Streamline Your Finances with Our Bill Pay Template for NPOs

Bill pay template for NPOs

okay last time we talked about why you must pay yourself as an executive director and if you're still on the fence about that go on over and watch that video but spoiler alert you should be prioritizing your salary and once i realized that i had to be prioritizing my salary i was like okay this sounds good i felt really good about i must get paid in this role but i actually didn't know how to pay myself in this role so just a disclaimer this video is not for non-profits that have a you know large funding system and they already have good accounting practices and they already have salaries built in this is for the nonprofit that's just getting started they're bringing in some donor dollars maybe they're bringing in some small grants maybe they're bringing in some program fees and they just don't even really see how they could possibly cut a salary out from their total revenue because it's a small revenue right but i'm here to tell you that you want to start prioritizing your salary even when you are bringing in just a very small revenue you want to do it from the beginning so that as you grow you're continuing to grow that salary and you're positioning yourself for growth meaning that you can bring on other staff members and stuff so today's video is specifically the tactical stuff on how you actually pay yourself so let's talk about it [Music] welcome to episode 22 of the harvesting results show where i help you serve others by offering you tools resources and advice so that you can nurture those roots to harvest the fruits of all of your hard work and dedication to your unique cause i'm rebecca britt your host and today we are talking about how you actually pay yourself how you cut a salary out of small revenue especially when you're just getting started now if you are just getting started in your non-profit or you're wanting to start a non-profit and you're wondering about paying yourself then this will be a great video for you you're also going to want to go grab my free course which is the top three mistakes non-profit startups make do not make the same mistakes that i did not paying myself and i don't want you to make the other one so head on over to catullo.com startup grab that free course that's for you okay so how do you pay yourself we're gonna dive right into this when you get small amounts of revenue coming in program fees donations how do you take out your salary especially when it's just small amounts right so let's dive in i'm actually gonna screen share so if you're listening to the audio podcast that's okay you'll still get the basics of what i'm talking about the how we do this but when you get a chance head on over to youtube so that you can see what i'm talking about okay so the main framework that i'm going to use we're going to call it salary first and it is off the model that mike mikallowitz uses in his book profit first which is a very well-known book of for normal businesses right for uh businesses that have profits but we don't have profits with non-profits so we're going to call it salary first but it's going to use the same principles if you guys have not read this book yet i highly recommend it go grab it you can apply a lot of the principles but i'm going to show you how you can apply some to your nonprofit to get you that salary so one of the first things that the books goes over is traditional accounting and how the profit first method is different so traditional accounting takes in the businesses revenue and they subtract the businesses expenses so everything that the business brings in for revenue all of the uh program fees all of the sales of products all of the you know speaking engagement fees like all of the things that you would charge people for that's all of your revenue and then all of the expenses what did it cost to do those things you know computers supplies papers software subscriptions all of that stuff are expenses and then you're left with the businesses profit right so after everything you spend what's left over of that revenue that's your profit well profit first formula actually starts with the revenue again so you have all of your revenue and then they take out the profit they set a distinct percentage of a profit that they are going to remove and then whatever they're left over what's ever left over that is what you are allowed to spend so rather than just spending whatever and then having whatever profits left over you are going to be very intentional you're going to remove your profit from the revenue and then you are going to budget all of your expenses with what's left over this ensures that you're putting your profit first and this is really based on kind of a psychology principle which is that our demand for a resource increases to meet the supply of it so basically if i'm going to give you two weeks to work on a project you'll take the full two weeks if i give you you know if you have a hundred thousand dollars in revenue you're gonna spend a hundred thousand dollars in revenue it's very easy and i can tell you as an owner of two businesses that as revenue comes in you start thinking about what you can purchase you know oh now i can afford this now i can afford that and you know if your income increases usually the way we are is we find things to spend all that money on but then you don't have anything left over right so if you pull out that profit first then you reduce the amount left that you have to spend on expenses and you start being more frugal with what you can actually spend so now i want to talk about profit first for nonprofits so we're going to call this salary first so the profit first formula like i said was revenue comes in you take out your profit first and then whatever is left over is what you're allowed to spend on your expenses we're going to do the exact same thing all of your revenue is going to come in from donors your revenue is going to come in from program fees from merchandise sales whatever and you are going to remove a percentage for your salary first okay and then whatever is left is what you can spend on supplies on the rest of your mission on all of the things you need on your rent on your overhead on your phone on your software subscriptions all of that comes after you pull out a percentage for your salary and like i said your revenue is usually going to be from your donations or your program fees i know that some revenue comes from grants and grants have a different they have different implications they usually have very strict budgets so we're going to talk about grants in a minute but all of your donations like individual donations and all of your program fees all of your um you know if you sell shirts or you do those are really seen as donations but if you sell things those all come into this revenue category okay so an overview of the system now for profits first what he says to do is to actually set up five different bank accounts he actually goes into even more than that it's a whole thing i don't think that it's useful to go over that in depth for this conversation so if you're more interested in that book go go read it but the accounts for profit first essentially are you're going to have a bank account literally separate bank accounts okay get that your head wrapped around having this many bank accounts one for your income so where all the money goes into one for your profit so that is where your profit goes into one for your taxes because you have to pay taxes on a regular business one for your owners uh your owner's compensation or your salary and then one for operational expenses so five different bank accounts thankfully for non-profits it's a lot easier right we have no profits we have no taxes so the bank accounts then that you would open up for your nonprofit would be revenue salary and operational expenses so you'd have three different accounts and just stay with me like don't get like oh i don't want to open more accounts like there's actually ways that i figured out doing this without opening up accounts so if you're just like completely overwhelmed by the fact that you'd have to open more bank accounts don't be because like the basic principles matter and you can get around the bank accounts thing but the basic principles are really really key here so one for revenue one bank account for revenue one bank account for salary and one bank account for operational expenses the accounts for salary first you're going to have your revenue account this is where all of your program fees 100 of your program fees and your donations all of your revenue comes in and goes into that revenue account so when you're depositing checks you know for your nonprofit when you ask somebody for donations and they write a check to you or whatever it's all going to go into this revenue account okay so that goes there and then you have a salary account and you have an operational expenses account which i'm going to call op x because that's what profit first calls it and it's much easier to spell and to say so op x is your operational expenses okay so you have to figure out what works for you but you're going to decide a percentage to take for your salary and a percentage that you're gonna take for your operational expenses this might be fifty percent fifty percent goes to salary fifty percent goes to operational expenses so once a month you look at your revenue account where you've put all of your program fees you put all of your donations you've put all your revenue okay and you're going to divide that once a month into 50 percent goes into salary so say you have a thousand dollars in donations 500 of that goes into salary 500 goes into operational expenses you have to determine what works for you so you know for you you might be like that's insane i'm not going to take 50 okay that's fine i don't care take percent take 20 percent so that means if thousand dollars comes in you put 10 100 towards your salary and the rest goes to operational expenses it just depends on how big your overhead is right i had a very expensive rent um you know i was paying well it's not expensive now but whack when i was paying it it was expensive twenty five hundred dollars a month in rent i had horses and i had grain and i had feed and i had the horses are so expensive so i might not have been able to do fifty percent but you got to do something because you're going to pull out that salary first so figure out what allocations you're going to do and that's what you're going to stick to okay so whether it's 10 and 90 20 80 50 50 i don't care but you're going to have a set percentage that you take out for salary so let's look at this in action so say you have a thousand dollar donation come in then you have another 500 donation come in and then you have two program fees that you collect from participants and they're both 250 so that gives you two thousand dollars in revenue that came out came in over the month okay so once a month you sit down and you're like oh cool i have two thousand dollars in revenue in my bank account in my revenue account you're going to make a transfer you're gonna transfer if you have 50 50 breakdown of salary in op x you're going to put 1 000 into your salary account you're going to put 1 000 into your operational expenses account i want to address some concerns because some people are going to think oh you know i couldn't possibly take half of a donation for my salary because i'm you know my non-profit is supposed to only have a certain amount of administrative fees or a certain amount of dollars go to salaries and so this just wouldn't work for me well i want you to think about this real quick so ing to the charities revenue or charities review council at least 65 percent of funds should be spent on total annual expenses for programs so you should actually be spending 65 percent on your programs and no more than 35 percent on fundraising and administration combined but i want you to know that a good portion of your salary likely can be charged to your programs so i want you to think about your time think about the time that you spend in your nonprofit go ahead open a google sheet and actually map out how many hours a week you spend to administrative stuff that you spend a fundraising and then write out your programs program one program two program three and just right next to that how many hours you put a week towards the programs so really think about this okay because if you're literally typing up a grant for operational expenses you that may go directly to fundraising if you are spending time cultivating corporate partners or you're trying to get somebody to pay for a banner that's at your location okay that may be fundraising if you're doing admin like you're talking to the lighting company to put lights on and you're talking to the water company and you're making sure that your phones work whatever those are administrative costs but if you are working on typing up a grant to launch this program that's going to be super successful i would put that under a program i mean that is you literally developing the program that's going to help people and serve your mission so that is a programmatic expense okay if you are actually serving people that is a programmatic expense anything that you're doing that's linked back to a program even if you're sitting you know online and you're ordering supplies if you're ordering supplies for that program that is a programmatic thing think about the things that you do that are staffing your programs because later on when you get other staff those staff could be pretty much a hundred percent towards program fees those are your program expenses because if you get like a program director that's just gonna oversee the program run it evaluate it make the strategic plan for it all of that their whole salary will be a program expense so i imagine that your salary is you do some administrative stuff like doing board meetings and having to make sure your bylaws are okay and all that stuff i'm sure you do some fundraising that's just general fundraising but i bet you will most of your time is broken down into your actual mission areas or your programs so if you break it down say you spend ten hours on program one ten hours on program two ten hours on program three you spend five hours on fundraising and five hours on administration well you actually have 75 percent of your salary going to programs so if you take the thousand dollars in a month and say you only get 2 000 for the month and you take a thousand for your salary well 75 of that thousand so 750 actually is going towards program so you don't need to be like oh we're putting you know 50 towards salaries well no that salary is broken down for programs fundraising and administration so don't worry about that now grants should have very strict budgets so if you are applying for a grant usually you develop a budget that goes with that grant and the budget may say you know that it specifically pays for some of your time that it pays for contractor time it pays for specific supplies it pays for software platforms it pays for you know research and development whatever it pays for it may be very specifically laid out so you're not going to take in uh you know ten thousand dollars for a grant and go oh i'm gonna put five thousand directly in my salary no that grant already had a very specific budget that you should be going by and so you're going to treat that differently um and you know you can even have a separate account specifically for grants so that you have everything really clear and you're only going to slide into the salary portion what part of that grant was dedicated to salary and then you can slide into operational expenses all the parts of that grant that were specific to operational expenses whatever you need to do to kind of track exactly how you're spending for that grant but for this i'm really talking about all of your revenue that comes in from from program fees from selling merch from um donors individual donors people that give 50 a month those are the ones that are going to go directly into your revenue and that's the one i'm really talking about setting a 10 20 whatever it is set it now and start sliding that over into salary recap you're going to get all of these program fees and donations they're going to go into your revenue once a month you're going to put a certain percentage into your salary in a certain percentage into operational expenses now say you do the thousand dollars and say you slide five hundred dollars into your salary and five hundred dollars into your operational expenses the next month you do the same thing five hundred dollars five hundred dollars okay now you have five now you have a thousand dollars in your salary and you have a thousand dollars in your operating expenses well what do you do do you just go okay well i guess now that i have 500 sitting in my salary i'm just going to take 500 and transfer that to my bank or write me a check well you could but what i like to do especially if you aren't paying yourself now if you're not paying yourself anything do this for a few months get used to it and what i personally like to do is even with my personal businesses is i wait until my salary account has about six months worth of some type of regular pay in it so let's say you want to start just paying yourself 500 a month just something right it's good to get in the practice of paying something well you would need dollars in that account before you start paying yourself that way you can take out 500 but you know that for the next six months you will be paid 500 because what's sustainable right you we all want to know that like we're not just going to get paid 500 this month or 2000 this month that like we're gonna get paid that amount for like that you can count on that amount that you can budget in your personal budget that you can budget for that income coming in and what that also does is if you save up six months worth of some salary now if you think that your salary should be that you should be taking home two thousand dollars a month or four thousand dollars a month that's fine but if you have no revenue to really back up that amount of a salary i would rather you start with a start with a smaller amount that you can get regularly um rather than taking four thousand one month and taking 500 the next and you know having to switch that around all the time so start with 500 you know if you're a smaller non-profit and you just have you know you have to wait a little bit for it to come up to for the account to come up to 3 000 then once it's at 3000 start taking 500 but what that does is you aren't going to go through that 3 000 for six months right you've got six months worth of 500 uh payouts to you and in that six months you should be continuing to do the 50 into that account of all of your revenue so hopefully it starts to build and build and build and then maybe as soon as you have 6 000 in that account you give yourself a raise and you can't make all these decisions right this is uh your board needs to but i know a lot of non-profits that are just starting out and the board doesn't have doesn't know these things okay so you might need to bring this to your board and you show them that you have been able to stay in your operating expenses budget and now your salary account has six thousand dollars in it which allows you to take a thousand dollars a month for the next six months okay and so you take so you ask them you know can i have a raise can i go from 500 to a thousand i've got it there in the account for the next six months and then when you get your account up to twelve thousand dollars in there you can say can i have two thousand dollars a month look i've been able to keep um padding this account while taking a regular income so that is really how i want you to think about it bring in all your program fees and donations slide your salary over again if it's only 10 percent that's fine i just want it to be something make sure that you keep your operating expenses in that other percentage that you set in that operating expenses allocation whatever you set whether it's 90 80 50 keep all of your operating expenses there if you can't run your business on that then you need to make some changes okay you might need to apply for some grants you might need to really focus on fundraising right bringing in more revenue so that you can do that talking to your board about hey this isn't a sustainable model whatever okay but you need to be able to run your business your nonprofit in whatever is in that operating expenses account okay i hope that this was helpful if you guys have i know this is a lot in my head and what i figured out but if it was confusing at all you know ask questions uh comment below i would love to hear what you guys have to say and if you are able to implement this model and actually start paying yourself or start getting that salary account looking up i i would love to see that now if you guys are like i'm not going to make three different accounts and that's an accounting nightmare i don't feel like doing that you can do this on a google spreadsheet you know you can just put your different accounts on a spreadsheet put what's coming in your revenue see how that's broken down and see how your total bank account of your nonprofit should be broken down looking at a google spreadsheet so don't feel like you have to open accounts but i want you to be setting aside certain percentages let me know if this was helpful and more importantly let me know if you feel more confident now setting your salary aside all right guys thank you so much for your service to this world until next time [Music]