Review your spending regularly to ensure it aligns with your strategic goals and keeps your nonprofit financially healthy. A popular rule of thumb is to ensure that at least 65% of total resources go to program costs, such as materials, rentals, and operations, while overheads never account for more than 35% of resources. If your nonprofit relies heavily on grant funding, this budget outlines program costs to meet grantor specifications, including fund-matching requirements. Program-specific budgets detail the income and expenses related to a specific initiative, such as a youth mentoring program, a community food bank, or an educational campaign. Once the top-level numbers are created, amounts are allocated to individual functions, programs, or departments that must create a detailed budget and plan with their allocated expenses or revenue targets.
Properly Categorize Expenses
This includes estimating the amount of money you expect to receive from donations, grants, fundraising events, and investments. This is where your budget becomes an effective management and operations tool. An accounting software might be a better way to gather expenses than google sheets, so look into tools that make it easier to track your finances! A nonprofit budget is a financial document that provides a detailed view of how the organization plans to spend its money, and what it aims to achieve over a 12-month period.
Expected expenses
For example, if the organization’s major sources of income are donations and grants, then the budget may need to include funds for fundraising activities and grant writing. Budgeting for nonprofit organizations takes a bit of time, but planning your budget is too important to make the mistake of rushing through it. Keep adding to these tips and best practices and you’ll have the process down in no time. Your operating budget, also known as a broad scope budget, gives you a financial picture of the activities your organization has planned for the coming year. Boards also use the operating budget to show projections of various amounts of revenue and their sources.
Nonprofit Financial + Budgeting Software to Consider
A forecast simply takes into account what you’ve made and spent to date, so you can adjust your projections accordingly. At least once a month, you should compare your forecast to your budget to ensure you’re on track to fulfill your mission. In this guide, we’ll walk through four essential steps to build an operating budget for your new nonprofit. As you follow this process, always remember to align your budget with your organization’s general goals and plans for https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ future growth.
- For one, they’re designed to reinvest any extra money back into the organization rather than take it out as income for business owners.
- Then, estimate likely gift increases per donor, based on the quality of the relationships.
- You’ll also want to get a clear idea of your revenue streams to understand where your money is coming from.
- With that comes a good faith understanding that funds will be spent prudently, which makes your budget a mechanism for transparency between your organization and various stakeholders.
- In a zero-budget approach, nonprofits plan their budgets as if they were brand new or from scratch.
Having extra cash can help stabilize your nonprofit and absorb an unexpected delay in receiving funds, a shortfall in revenue for a special event, or unbudgeted expenses. Looking at just total revenue or total expenses can mislead you about how big an organization actually is. By only looking at expenses that are core to the actual daily operations of the nonprofit — and ignoring the rest — you can get a good idea of the actual size of a nonprofit. Each nonprofit organization has its mission, set of programs, corresponding financial framework, and, importantly, an operating budget. Then, you can use the data from these reports to inform next year’s budget and achieve greater success each year.
This confusion brings us to a point where we need to differentiate between capital budgeting and operating budgeting. When determining revenue, nonprofit professionals should forecast the resources their organization is likely to acquire. In the for-profit world, revenue is typically classified as resources earned from the sale of goods and services. Operational revenue and expenses are the critical components of an accurate and helpful operating budget. Together, administrative expenses and fundraising expenses make up a nonprofit’s “overhead,” or “operating expenses.”
Many nonprofits seem to not only operate on shoestring budgets but are also proud of it. Some nonprofit leaders may even be reluctant to show a surplus in their books, fearing the perception that they are not putting their resources to good use. When budgeting, nonprofits sometimes make the mistake of forgetting to account for in-kind donations or volunteer hours.
Identify the organization’s major sources of income and expenses
You should also create an initial timeline for the project so you can check in on your spending and fundraising as it progresses. For nonprofits like yours, financial planning is critical for effective fundraising and development. In crafting a robust budget for your organization, utilizing budget templates can streamline the process, ensuring accuracy and ease of financial management. These templates are specially designed to cater to the unique needs of nonprofits, allowing for detailed income accounting services for nonprofit organizations and expenditure projections.
As you begin creating any of these types of budgets, there are templates and resources available online to help you organize your nonprofit’s unique structure of revenue and expenses. However, the best way to ensure an effective budget is to work with a nonprofit accountant. A common misconception about operating budgets is that because nonprofits by definition can’t turn a profit, their budgets have to break even every year. However, if your organization can budget for a revenue surplus, you should! This way, you’re more likely to have enough funding to cover your expenses if some costs are higher than expected or a revenue source falls through.
