Episode 105: Business Expenses: Indirect Costs
An Org assessment is like your vehicle 3,000 mile check up where you look under the hood to proactively catch issues early, before they become costly. Lift your head up, get out the weeds. Make sure your programs are relevant. Make sure your staff is happy. An assessment helps you stay in the know, prioritize, and develop a strategy to get you back on track, or ahead of issues.
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π¦ NONPROFIT SPOTLIGHT ππΏ
Garuda Promotional Products Pt. 1
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π RESOURCES TO HELP YOU RUN A SUCCESSFUL NONPROFIT π
How to Price Event Tickets for Profit https://drive.google.com/file/d/1AMsBHQgkIzNsAa9cj3ZU030Yw4r7zJTP/view?usp=drive_link
90 Days to a Profitable Nonprofit https://drive.google.com/file/d/1ofgeHJ2CTVS0t8STMiNqfveaVpWfaK7o/view?usp=sharing
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Podcast Transcript
Speaker 1 (00:00):
Welcome to On Air with Amber Wynn, where nonprofit leaders learn to fuse passion and commitment with proven business strategies to create long-term funding impact and sustainability. And now here's your host and resident, Philanthrepreneur Amber Wynn
Speaker 2 (00:21):
That beat it sends me, I don't know what to tell you. Hey fam, it is your girl. Welcome back to On Air with Amber Wynn. I am in the house and I'm excited to be here with you today. Ask me why. I'm going to tell you why, because today we are going to talk about a topic that has been happening in the nonprofit sector for centuries. What's that? It's called indirect costs. Specifically the difference between how the funder views indirect costs versus how the founder or executive director or grantee views indirect costs. Today's topic is called business expenses. Business expenses typically fall within that category of indirect costs. We have indirect costs, indirect costs, and those indirect costs are usually the chunk of the expenses for the nonprofit. And why this conversation is important is because there are some truths, there's some facts. And the facts are in order for a nonprofit to be successful, they have to pay those indirect costs, those business expenses, salaries, electricity, lights, all of those things that it takes to run a business. The disconnect is that funders believe those responsibilities belong to the nonprofit. And so there's just this huge disconnect. I am going to go into depth about how founders and executive directors can be successful in running profitable nonprofits when we come back because this is huge. This is what keeps nonprofits in poverty mode. And you know your girl's not about that. So when we come back, we are going to take on business expenses.
Speaker 3 (02:19):
If you're thinking about hosting a golf tournament or any other kind of event, make sure at the end of the event you generate a profit and not come out with a loss. There's a formula for guaranteeing that your event will generate a profit. You'll find it in my Hotter Price Event. Tickets for Profit Toolkit, learn the insider secrets for how to ensure your event will always make a profit every time. Order your copy today.
Speaker 2 (02:44):
Welcome back. You're on air with Amber Wynn, Philanthrepreneur and today we are talking at about a very important topic. It's called Business expenses. So a nonprofit is a business. You hear me saying that at least every episode because I need you to understand that, right? A nonprofit is a public charity, but it is governed right by the IRS, the Secretary of State, the state Franchise tax Board, the Attorney General, and it has a place in our economy. And the way the IRS designed your nonprofit is that it operates as a business and as such, that is how your funder relates to you. So when you submit a proposal to a funder and you say, I need money. I need money to cover X, Y, and Z, the funder says, bet, but I'm only going to cover your direct costs. Your direct costs are your program expenses.
(03:45):
Why? Because your nonprofit is a business. When you are a for-profit and you go out and you ask venture capitalist to invest in your organization, there are certain business expenses that you present, right? It's the same for a nonprofit, but the nonprofits indirect costs. Those business expenses are heavy. It's where the salaries are. It's where the rent typically is. You can get a portion of your business expenses covered in your grant, but generally it's between 10 to 25%. That other 90, 75% the funder expects you to cover because you're a business. So the conversation typically goes like this, and if you listen to it, it'll help you understand the funder's perspective. If I cover all of your business expenses, what happens to your business? If I'm no longer to cover, founders say, well, just keep covering it. The purpose of a funder is not to fund nonprofits.
(04:58):
The purpose of a funder is to meet their funding goals. And as such, they look for viable businesses, nonprofits who are sustainable, who can take care of their organization. They just want to partner with them to help fund programs. So that's where you get that distinction. A business expense is the responsibility of the business. The program expenses is what the funder is looking to cover your programs. So how do you determine the business expenses? Look at it this way. What are those expenses that still remain if there were no programs? So if you have a program coordinator, that position would not exist if there were no programs. So you get to bill that to the program administrative assistant. The administrative assistant's purpose is to support the executive director. So that's a business expense grant writer. The grant writer would exist if there were no programs.
(06:01):
So that is a business expense. Your accountant, your marketing person, those expenses will still be there if there were no programs. So indirect costs tend to be the business expense of the organization, and people will say, well, you would think they would want to cover the grant writer because that's how you get more money. Yes, it's true. That is how you get more money, but that is the responsibility of the business. Now, I'm going to drop it a little bit deeper, and I'm going to tell you that the role, the fiduciary responsibility of your board of directors is to fundraise. One, the board is responsible for setting the vision for the organization. Two, the board is responsible for making sure that the organization is run ethically. And then three, it is to fundraise. It is in that space that those business expenses should be covered.
(06:57):
If you have Mooky, pooky, and Shena on your board, those are your friends, your family, people you grew up with. They got your back in that they support what you do. But do they have fundraising experience? Generally speaking, no. But that is how the IRS set up the nonprofit so that the board is responsible for fundraising. So if you put it together, there is a disconnect. There's a disconnect between how nonprofits should be run versus how they generally and typically are run. And therefore people are saying, well, the funders aren't giving us enough money. They really aren't. But if you look at it, there are 1,453 private foundations. There are 1.43 million nonprofits. They couldn't fund them all even if they wanted to. So that's why it's important as a founder, as an executive director, you understand the assignment. The assignment is to run your nonprofit like a business.
(08:04):
And when you run it like a business, everybody has their role and responsibility. Your board is responsible for fundraising. If you're the executive director, you're responsible for operations, which is the daily programs. The funder comes in. Their part is to help with funding the programs, and we all want big, happy family. But if you don't understand that your role as a founder and executive director is to generate a diverse stream of revenue such that you're not solely depending on grants because no nonprofit can survive solely on grants, it doesn't exist. You have to have a diverse stream of revenue to cover the cost of your nonprofit. So that's why we need to understand business expenses. Business expenses is what you are responsible for. Those are indirect costs. The direct cost is what the funder is looking to fund. When you have the information on how to run a successful business, you understand you have the information on how to consistently fund your nonprofit because that's where the bulk of the expenses go.
(09:11):
Are you guys following me? I am here to help you with funding those business expenses. When you know how to run a successful nonprofit, you learn how to diversify your funding streams. You learn how to select a board that knows what they're supposed to do, and that's the fundraise. You understand that when you approach a funder, you're asking them for direct costs, but you can get sponsors to cover some of those indirect costs. You can create other streams like naming opportunities and merchandise, sales and contracts and fee for service. All of those other streams of revenue is what's going to help you to cover those business expenses. But you got to start with understanding, believing, embracing, and knowing how to cover those business expenses. Once you have that mindset, you understand that you, a funder is a partner but not solely responsible. Listen to me.
(10:15):
It changes the game. It changes the game when you understand what everybody's role is and how you are able to fully fund your organization. So if you are uncertain, if you're still out there saying, I can't get my organization funded, I can't get the enough grants, it's not designed that way. Stop looking to just find more grants. Start looking to understand how your organization has been designed by the IRS so that you know how to play the game so that you understand how to maximize your resources so that you can fully fund your organization. And if you don't understand or know or have a clue how to run a nonprofit, I have the key for you. It's called 90 Days to a Profitable Nonprofit. And if you want to understand how to cover those business expenses, I got the key. I got the roadmap. So let's pause so that you can learn a little bit more about 90 days to a profitable nonprofit.
(11:20):
Are you struggling to fund your programs? Can't get a grant to save your life. Most consultants will share the what of how to start a nonprofit or how to fundraise. They may even share the why, but they don't share the how because that's where they make their money. Now, I'm not hating. I'm a businesswoman too, but I've been where you are trying to make the world a better place, struggling to keep the doors open up to the wee hours of the night writing grants and doing whatever needed to be done. And because I've walked in your shoes, I'm not here to make you spin your wheels, waste your time or your hard earned money. We ain't got time for that. The world needs you. I'm here to show you how to transform that pit. You keep dumping your hard earned money into a profitable nonprofit.
(12:09):
I take my 30 years of nonprofit experience as a founder, executive director, program developer, grant writer in funder, giving out over $7 million annually in grants, and I save you literally thousands of dollars in hundreds of hours. I walk you through setting up your nonprofit organization so that you can be generating enough revenue to cover your monthly expenses in just 90 days. How would that feel? Not paying bills from your personal bank account. I share my insider secret tips, tricks of a trade, and provide you with a step-by-step roadmap on how to turn your bootstrap organization into a profitable nonprofit. Within six months, you could be generating enough revenue to pay your salary or fully fund your programs. The choice is yours, but you have to get the blueprint, and it took me three years to develop it, but it's here and it's going to change your life.
(13:07):
Join my other successful clients who are just like you, full of passion and determination, but they had no idea all that it takes to run and fund a successful nonprofit. Now they're winning grants and drawing a salary, and they know what it is that they're supposed to be doing to run a successful nonprofit. They're no longer making it up as they go. They have the roadmap and they're clear about next steps. And I want that for you too. So what do you get in this course? You'll walk away with knowledge, products, processes, and systems, not just a bunch of promises, but exactly what you need to turn your organization into a profitable nonprofit. I promise you don't need grants. What you need is a solid infrastructure, and this course is going to give you all of that and more. And what's more, it comes with the money back guarantee.
(14:00):
So go ahead, click the link below to register for this course. Welcome back to On Air with Amber Wynn. This is the time of the episode where you get to ask me your pressing questions. It's Ask Amber. And today's question comes from Trish. Trisha is from the Antelope Valley, and she DM me on Instagram where you can reach out to me, you can reach out to me on any of the socials. But Trish wants to know, there's so many problems in my community. I hear you saying pick one, but how do I do that when there's so many and when so many cause deep rooted issues in our community? Trisha, that is an excellent question because your purpose as a nonprofit is to support your community. But here's the thing. Funders look at your ability to deliver, right? If you are a jack of all trades but master of none, it's likely that they don't believe they'll get a return on their investment.
(15:02):
Let me explain this a little bit deeper. If you have six things that you're doing, let's just say one of them is working with the youth. Another one is working with the veterans, and another one is with seniors, and another one is with women who are struggling with domestic abuse. And then another one is dealing with advocacy. That's five different things that you're doing. So that means you need five different types of curriculum, five different programs. You need five different types of workforce, people who are going to deal with youth that requires a special level of knowledge, people who deal with veterans. That requires a special level of knowledge. So you are air quote funding these different programs from five different areas. That's a lot. So what is the likelihood that if I give you $250,000 for youth, that you're going to be impactful because you have so many different areas that you need support from.
(16:16):
If you just serve youth, if you start off with, okay, we're doing afterschool tutoring, and then you say, okay, we want to add in life skills, and then you say you want to add in career exploration. It's the same group of people. They have childhood experience, they know how to work with youth. You just expand the type of programs that you have, but it's all one type of area focus. So a funder's not looking for you to have seven programs and seven different areas because the community needs it. There are other nonprofits that are focusing on those areas. You can partner with them. Let's just say you're focusing with the youth and you need them to dive deep with their parents. There's another organization out there that delivers parenting training, parenting skills, workshops, partner with them so that your kids are being served and their parents are being served.
(17:17):
That's what a great partnership would look like. So all of that to say, I'm going to continue to tell you to pick one, pick one area, become a subject matter expert in that, Trisha, and then branch out. Because the other thing is, if you have all of these areas, what type of impact are you making? Especially because generally speaking, it's just you or it's just you and some volunteers. Funders want to see impact. If you focus on one area, and even if it's like I said before, different parts, you can demonstrate impact in this one area, you can show a funder that you are an expert, that you have results. So I'm going to continue to say, do 1, 2, 3 things. Do it really well. Make sure it's one area of focus because that is what a funder is looking for a return on their investment.
(18:14):
And if you can do that one specific focus area, they're going to feel more comfortable, they're going to feel more comfortable that your resources aren't being split between these areas, and they're going to feel more comfortable that you are a subject matter expert in that one area. All right. So Trish, I hope that answered your question. It is an excellent question. I get it all the time. I hope for the rest of the community that you heard me and that you are not doing six things that you're doing one, two, no more than three things. Well, in the same area, if you have a question for me, hit me up on any of my socials, right? I'm on Instagram, I'm on Twitter, I have a website. You can check me out, send me your questions so that I can get them answered. All right. Now we're going to flip the switch.
(19:06):
I have a part of my episode where I focus on supporting nonprofits. It's called Shine on Nonprofits. In this series, for the next four episodes, I'm excited to introduce to you an individual, a company that actually supports nonprofits. Usually I do the spotlight on a nonprofit, and I'm still going to do that, but I wanted to expand how I support you by connecting you with individuals out there who support nonprofits. So in this episode, we're going to start our conversation with Swire Ho of Garuda Products, and he's going to talk to you about how to engage your supporters. It's important as nonprofits who are businesses that you do this thing called donor cultivation? Again, I want to bring resources to support my nonprofit. So let's start our conversation with Swire Ho of Garuda Products
Speaker 4 (20:17):
A lot of people when they, let's say they do digital marketing, they do a Google Ads, they do a Facebook ads. You could be really focused. You can exactly tell what audience, what industry, even the age profile, gender, you could use Target. But when they come to us with promotional product, and my question would be, what would you like to buy? I want to buy everything, things that I want to give it to everyone. So they kind of push that target audience away. My goal in what I do is to guide my client along and ask them series of questions. So you don't want to target everyone. And for nonprofit, there are a lot of donors out there, but there are people who are more connected to your message, your mission statement, than maybe other donors who really don't care about a certain area where the money goes. So it's your job to find the right audience and then tell them the message, because I don't know if there's an analogy in English. If you're the best pianist, if you play your piano to a cow, the cow will never understand you. So it's the same thing.
Speaker 5 (21:26):
I like that.
Speaker 2 (21:52):
Welcome back. It's your girl, Amber Wynn. I'm on air with Amber Wynn, Philanthrepreneur, and it's just important, and I try to make sure that I support you in as many ways as possible with growing your business. Today's topic is about business expenses and being able to do donor cultivation would be a part of those business expenses, but it is an investment in your organization that would yield returns. Let me tell you why you don't want to keep just going to your funders and asking and asking. It's like being in a one-sided relationship where you give and you give. You want to get something back. Now you've got to know your funder, right? You can't give these super duper expensive gifts, and they'd be like, wait, I'm giving you money and you're spending it on these super. No, it's got to make sense. But having access to products where you can nurture your relationships, cool.
(22:53):
Some T-shirts that says, I support whatever your nonprofit is. I don't know. I'm just trying to provide you with access to ways of standing out outside of your competitor, making sure that your funder knows that you appreciate them. So that's that for this episode. I hope that it was meaningful for you. If it was, be sure to hit subscribe. Be sure to share this episode with someone in your community and be sure to join me again next week. I'll be back with more information to support the most amazing people on the planet. That would be you, my nonprofit founders and executive directors. So until next week, take care of yourself like you take care of your community.
Speaker 1 (23:41):
Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast.