but d g we'll get to that in later stages. e t

So we have a net revenue of $161,000 before legacy giving in the budgeted year. Now it's time to add in the expenses related to legacy giving. As it turns out, there were no expenses in this current fiscal year for legacy giving and there are no expenses budgeted for next year. As you may recall, Sheila knows that she has to do something to be more proactive in bequest giving and she's given herself this first year to begin to lay out a plan that can be executed in the following year. She intends on reading and searching the web to learn what she doesn't know. It's possible she'll need additional funds next year, but she doesn't anticipate having enough time to invest the development of a plan for the coming year, so no expenses. That means that the expenses including legacy giving are the same as they are in the expense total above total expenses before legacy giving. In this case, the total expenses are $80,100 for the budgeted year and $33,200 for the current fiscal year. Now we want to be able to clearly show the net revenue including any legacy giving that has come in. So the line that says net revenue and in brackets loss after legacy giving is the following arithmetic. Total revenue including legacy, $252,100 minus total fundraising expenses including legacy giving $81,000 and it will give you the final net revenue. In this case it's $171,100 for the budgeted year and $206,000 projected to the end of this current fiscal year. That represents a difference of $34,900 or 17% decrease in next year's budgeted net revenue.

This is where it can get awkward when presenting a budget like this, even though Sheila is proud of the 21% increase in revenue for annual giving, when you factor in bequests, it looks like she's generating less money. It's going to be really important that she has allies at the senior staff and board level who understand and acknowledge the

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Expenses and Net Revenue difference between annual giving and legacy giving and who can reinforce those differences when the budget is being presented. But wait, there's another twist to T consider. You want to consider the difference between raised revenue, received h e

revenue and recorded revenue. Take a little break and come back to this when your B u brain is ready for a little bit of complexity. See you in the next section. d g

e t

In the last section, we've got as far as the net revenue after legacy giving line, which

has projected at $171,100 for the next fiscal year. This next piece gets into a bit of T h complexity and it intersects with the finance or accounting world, but it's important that e

you understand the basics of it. There are three types of revenue that you want to track: u d

revenue raised, revenue received, and revenue recognized, and a big thanks to Lise g e

Johnson who is with heart and stroke at the time, she shared this information with me. t The net revenue after legacy giving gives you the amount raised or budgeted to be raised and that's important for purposes of evaluating the performance of a fundraising program year over year. Okay. However, what was raised can be different from what is available to be spent. Here's how, in some cases, you may raise a gift of $250,000 but it's a pledge over five years, so you've raised that money this year, but only $50,000 of it will be received. The other $200,000 will go into deferred revenue to be carried over into subsequent years.

In the case of Do Goods' budget, $20,000 was raised, you got confirmation that a donor was going to give you $20,000, and the money was received, the money's in your organization's piggy bank. But it's for a program that will not take place until next fiscal year. So from an accounting perspective, it gets tracked as deferred revenue and will be recognized once the obligation is fulfilled. In this case, it will be fulfilled in the following year once the program runs and the revenue will then be available to spend. You have to work with your finance or accounting team to confirm these different amounts. They're all valid and valuable, but each one serves a different purpose.

So let's follow it through on the budget. Look at the line that says deferred revenue carried over to next year. You'll see that it says $20,000 in the current fiscal year and $12,000 in the budgeted year. The $20,000 is from a grant that Sheila secured very quickly after she joined Do Good Society. It's in support of a program that will only be delivered next year, so she wants to track it as deferred revenue. Let's be clear, she raised it and it was received. However, the program is supporting is only going to be delivered next year, so she needs to work with the accounting department to make sure it will be deferred. It effectively means that $20,000 that was raised is not available to be spent in this year, so it's carried forward to be spent next year. When you look at the line that says revenue available for current year after deferrals, you'll see that the amount available in the current fiscal year is $186,000 take the time to try to understand this before you move on to the next step.

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript The Three Types of Revenue $206,000 was raised and received this year. However, $20,000 of 206 is designated for a program that will only be delivered next year. Therefore it must be

carried forward, also known as deferred. So you have to subtract it from the amount T h raised to calculate how much is available to be spent in the fiscal year in question. In e

this case, $186,000 is available to be spent in this current fiscal year. Now let's go back u d

and look at the budgeted year. You'll see $12,000 carried forward to the following g e

fiscal year. Sheila has already had a conversation with the same funder who's agreed t to make a two year declining contribution. She knows she'll receive $12,000 in the following fiscal year that's designated to a program that will be delivered the year after that $12,000 is deducted from the total available for the budgeted year. The $20,000 that was carried forward in this current year gets added in to the total for next year's budget because the program will be delivered in the next fiscal year. The money can be recognized in an accounting sense, not a stewardship sense next year. You'll see that in the differed from previous fiscal year. When you add up minus $12,000 which will not be available to be spent in the budgeted year and the $20,000 that was deferred from the previous year, it results in $179,100 available to be spent on operations and programming in the budgeted year. Okay. Take a moment to absorb that.

See what I mean by it being somewhat complex. If you have questions about this, make sure to ask them in the Q and A session and I'll do my best to answer them and feel free to ask your finance or accounting staff about this. It really does require you to be working with your finance folks. You cannot do this part of it on your own. It truly is the intersection of fundraising and finance and requires collaboration between the two teams. The final summary of money available to be spent is $186,000 projected for the current fiscal year and $179,100 in the budgeted year. Despite a big increase in expenses to cover the cost of Sheila's salary, the amount available is more or less the same according to the budgeted year. That should make board members happy.

The first year of investing in a fundraising staff is the most difficult for an organization. It's the year where the organization really has to have faith and believe in the possibility that they'll succeed, but it can be difficult and feel risky, especially if you operate on a really tight budget. and I've seen many organizations never recoup the investment in a staff and then end up feeling disillusioned about fundraising. I say this next piece, genuinely, if only they had a well-designed and strategic fundraising plan, they may have had a different outcome. I hope this course helps you overcome that challenge.

Okay. In the next session, we're going to talk about cost per dollar raised. I know you're on the edge of your seat. You may not be surprised to learn that. I have a few T thoughts about cost per dollar raised, also known as cost of fundraising. h e

B u d g e t

The last thing you'll see on the budget document is the total cost per dollar raised.

First of all, let me talk about what it is. It really is the cost to raise a dollar. In the case T h of the budgeted year, the projected cost per dollar raise is 32% which means that it e

costs 32 cents to raise $1. In a year where there are many new investments due to new u d

salary and some program costs, that's a pretty remarkable ratio. I get a lot of questions g e

about what is an appropriate level for cost per dollar raised? Canada Revenue Agency t has some guidelines. This is taken directly from Canada Revenue Agency, so all in quotations.

"Generally a charities fundraising ratio is an indicator of how the CRA is likely to approach a charities fundraising,

A: ratio of cost to revenue over fiscal period under 35% this ratio is unlikely to generate questions or concerns by the CRA. B: ratio of cost to revenue over fiscal period 35% and above. The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is, the CRA will be concerned that the charity is engaged in fundraising that is not acceptable requiring a more detailed assessment of expenditures. C: ratio of cost to revenue over fiscal period above 70% this level will raise concerns with the CRA. The charity must be able to provide an explanation rationale for this level of expenditure to show that it is not engaged in unacceptable fundraising."

In true Canadian fashion candor, revenue agency will not draw a line in the sand and say what they think is too high, but they'll offer guidelines. There is no magic number which if you reach, you'll have a CRA auditor banging on your door. If the number is very high for several years, you may find an audit from CRA auditors in your future. They increase the number of CRA auditors a few years ago, and the goal is that organizations will be randomly selected for an audit. So being audited is not necessarily a sign that they think you're out of line. It's just because they have more auditors on staff now.

I actually believe that cost per dollar raise is a misleading metric. Doesn't tell you about impact. I'd rather see a group spend more money if it means they'll have more money for mission delivery. For instance, I'd rather see an organization spend 40% on

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Cost per Dollar Raised fundraising and raise $10 million, thereby generating $6 million for the mission than have a charity with a 20% cost of fundraising, raising $1 million and generating only

$800,000 for the mission. T h

This can be a polarizing topic at board meetings. My experience has been that u d

many board members hold views that equate cost of fundraising with the effectiveness g e

of a fundraising program. This will be another area where you'll want to be with your t fundraising champion, so you have someone from the board who can support this element of the budget. You should know your cost per dollar raise and have a measured and reasoned answer. When someone asks you about it. Believe me, it will come up. Now it's not like I think you shouldn't track cost of fundraising. I could have simply not included mention of cost per dollar raised in this course whatsoever, ignored it and not brought it up at all. However, I actually think there is a reason for tracking the ratio. The ratio is useful as an internal guide to help you keep track of where your expenses are trending. It's a useful tool to compare yourself to yourself year over year and to look at the trends over a number of years and it should be reviewed in the context of revenue available to be spent on operations each year.

Now that you have a distinct budget for fundraising, you can begin to do more nuanced analysis. Evaluation and benchmarking is another matter altogether for another course, but now that you can easily see where your fundraising dollars are coming from, you can begin to analyze if you're fundraising revenue sources are sustainable and if they lead to a fundraising program that's financially resilient or is it vulnerable?

Once you have a handle on your fundraising program and you've built a certain amount of infrastructure, a goal for your fundraising program is diversification. It offers opportunities to grow your budget while addressing the risk of losing a big donor or a significant grant. The more diversification you have, the more resilient your your program will be and better able to weather financial storms. Now, how do you actually measure revenue diversification? Well, there's no ideal ratio such as you know, X percent and foundation grants and Y percent of individuals and Z percent of special events. Every organization is different based on their constituency, their history, their cause and their leadership. All of these influence fundraising program, but there are a couple of things you want to consider. Do you have one big funder or donor? If you receive a really large percentage from one donor, your fundraising program is at risk if

© Cathy Mann and Associates and The Fundraising Lab. ALL RIGHTS RESERVED. Video Transcript Cost per Dollar Raised that one donor changes priorities and stops giving to you. So diversification is important

to mitigate against one big funder. Ask yourself, if your big funder changes priorities T h and stops funding you, how will you recover? Now on the spectrum of problems to have, e

having one large funder is a nice problem to have frankly, but don't allow it to lull you u d

into a false sense of security. Use it as an opportunity to invest in diversification. g e

t One other thing that you want to think about is to what degree do you have undesignated revenue? As you're developing your fundraising program, you want to balance fundraising strategies that typically generate undesignated revenue like direct mail, especially events, sponsorship, and if you can plug into the new movement from major gift donors who donate unrestricted gifts, go for it. You want to balance that with fundraising strategies that are designated as you move into more major gift fundraising. Donors tend to apply restrictions about how the money can be spent. Oftentimes, larger gift donors want their money to be allocated to a particular program they can see results for. As a side note, there is an emerging move towards general operating support from foundations and if you'd like to hear about it, you can listen to my podcast, It Doesn't Hurt to Ask, episode 13 with Laura Manning from the Lyle S Holman foundation about the move towards general operating support from funders. You can find it at cathymann.ca/podcast or iTunes, Google play or Stitcher. Each strategy has potential but also comes with risks and challenges. So a smart fundraising program weighs the pros and cons of each and builds their fundraising plan accordingly.

We have covered a lot of ground in this,step four. And if you're newish to fundraising, you may find that some of the concepts in this section require a bit of time to absorb. If budgeting on the other hand is easy peasy to you, then I hope this clarified a few things or prompted you to think differently about how to approach your budgeting process. In the next section, we'll pull it all together to share it with key constituents before it goes to the board. It may be tempting to take your plan and budget and be done with this course, but I see many fundraising professionals neglect the next steps, which include how to position all of this dense information and how to get buy in from key people in the organization. I strongly recommend you take the time to do the balance of the course and I'm confident I'm going to see you there.