Why Nonprofits Should Track Time

If you’ve worked in the nonprofit sector for long enough, you understand that successful nonprofits are efficient, tech-savvy, and excellent at communicating with their members, funders, and the community. And as a nonprofit leader who wants to spend fewer nights tossing and turning, you’ve likely streamlined your processes, invested in workplace tech, and started issuing regular reports to let the community know what you’ve been up to.

But there’s one tool that ties all of those efforts — efficiency, digitization, and communication — together: nonprofit time tracking software.

8 Benefits of Time Tracking for Nonprofits

The idea of keeping nonprofit timesheets might seem extremely mundane. And without understanding all the areas of your organization that time tracking touches, it’s understandable that you would consider the idea of a nonprofit time tracker…less than revolutionary.

But time tracking can yield a number of benefits for nonprofits, from running programs more efficiently to winning more funding. Keep reading to understand the wide-reaching benefits for a nonprofit tracking time.

1 More Transparent Grant Reporting

If you receive grants, you’re required to report on how your nonprofit used the funding you were given. Depending on the grantmaking agency, communicating the progress you made could require an extensive annual report or smaller reports every few months.

Whatever your reporting requirements, grantmakers, donors, and funders always want to know what you did with their money. The more detailed you can be, the better.

Since payroll will typically be one of your largest expenses — about half of most nonprofits’ budgets — you’ll need to spend a decent amount of time explaining your wage-to-grant allocations.

Of course, the program officer helping to manage your grant will expect to see large amounts of funding allocated to program employees’ salaries. But employee timesheet data can help you communicate more openly about your nonprofit’s spending outside of your financial statements.

Detailed timesheets can help you discuss exactly how many hours — and how many dollars — were spent on various project activities. Understanding exactly where your employees’ efforts (and the funding for their salaries) were focused can help you more concretely tie your activities to the results and impact of your programs.

When discussing lessons learned and plans for the future of your program, you can mine timesheet data to find out where you might need more staff due to overtime worked. Or you can even find activities where extra hours put in resulted in success, underlining where more employees — and more funding — to expand your programs could make a difference for your nonprofit.

At the end of the day, your funders just want to know you’re putting their money to good use. Data from employee timesheets can help you spotlight all the hard work your staff does to further your nonprofit’s mission.

2 Improved Program Management

Impactful programs are the backbone of any successful nonprofit. And for programs to make the maximum impact, they have to be managed well.

Good program management means aligning your program objectives with your larger mission, giving your employees the tools to do good work, and accomplishing all your goals without going over budget.

Your dedicated team will have to keep coming up with amazing program ideas that are in line with your nonprofit’s mission. And the simple act of tracking employee time can help you give employees what they need, as well as operate within your budget.

Time tracking helps you understand the true costs of your programs.

The unfortunate truth about human endeavors is that people are notoriously bad at estimating how much time a task or project will actually take them. This trait of poor estimation is so widespread it even has a name: the planning fallacy. According to the planning fallacy, everyone estimates time so poorly because:

• We ignore how long it’s previously taken us to complete similar tasks and projects.
• We’re also prey to optimism bias, so we don’t anticipate delays, complications, or errors that might prolong a project.

Since everyone is a victim of the planning fallacy, that means a program manager alone won’t be able to give you accurate project timelines, no matter how experienced they are.

On the surface, a few extra hours needed here or there for a project isn’t a big deal. But when you multiply that by every employee for every activity, paying for all those unanticipated extra hours of work starts to get expensive.

Tracking time will help you understand the number of employee hours — and true cost — it takes to perform certain types of work or functions. This allows you to create more accurate program budgets, and to more effectively forecast how much time and effort it will take to deliver on your commitments to your members or donors.

Time tracking helps you improve your program processes.

When you understand exactly how much time it takes to run your programs, you can also start identifying areas where you could make changes to run them more efficiently. Time tracking uncovers areas where organizations spend an unnecessary amount of time (usually on manual tasks). In today’s business landscape, many inefficiencies can be remedied by technology or automation.

Let’s say your nonprofit runs a meal distribution program. In the process of diving into your employees’ timesheet data, you see that it takes a program manager about 10 hours each month to coordinate meal distribution at various locations. Most of this coordination involves making calls and sending emails back and forth. You wonder if this process could somehow be automated.

With the timesheet data on hand, you talk to your program manager about this process. You realize that with a nonprofit CRM and email marketing tool, you could create email templates and schedule emails to go out at a regular time each month to partner organizations. Now, instead of 10 hours, this process takes about two hours every month.

Better yet, because you also understand true costs, you now know that every hour of your program manager’s time costs about $30. Where this process used to cost about $300 in wages each month, it now costs closer to $60.

3 Smarter Staffing

Nonprofit staffing is challenging since your funding is constantly in flux. You need to keep your programs and your back office fully staffed in order to keep everything running smoothly. But you also need to make sure you have the funding to pay everyone’s salaries.

Using time tracking data, you can get a better sense of how many employees it takes to run your programs and your organization at large. You can also understand how many employees you’ll need to hire (and how much more funding you’ll need to seek out) if you want to expand the reach of your programs. If you track time during the hiring process, you can understand how much time it takes to fill a vacancy, how long it takes to train and onboard new hires, and how much it costs your existing employees in terms of hours and wages to bring on new people.

With this data from your timesheets on hand, you can also make more informed decisions around hiring. You can see, for example, if work fluctuates seasonally. Maybe your meal distribution needs to ramp up in the winter but slow down again in the spring. If this is the case, you might want to hire a temporary employee or contractor — or even recruit more volunteers — during the winter months instead of hiring a full-time employee who won’t have work to do in the spring.

Timesheet data provides a clearer picture of how your organization operates and what your staffing needs are at any given time. With a better understanding of your operations, you can take some of the guesswork out of hiring.

4 More Satisfied Donors

A nonprofit time tracker can offer powerful data that highlights exactly where your organization spends critical funds. You can use this data when you’re applying for grants, renewing existing funding requests, or preparing for a briefing with important donors.

Since labor is generally the largest use of donor funds, you might think you’re already presenting this type of information to funders. However, labor costs are rarely reported as anything but crude, whole-FTE (full-time equivalent) estimates. Armed with more detailed cost and budget data, it’s much easier to tie expenditures to outcomes and make a stronger case for additional funding.

With better data, you can legitimately promise funders that you’ll use their funds as effectively as possible — and be able to prove it — with reports on program costs by task, role, or virtually any other way you can think of slicing the data.

5 Increased Funding

Time tracking is one of the best ways to satisfy the requirements outlined in nonprofit financial reporting rules like 2 CFR 200. But it certainly doesn’t hurt.

Time tracking can help you accurately report your spending and allocations, whether those reports are for internal or external use. It can also help you create better grant budget proposals when you go after large competitive grants.

First, all nonprofits have to send an annual report to the IRS to show how they’ve spent their funding throughout the year. Time tracking software can provide you with data to support your functional expense allocation methodology, complete with an audit trail. Federal auditors can report back to the IRS that you’re managing funds responsibly. And you can report back to your board that your organization remains in good standing.

Furthermore, many grantmakers require some sort of auditable record of how your employees’ time is spent. Implementing a time tracking system before you apply for large grants can help you avoid learning how to manage large grants and track time effectively at the same time.

With time tracking, you’ll have data on hand to produce transparent donor reports and functional expense statements. You can create more accurate timelines and budgets for your various programs. You’ll have the necessary staff on hand to manage those programs, and you can prove to donors — and federal auditors — that you’ve put your funding to good use.

All of these things can help you build and maintain your reputation as a fiscally responsible, efficient nonprofit with a competent staff and enthusiastic donor base. And that reputation can help you increase your funding.

On a smaller scale, your satisfied donors can help spread the word about how wonderful your nonprofit is. And that might help inspire more individual donors to contribute to your nonprofit. However, on a larger scale, entities that distribute very large grants — namely, the federal government — often require matching funds before an organization can become eligible for a grant.

Matching funds show that your nonprofit is doing good work in the community that others are willing to support. And it also shows that you’ll be able to raise money after grant funding ends to sustain your programs.

6 Better Fund Accounting

If your nonprofit receives grants, you’ll need to follow fund accounting best practices. And that means managing your resources effectively.

Organizations who work under a fund accounting methodology often don’t know where they stand financially until well after the close of a period. But no one wants to look back at their books and find out that their overhead has dramatically spiked up to 40%.

The expense that can play the biggest role in accidentally driving up costs is payroll. The cost of supplies and materials are relatively predictable. But as we mentioned when discussing the true costs of programs, people are very bad at anticipating complications and predicting how much time it will take to finish a task.

While you might manage to finish a project on time despite delays, extra hours worked by your staff or by contractors can wreak havoc with your wage allocations. When your employees spend more hours on a program than you anticipated, you might use up the amount of funding you’d allocated to program payroll earlier than you’d planned. These surprise costs might mean you need to dip into unrestricted funds to cover the difference.

On the flip side of this scenario, not understanding how many employee hours are available to you could cause you to underutilize your funding. Without an understanding of how much time has been allocated to a fund, you can’t help employees direct their attention to programs that still have available funding. Instead, you’ll leave money on the table by not claiming the full amount of your restricted fund.

With real-time cost data — paired with funds properly allocated towards a particular purpose or project — you’ll know exactly where you stand with unspent funds. And since you’re not waiting until the end of a fiscal period to check the books, you’ll still have time to redeploy your resources and make adjustments.

7 Easier Audits

Nearly every nonprofit is eligible for some kind of government funding. In the U.S., that might be an NIH grant, Americorp, or the Centers for Medicare and Medicaid Services. Increasingly, governments around the world are turning to nonprofit organizations to provide services and outreach.

While federal grants provide the opportunity for huge funding increases, these programs always come with strings attached for recordkeeping and reporting. And with each passing year, federal auditors have raised the requirements for transparency and auditability. These funds have become a critically important source of support for many nonprofits, and proper timekeeping (outlined by regulations like 2 CFR 200) must become part of their basic routine to remain eligible for them.

Having an accurate and up-to-date record of employee activities makes it much easier to ensure compliance and quickly pass an audit, especially for 501(c)(3) and 501(c)(4) corporations that are required to report on their expenses by function, as required by FASB ASU 2016-14. This regulation stipulates that every dollar of wage has to be attributed to a specific program, fundraising, or administrative effort.

In addition, all indirect costs (rent, phones, etc.) need to be allocated across programs, and employee timesheets are the very best way to distribute those costs. Auditors are far happier to see a timesheet system in place than rough estimates done months after the fact.

Additionally, most modern time tracking platforms integrate with QuickBooks, Salesforce, or other accounting or CRM systems you may use. This should reduce the time it takes to prepare for audits or report to any third-party organization.

8 More Time to Focus On Your Most Impactful Work

Many nonprofits exist because they think they can make the world a better place. As a result, when you come up with program ideas, it’s with the best of intentions. You put a plan and a budget together and hope all of your programs have a huge impact on your community. But in reality, there are probably some projects and tasks that don’t achieve your desired results.

Spending limited time and funding on projects or programs that don’t make a significant impact necessarily means that your nonprofit is taking time and money away from successful programs.

It’s difficult to cut any program you were once excited about. But timesheet data can help you make those difficult decisions. If the time and effort put into a program isn’t producing the desired results, it might be time to make big changes or say goodbye. You can then shift your focus (and funding) to a successful existing program or create a new program that makes more of a difference to your community.

When you understand where your time is most valuable, you can start spending it more wisely.

Start Tracking Time for Your Nonprofit

Time tracking can help you run better programs, better satisfy donors, and improve your overall operations. So although it takes work to implement nonprofit timesheet systems, the effort will be worth it in the long run. With better insights into your organization, your nonprofit can run more efficiently, enabling you to do better work and further your mission.