The Importance of Timesheets for Nonprofits

By: Roberto Terrell, CPA

As a Project lead or Senior Management, do you find it difficult to determine the ideal number of employees for each project or how much time should be devoted to fundraising or business development? How about, what mix should be employee vs. consultant, is it more cost-effective to outsource to a third party? These questions can all be answered fairly quickly by utilizing a timesheet system in your organization.

For the most part, I’ve noticed that it’s often the smaller-sized nonprofits that are not utilizing timesheets in their organizations to track project or program costs. These are typically smaller nonprofit organizations that don’t receive federal grants. Most nonprofit organizations understand the importance of tracking employee hours to meet compliance for federal requirements (i.e. labor laws, federal reporting, etc.), but many don’t realize that it can also be helpful for project management and internal purposes. Tracking employee time is the most accurate method for allocating actual staff time and related costs.

Typically, these smaller organizations will report staff time based on estimates created during budget planning at the end of the previous year. This is done to avoid the process-related inefficiencies and pain points that come with recording, submitting and tracking actual employee time. If you’ve ever been fortunate enough to deal with gathering timesheets, then you know it’s like “herding cats” at the end of the month to get the necessary information for financial reporting. We all know there’s nothing easy about running a nonprofit, but in order to successfully operate and deliver on your mission, it’s crucial to know which efforts are more successful.

Understand the True Costs of Projects and Programs

Time tracking is about understanding processes to improve efficiency so you can effectively deliver on your mission. Becoming more efficient will free up time to focus more on strategy, vision and growth. By tracking and analyzing employee time, your organization will have an overall clearer picture to better assess costs for decision-making.

One of the most frequent questions I get from decision makers is, “what is my true overhead and/or indirect cost?” Without tracking staff time, it’s virtually impossible to provide an accurate answer. It’s important to understand there’s a direct relationship between estimated hours and actual hours spent on a project. If you are an organization that reports to the funder based on estimated hours, then the difference between estimated and actual staff time spent is usually reflected in overhead/indirect costs. Since most funders either won’t cover indirect costs or are only willing to cover a minimal amount of indirect cost, it’s vital for organizations to truly understand what it will cost to staff the project to reduce indirect costs as much as possible.

Accurately Assess Staffing Needs

Staffing needs are usually discussed during the budgeting process. It can be a difficult task to measure the number of available hours to be worked by staff, whether it be fixed, or an expected amount of work based on project needs. Utilizing timesheets will help you to assess and manage employee capacity. Lower capacity organizations have increased idle time, which results in higher indirect costs for your organization. As mentioned earlier, nonprofits are under a lot of pressure to be as efficient as possible because their funding will not cover indirect costs. Tracking actual time will help limit overcharging and provide the opportunity for a tighter budget for projects.

Improve Project Management and Accountability

For many nonprofits, a substantial portion of the work they perform is funded by contributions and private grants, therefore accountability is key. Individuals and organizations who donate need to see that their money and resources are being used efficiently and effectively. The biggest costs for most nonprofits are labor costs, thus the majority of funds allocated to a project go here. With this in mind, your organization should make sure that it is not spending more than needed for each project. Tracking actual time spent vs. budgeted time will allow your organization to gain a better understanding of where resources may be over or under-allocated.

In addition, reporting to Grantors and Funders based on budgeted staff time usually only benefits the donor unless you are somehow able to come in under budget. But how would you know if you are under or over budget if you are not tracking actual time to the project? Utilizing timesheets to track staff time at the project level will enable you to understand the true costs of any project and better identify costs not covered by restricted funding. From writing proposals to donor follow ups or fundraising, this data, when viewed across different projects or even funding sources, provides project leads and others with much needed visibility into how projects are performing.

By analyzing time and costs of specific projects and activities, it becomes easier to manage budgets and effectively allocate staff time. When used properly, time tracking empowers the right people to work on the right projects for the right amount of time.

 

As an Outsourced CFO for nonprofits, I’m happy to share my experiences to help managers and organizations improve their project performance. Please feel free to contact me at if you’re struggling to achieve your budgetary goals. Our firm would love to work with you and provide any solutions to help you succeed.

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