NCN works with clients in a variety of ways, including though coaching. Recently, I worked with a group who was developing a full cost budget for their space for the first time. When you’re doing this kind of work, you need a few concepts in your back pocket.
What’s a full cost budget? That’s a budget that looks at the entire picture of an organization, not just a portion of it. It includes all of the unsexy overhead costs that we need to be effective, like liability insurance, cleaning, grounds maintenance, and more. All too often in the nonprofit sector, we only look at what it costs to run a particular program, and we ignore all the other costs that aren’t up front.
One concept you need is the idea of direct costs vs. indirect costs. Direct costs are those expenses that you need to spend for a specific purpose. If you’re making a meal, the tomatoes, pasta, meat, and spices are your direct costs. However, your meal won’t be very flavorful if you dump them into a pot uncooked. You need a stove in a kitchen with running water. Not to mention plates and forks! All these other things should be accounted for as “indirect costs” because you need them for making all your meals, not just your delicious pasta.
In shared space, it’s important to think through which costs are direct and indirect. For example, if you can track who uses the copier, that’s a direct cost. Heating and electricity on the other hand will most likely be indirect costs that you are sharing among yourselves.
The footprint of your space can be split out into direct and indirect costs as well! Think about who uses what. If an office is only used by one organization, then that’s their direct cost, or their rentable square feet. However, multiple organizations use the hallways, bathrooms, elevators, stairways, and more. The costs for heating and maintaining these areas are indirect costs and should be shared across all partners.
Okay, now that you’ve figured out direct and indirect costs, you need an allocation strategy. This is particularly important in shared space. Here are some options:
- Pro Rata Share: Indirect costs are allocated by a partner’s percentage of the total, most commonly the total square footage. If Organization A takes up 40% of the space, they pay for 40% of the common area, 40% of the electricity bill, etc.
- Equal shares: Indirect costs are split evenly by the number of partners. If there are four partners, everything is split four ways.
- By contribution: This model recognizes the sweat equity that is put into a shared space. If one partner is willing to take on more responsibility than others, they may pay a lower share of the costs.
Whatever allocation method you use, it’s important to document it! This will be an invaluable tool going forward!
Do you want some support as you figure these concepts for your shared space? Contact me at [email protected] and let’s see if our coaching support is right for you!