Creating a nonprofit budget can feel overwhelming, but breaking it into manageable steps can simplify the process and ensure accuracy. Once you have your budget, compare the predicted numbers to the actual figures every month in order to look for differences and establish why they occurred. When your organization is not in line with the budget, you should look at “why,” and what factors you can control or change. This is where the budget becomes an effective management and operations tool for your organization.
Establish format and structure for accounting
Use confidence-level percentages as shown above to budget for the renewal of new versus long-term paying customers and clients. Consider staff costs, professional services, technology investments, insurance, and office expenses. These visible expenses and non-monetary contributions, including volunteer hours, form the foundation of your program budget, but they’re only part of the equation. This granular approach reveals insights that traditional budgets often miss, such as hidden costs that could affect program sustainability.
- A budget for non-profit organizations must plan beyond immediate operational needs.
- In a zero-budget approach, nonprofits plan their budgets as if they were brand new or from scratch.
- We’ll provide a step-by-step process to create an effective budget, offer examples for various budget types, and address common challenges with actionable solutions.
- Keep in mind the difference between fixed and variable costs when you are tracking expenses.
- While it might be less than ideal to underspend when your organization has the capacity to spend more, it’s far worse to overestimate fundraising or grants and end up scrambling to cover costs.
Set Clear Financial Goals
All operating budgets can be broadly split into two categories – revenue and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ expenses. Here’s a comprehensive, step-by-step guide to building a budget that supports your nonprofit’s mission effectively. Understanding nonprofit budgeting is only one part of the equation; accurate accounting practices are equally essential. You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow. It’s also very important to the success of your programs that your revenue and expenses estimates are realistic. While there is generally space for hope and dreams in the nonprofit world, when it comes to budgeting – there isn’t.
Implement a Zero-Based Budgeting Process
The key is identifying your revenue streams and making realistic estimates for each. Your budget should align with your nonprofit’s mission and goals to ensure your revenue and spending are consistent with your core purpose. This alignment helps avoid wasting money on activities that won’t advance your mission. To counteract such challenges, you can use these five best practices to make your annual operating budgets more useful to all your stakeholders. In doing so, you can position your organization for success in your next budget year and beyond.
As with involving the people doing the spending, get the people responsible for soliciting and stewarding donations together and identify the pledged gifts, the probable gifts, and the potential gifts. Learn all the best practices of CRMs to simplify customer relationship management and elevate your bond with loyal customers. Ensure your process includes appropriate approval steps for different types of changes while maintaining enough flexibility to respond quickly when needed. Remember that underfunding these areas often leads to inefficiency and reduced impact over time. Create a rolling cash flow forecast that looks at least six months ahead.
Does your nonprofit use small equipment, software subscriptions, or office supplies? Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. This is also a crucial step of the process because you’ll be setting your nonprofit’s priorities and goals by determining which get funded and which don’t. This can provide a baseline for future budgeting, allowing you to tweak as needed for your goals rather than starting from scratch. Simply collecting this crucial data can go a surprisingly long way toward identifying and solving organizational problems.
This allows for a better overview, more speedy addressing of any potential issues, more nimble management of the staff and volunteers, and a more informed everyday decision-making process. Your board members should have a direct role in developing cash flow projections, agreeing on the assumptions to use, and reviewing the projections carefully. Organize your contributed income by source, e.g., individuals, foundations, corporations, net of special events, and any other income sources that might be relevant to your nonprofit. You’d then use those numbers in your budget (e.g. if you allocated a 50% chance to a $10,000 grant – you’d use $5,000 in your budget). Every accounting system has a chart of accounts which classifies the sources of revenue and the types of expenses you incur.
- If you’re looking for a way to keep all those balls in the air, nothing is more valuable than a foolproof nonprofit budget.
- Donors and partners like to see how many dollars are spent on the nonprofit’s mission versus executing the mission.
- With that said, Sarah Lange, a grant consultant, advises grant teams not to undersell themselves either.
- Learn practical strategies and expert tips for increasing your nonprofit’s grant proposals.
Budgets are often made for an individual, an organization, a business, a government, or simply about anything that creates and spends money. Investing in some nonprofit budget software will make keeping up with your budget a breeze. If you don’t have a fundraising history to work from, you can use a fundraising goal as a starting point. This can be based on the amount of money you need to raise to cover your expenses, or it can be a specific dollar amount that you would like to raise. If you are comfortable working with numbers and have a good understanding of your organization’s finances, you may find that zero-based budgeting is not as difficult as it initially seems.
Nonprofit Budgeting 101: 3 Essential Financial Planning Tips
Don’t forget to track restricted and unrestricted funds, and how you are spending them. For example, if you tell your donors that all donations will go directly to program expenses, those are then restricted funds that you need to exclusively use to support programs. If we look at their 2018 Form 990, they had $475,384,887 in grants to US nonprofits and 69,269 in grants to foreign nonprofits, for an operating budget of $12,927,177.