The Ultimate Guide to Nonprofit Budgets + 3 FREE Templates

If you want your new nonprofit to grow successfully and fulfill its mission, a budget is not optional. Partner with Jitasa to create accurate, actionable budgets for your nonprofit. 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. At a minimum, you will be creating and reporting on an operating budget.

• This guide will cover the five important sections that every nonprofit budget should include.
• Involve your Board, your staff, and your volunteers in creating the budget and reviewing your revenue and expenses.
• Sage Business Cloud Accounting (formerly Sage One) is an online accounting software that gives you anytime, anywhere access to the most important small business essentials.
• It should be clear by now that your grant budget can make or break your chances of winning funding.
• If you want your new nonprofit to grow successfully and fulfill its mission, a budget is not optional.
• Budgets form the basis for boards to make better decisions and to avoid making mistakes.

Consider income inconsistencies

• Many organizations include salary costs in grant proposals and build appropriate overhead into their program budgets.
• Your strategic plan should include clear timelines for implementing these budgeting practices.
• These SMART objectives become the milestones your financial plan aims to reach.
• A nonprofit budget is a planning document used to predict expenses and allocate resources for your organization.
• In this A-Z guide, you’ll learn the fundamentals of nonprofit budgeting, including key features of what makes for effective budgets.
• Often, the definition of programs is evident in how your organization delivers services and functions internally.
• Keep these benefits at the forefront of your mind as you create your next budget.

Consider segregating staff expenses as it usually comprises anywhere from 60% to 90% of an organization’s budget. Budgets may be requested by parties involved in financial transactions with the nonprofits, such as banks, or by donors/grantmakers considering a gift to accounting services for nonprofit organizations the nonprofit. As long as your organization complies with the eligibility requirements, the grant renews monthly.

Calculate your nonprofit’s expenses 📊

Without an annual budget, you’re swinging in the dark, and could easily overspend, winding up deep in debt or worse, unable to continue your programs. Each month, take a look at your running totals to make sure you are on track for the year’s spending and earning forecasts. If any revenue or expense numbers don’t look right, you should use your contingency plans to take action immediately to get your budget back on track. When budgeting, comb through your expenses to determine whether you have missed any opportunities for in-kind donations that could alleviate your monetary costs. Beyond basic budgeting, various budgeting methods can be used to achieve slightly different purposes. For example, a nonprofit that wants to drastically cut spending could choose a zero-based or value-based budgeting method that requires each budget line item to justify itself with a reasonable ROI.

best practices for nonprofit budgeting

We’ve already talked about managing your budget with Relay, but we know nonprofit financial management doesn’t stop there. You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow. One of the most important tools for a nonprofit is a cash flow projection.

Are there different types of nonprofit budgets?

Once your costs are set, you know precisely what numbers you can expect to work with. Making a budget is a whole lot easier when you’re not relying on guesswork. Ed is a seasoned professional with over 12 years of experience in the Governance space, where he has collaborated with a diverse range of organizations. His passion lies in empowering these entities to optimize their operations through the strategic integration of technology, particularly in the realms of Governance, Risk, and Compliance (GRC). Finally, the board or budget committee should be ready to present the annual budget to any necessary committees and the board for final approval. The two primary components of a budget are income and revenue, and many subcategories fall under the umbrella of each.

Step 6: Monitor and Adjust

Donors and stakeholders demand transparency in how their contributions are utilized. A lack of financial clarity can erode trust and deter future funding. It publishes detailed annual reports to share its budget allocation and impact with stakeholders. Regularly monitor how aligned your projected budget is with what you’re actually experiencing, and make tweaks as you need to. Using the budgets, you can determine where you’re losing and earning the most.

• Effective financial management is the backbone of a thriving nonprofit, ensuring stability, transparency, and informed decision-making.
• For this reason we wait until after all the direct allocations are completed before we turn to allocating the indirect costs.
• Evaluate what funding your nonprofit already has on hand, and make strategic decisions about how to fundraise effectively during the event.
• Address overhead costs transparently in your nonprofit budget and donor communications.
• The nonprofit operating budget is essentially the financial reflection of what the nonprofit business expects to achieve over a 12-month period (annual budget).
• It’s easy when you’re just starting out – and you’re super excited about the future – to operate on a lot of hope.
• Creating an organizational budget takes time and lots of thought, but these strategies can contribute to a more successful process.

Basics of Nonprofit Budgeting: A Beginners Guide

It is good practice to periodically review the budget as well as compare it to the actual cash flow and expenses, to determine whether they are playing out as expected during the course of the year. Creating and sticking to a nonprofit budget will put your organization in a healthier financial position. As a result, you can spend less time worrying about your nonprofit’s expenses and more time helping your beneficiaries.

• You might notice a fundraiser underperformed or a new opportunity needs more funding.
• For example, if you are seeking a $10,000 grant with a 75% chance of being awarded, adjusting the revenue forecast to $7,500 accurately reflects the projected income.
• For example, the rent for your office is likely a fixed expense due to your contract with the building’s management company.
• Next, turn to the revenue side of your budget to figure out exactly how and when you’ll raise the funds you need to cover all the costs you outlined.
• Propel Nonprofits video about depreciation, which can be confusing but is an accounting concept we can all understand.

These two cost centers are important components of understanding true costs and are created in parallel with the programs. By organizing your budget and allocations this way, you’re also setting up the accounting system to track and report the three functional expense categories required on audits and the IRS Form 990. Since the nonprofit budgeting process requires nonprofit leaders to have a high awareness of expenses and funding sources, the practice offers many functional benefits to organizations. The primary purpose of a nonprofit budget is to create a financial plan, and that plan acts as a roadmap for an organization’s operations, challenges and limitations, resources, and goals. A nonprofit operating budget is a financial document that provides an overview of how a nonprofit organization is planning to spend its money. It also breaks down the nonprofit’s operating expenses and overall costs.