I’m not sure how they knew what they were doing, how much money they had, when it was ok to hire someone, or when to expand services. You must have one to guide your path and to show funders your operations described in numbers. Like the above answer, every organization will have a different percentage of their budget for salaries. Transform funder connections with our 10 expert-crafted cold email templates. Engage, build bonds, showcase impact, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and elevate conversations effortlessly.
Building a Financially Resilient Nonprofit: The Power of Operating Reserves
Your nonprofit’s budget should be organized to align with other key financial resources, including your internal records, financial statements, and tax returns. A nonprofit budget template Excel creates is pretty similar to a nonprofit budget template Google Sheets does – so don’t be overly concerned about the platform. The template includes a revenue summary section that calculates your total grant income and a net section to help you quickly determine your program’s financial sustainability. Many nonprofits hesitate to reveal how much they spend on overhead costs with donors. Reframing overhead costs as stepping stones to making an impact can help donors understand why not all their funds go directly to programming.
- One way that board and staff plan for income and expenses in the future is by creating a budget.
- This sample budget outlines various categories for both income and expenses, providing a clear framework for organizations to project their yearly financial operations.
- Including contracted services in the budget lets you plan and allocate funds for these essential services.
- From specialized nonprofit software platforms like Paybee to AI automation tools, budgeting software can help any nonprofit manage their resources efficiently.
- By adopting these strategies, nonprofit organizations can actively manage their expenses to maximize their impact, preserve donor trust, and uphold their mission and values.
- Budgeting for nonprofit organizations takes a bit of time, but planning your budget is too important to make the mistake of rushing through it.
Building a nonprofit budget: 4 steps to get started
The IRS does not require that nonprofits spend any particular portion of their income on each category. Learn practical strategies and expert tips for increasing your nonprofit’s grant proposals. This article offers actionable insights and tools recommended by experienced grant writers to help boost your submission volume and improve your funding success.
Pay Attention to All Your Budgets (eg. Marketing vs. Operating vs. Project budgets)
- This allows you to make accurate decisions about where to allocate your charity’s resources and track its financial performance over time.
- We interviewed over a dozen grant consultants and professionals to understand what grant budgets need to pass the sniff test with funders and convince them to open up checkbooks.
- However, the budget should be high-level enough so as to not be cluttered and overwhelming.
- 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.
- Your nonprofit’s budget will be different, depending on the size, income and expenses of your organization.
These objectives will lead to the creation of relevant programs or services which will accounting services for nonprofit organizations have corresponding costs and revenue opportunities. These considerations, in combination with revenue forecasts, will make up the operating budget. All nonprofit budgets have two sides—revenue and expenses—but aside from that, their structure depends on their purpose. For example, your fundraising team needs to consult on your campaign budgets to help strike a balance between saving money and creating a memorable experience for donors. But each budget will include direct costs, those expenses related to the project or program you’re funding, as well as indirect costs that go along with running an organization. Depending on the type of grant you win, the award will cover only direct costs, or, if a general operating grant, it may cover much more.
💡 Review the budget regularly
Your administrative and fundraising expenses put together make up your nonprofit’s overhead. Contrary to popular belief, overhead isn’t inherently bad—it’s actually necessary to keep your organization running. Creating a cash flow forecast that tracks expected income and expenses on a monthly or quarterly basis can make a big difference. To help you avoid these pitfalls, here are some essential budgeting best practices to keep your nonprofit financially stable and mission-focused. It’s easy to be overly optimistic when planning a nonprofit budget, especially when launching new programs or initiatives. Since different funding sources often come with specific restrictions, your budget should carefully allocate resources to cover each need effectively.
- I’m not sure how they knew what they were doing, how much money they had, when it was ok to hire someone, or when to expand services.
- Consider potential changes in your funding sources, program demands, or economic conditions.
- Transparency fosters trust and ensures everyone is working toward the same financial goals.
- This confusion brings us to a point where we need to differentiate between capital budgeting and operating budgeting.
- Just like it’s ok to have a surplus, it’s ok to have a small deficit as long – as you can explain what your plan is to close the gap and move toward zero so your budget balances.
Who Is Involved in the Nonprofit Budgeting Process?
This process is essential for adapting to changing circumstances and maximizing the impact of their mission-driven activities. While operating budgets serve as guides for your organization’s spending and fundraising, it’s (of course) impossible to foresee every financial situation that may come your way. Since it’s often easier to predict expenses than revenue, and your projected costs will inform your funding goals, let’s begin by discussing how to create the expense side of your budget. The planning document that serves as the backbone for financial sustainability—and by extension, successful growth—is your nonprofit’s annual operating budget. This resource details your organization’s predicted expenses for a given year and outlines how you’ll allocate your projected revenue to cover those costs. The key components of a nonprofit operating budget include revenue, expenses, and surplus planning.
After creating a nonprofit budget and having it approved, you’ll continue to look at this financial document throughout the year. Once you have added all of your anticipated revenue and expenses, you can calculate your projected operating profit and projected operating margin. For more on start-up and small business budget templates, see Free Startup Budget Templates and Free Small Business Budget Templates. In order for nonprofits to determine how much money they require to operate, they need an accurate way to account for all income and costs. Discover how to get the most out of your nonprofit’s business plan by reading Free Nonprofit Business Plan Templates.
Understand the Different Types of Nonprofit Budgets
This type of budget is particularly useful for managing restricted funds—allowing you to demonstrate compliance with donor stipulations, report to funders, and evaluate a program’s financial sustainability. A capital budget focuses on long-term investments and major expenses, such as acquiring property and equipment, or technology upgrades. By involving staff from various departments in the budgeting process, you get a more accurate and realistic picture of your financial needs. With top-down budgeting, you can ensure all departments and programs in your organization are working towards the same goal. Because nonprofit revenue streams can be unpredictable, and it’s easy to prioritize program funding over internal needs. If you’re managing a multiple six- or seven-figure budget, asking a financial expert for help is always a good idea.
Therefore, it can be helpful to establish these first and figure out what’s left. While you should consider everything, be as realistic as you can in setting revenue projections. 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. Additionally, for-profit budgets often have expenses closely linked to revenue, like the cost of goods sold or employee wages. That’s not the case for most nonprofits, which have separate arms for raising money and carrying out their missions.