‘Budgeting for financial sustainability in a social venture’
David Kirk is a former Rhodes scholar, All Black and Rugby World Cup winning captain and currently the co-founder and managing partner of Bailador, an ASX-listed investment fund. In addition, he is the chair of both the NZ Food Network and KiwiHarvest.
OPINION: Everyone thinks of budgets as something that starts with the revenue and follows with the costs. That’s because we subtract the costs from the revenue to get the profit, which is what matters in the end.
But when we budget at not-for-profits, I think it makes sense to put the costs first.
We should work out how much it is going to cost to do the good we want to do and then figure out how to raise the money to fund it. If you are not confident you can raise the money to fund the costs you will incur you need to reduce costs to make ends meet.
If you are not working out of your house it is almost certain that the two biggest costs in your social venture will be what you pay staff and rent.
Assuming you are working in the venture, you need to pay yourself. Not paying yourself is ok while you get the venture up and running, but if it is to be sustainable all staff need to be paid and that includes you.
So, when you are putting together your budget, put in a line that says: “Founder salary” and put in a number you think is reasonable recognition for all the work you do. No doubt you will put in a lower number than you should but by budgeting for your salary you are focusing on financial sustainability.
Next you need to budget for additional roles in the organisation, which means you need to design the organisation structure. Start small and grow as you can afford it. Just you at the beginning. Then perhaps an accounts/fundraising person and an operations person. Volunteers are another good option, but you need permanent staff to work with volunteers to ensure they are properly trained and directed and can work safely and well in the organisation.
You may start your social venture in your house, but again, this is not sustainable. Especially if you are dealing with physical goods, you need to budget for rent. Again, start small and don’t lock yourself into a long agreement. Ideally you will be able to go along month by month or even better you will find someone who will donate space for you to use. You might end up perching in the corner of someone else’s office. That’s fine.
Other costs will depend on the nature of your venture. Vehicle costs, phone and data costs, insurance, travel etc. are other typical costs you will need to budget for. In addition, you will need to budget for capital expenditure. Capital expenditure is money you spend on assets that the business owns. These will include computers and perhaps furniture.
In our case at KiwiHarvest and NZFN we also need to have cars, trucks, racking and cool stores in warehouses and even fork-lifts. All businesses need to budget for depreciation on capital assets. That is, the budget needs to include a percentage (say 20% a year for computers) set aside each year for the replacement of the asset you have bought.
Turning to revenue, you need to include all possible sources of revenue in your budget.
● There are five broad sources of revenue for social ventures:
● Donations from individuals large and small
● Grants from private Trusts and Foundations
● Grants from local and central government
● Sponsorship by corporates
● Sale of services or products associated with the work you do
You will need to investigate, plan and approach possible funders in the first four of these categories. You need to be realistic and conservative in your budgeting for revenue. It usually takes longer than you think.
Try trusts and foundations that have a mandate to support the type of social venture you have created. Try local government and local businesses for support in-kind. Try donations but be aware they are often one-off and you need consistent sources of funding. Fundraising will be the subject of the next and last note.