Projecting Operating Costs in a New Facility: A Checklist for Nonprofit Leaders August 17, 2023

Resources nonprofit leaders can use

IFF has helped more than 1,100 nonprofits create mission-driven facilities optimized for their needs, and we’re making a concerted effort in 2023 to share some of the learnings we’ve accrued along the way. To access past content designed to provide nonprofit leaders with foundational knowledge needed to successfully complete facility projects, click here.

When developed thoughtfully, nonprofits’ facilities amplify the impact of mission-driven work by providing safe, efficient, and inspiring spaces optimized for the unique needs of the organizations operating in them. And while the creation of such spaces through renovation or new construction is an intensive process that can make it difficult to look beyond immediate priorities, completing a successful facility project requires a longer-term perspective.

Of particular importance is projecting not just how the new facility will be used to take the organization’s programming to the next level, but how doing so will impact the organization’s bottom line. In other words, how will the new facility change the organization’s expenses, and will the organization have the revenue needed to absorb those changes? Ideally these are questions answered in the early stages of planning through a feasibility assessment, before significant resources are devoted to a project.

The standard tool used to project the long-term financial impact of a facility project is an operating pro forma, which relies on projections to estimate operating costs and revenues over an extended period of time after the new facility is opened. In addition to providing the organization with a clear sense of whether the facility project is feasible, an operating pro forma can also be used as a tool with donors and funders to demonstrate the long-term sustainability of the organization and the growth potential that exists if the project is completed.

To help nonprofit leaders and their boards develop operating pro formas while in the preliminary stages of planning for a new facility, we’ve summarized below a variety of occupancy expenses to consider, as well as a series of questions to aid in projecting how a new facility will impact the organization’s expenses and revenue over time. Though not an exhaustive list, it provides a good starting point for understanding the financial impact of a new facility based on programmatic and staff growth.

It’s also important to note that the checklist below is specific to organizations that will own their facility vs. those leasing a new space. If leasing, insurance needs may be different, depending on the coverage provided by the owner/landlord; some or all utilities may already be included in the organization’s monthly lease payment; and the need for a capital reserve depends on the structure of the lease and whether the organization has a lease-to-purchase option that it plans to execute, among other distinctions. To learn more about projecting operating costs in a leased facility, please contact our Real Estate Solutions team.

Standard Operating Costs for Nonprofit Facilities

Mortgage

Property Taxes

Property Insurance

Utilities

Maintenance

Regular maintenance extends the life of facilities and helps mitigate the risk of significant, unplanned costs over time. When compiling an operating pro forma, organizations should consider:

Basic repairs, including general improvements for painting or landscaping, or plumbing repairs and work for other unexpected problems that arise.
Costs associated with the routine maintenance of smoke detectors, fire extinguishers and carbon monoxide detectors, as well as maintenance costs associated with a fire alarm system.
Extermination fees for rodents and bugs.
HVAC maintenance, such as the regular purchase of new air filters.
Landscaping costs to maintain any outdoor areas on the property, as well as snow removal costs during the winter months.
Garbage removal.
Janitorial supplies if someone on staff will handle custodial duties. If the organization plans to outsource this to a third-party company, the fee for the cleaning services should be included.

Capital Reserve

Personnel

For organizations relocating to a new facility or opening an additional location to accommodate growth, new staff positions will likely be needed to operate the facility (e.g., building manager, custodian, security guard) and to lead new or expanded programming (e.g., case manager). It’s important to consider not only who will need to be hired, but how staffing needs may change over time as the organization continues to grow.

The operating pro forma should incorporate this long-term perspective, as doing so will provide organizations planning facility projects with the most accurate estimate of the revenue that will be needed to sustainably operate in the new building/space.

Questions to Consider

Projecting Expenses

Are the organization’s program costs tied one-for-one to the number of clients served or can savings be realized by spreading overhead and other expenses over service increases?
Do the organization’s government contracts have restrictions on the types of costs that can be covered (e.g., mortgage interest, principal, general overhead, or administrative expenses)?
Are cost savings anticipated in other areas, such as operating efficiencies?
What are the one-time startup costs of launching operations in the new facility?
Will the new facility result in more energy-efficient systems that will save on utilities? Reduced maintenance expenses?

Projecting Revenues

Will the organization be able to access new revenue sources as the number of clients served increases? Or as services change?
What are realistic growth projections for gradually achieving full client service levels and corresponding receipt of revenues? What expenses will need to be incurred before revenues are received?
Can government contract amounts or foundation grants increase if the organization provides more services, or do they have a maximum cap?
Will the organization be able to access new fundraising sources due to the changed programs?

How long will it take to get the new programs running at full capacity? What is a realistic rate of growth?
How do issues like the school year and season impact the organization? When is it most appropriate to expect contributions and special events to be realized? Is there a cyclical pattern to the timing of reimbursements that can be expected every year?
How much of a delay does the organization currently experience when waiting to be reimbursed for services? Will that change as a result of the facility project?
If the organization is running deficits, what plans exist to increase revenues? Will the facility project bring in revenues or reduce costs to help the organization’s financial condition?

For help developing an operating pro forma, or for questions about the content above, please contact our Real Estate Solutions team.

View All Posts