How to Calculate a Nonprofit Operating Budget

Budgeting for a surplus allows you to support future innovations and invest in your staff. The goal is to avoid the “nonprofit starvation cycle” of never having enough to invest resources in infrastructure, or having an overhead that is “too lean” to effectively run the organization. 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).

Feeling bogged down by repetitive processes and redundant work?

An operating budget is a budget that is used to cover basic day-to-day costs like materials, supplies, rent, utilities, etc. It’s not designed to cover large expenses such as capital projects, i.e buying a building. Another step in creating a nonprofit budget is to identify the organization’s major sources of income and expenses. This information can be used to estimate income and expenses for the upcoming budget period. If you’ve created a budget for your household before, you probably averaged your expenses, calculated your income, and determined how much you could save for the future. Nonprofit budgeting follows a similar process, except you’re projecting revenue and expenses for your entire organization.

tips for creating budgets at nonprofit organizations

• For example, WWF (World Wildlife Fund) frequently reviews its budgets to optimize spending for conservation projects, making data-driven decisions for global campaigns.
• These templates are specially designed to cater to the unique needs of nonprofits, allowing for detailed income and expenditure projections.
• Once you’ve established a new nonprofit, one of your first considerations will likely be fundraising.
• Most likely, your organization’s executive director will lead the budgeting process, but a nonprofit accountant can also provide support.

However, the budget should be high-level enough https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ so as to not be cluttered and overwhelming. Identify opportunities, threats, and emerging trends likely to influence your activities (both internal and external to your organization). Finally, get clear on and name the goals, organizational values, and priorities that you want to have reflected in this year’s budget. 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).

• Well-designed budget templates streamline financial management while ensuring you capture all essential information for decision-making and reporting.
• An effective budget can ensure your organization operates efficiently.
• This will help you set realistic expectations and make informed decisions when creating your budget.
• For example, if your year-end campaign consistently brings in 40% of annual donations, factor this timing into your financial planning.
• For more on start-up and small business budget templates, see Free Startup Budget Templates and Free Small Business Budget Templates.
• Indirect costs, which are also called overhead, include things like utility bills, internet fees and postage.

What Is A Nonprofit Budget and Why Is It Important?

Enter project expenses in the same month-by-month columns to compare total expenses to total revenue. To help you get started, we’ve created a basic nonprofit budget template to track your revenue and expenses. It will work as a framework regardless of your nonprofit’s area of focus. A nonprofit budget is a financial document that provides an overview of how the organization plans to spend its money. It’s crucial that the budget be centered around the primary goals and objectives of the organization. A sample nonprofit budget is a fillable document that simplifies the budgeting process for you as it includes all the typical line items of revenue sources and expenses, saving you time creating your own.

• It’s important to be realistic in reviewing income sources and expenses.
• They charge a small fee for their programs, and the remainder is covered by their generous donors and partners.
• Some clients rely on us to build monthly cash flow models that project income, expenses, and cash balances over time.
• For ASF, that includes anything related to running the extracurricular programs, including staff and supplies (i.e. soccer balls).
• Nonprofits typically allocate between 5 and 15% of their overall budget to marketing, with fundraising costs ideally staying at or below 15%.

While you can (and should) use the previous year’s numbers to estimate upcoming expenses and income, you should carefully evaluate each one. Assess whether the expense is worthwhile, whether the program is generating an acceptable ROI, and whether you can expect to receive similar donations from your existing donors. Budgeting for non profit organizations is, perhaps, the most important financial document for your organization because it is a financial management and strategic tool. Propel Nonprofits is an intermediary organization and federally certified community development financial institution (CDFI). There are many resources around best practices including the Council of Nonprofits and AAFCPAs.

Every accounting system has a chart of accounts which classifies the sources of revenue and the types of expenses you incur. Use the same categories in your budget to easily generate financial reports to funders and others. Give yourself enough time to gather the necessary information and data, to think through and discuss the various elements of the budget, and to put it down on paper (or in Excel). Overall, good budget planning requires knowledgeable board directors, a solid planning process and the tools to complete the job successfully. You’ll need a program budget every year, so get your docs in order for the years ahead and plan a clear budgeting process.

Budgeting for nonprofit organizations should always be in alignment with your strategic plan, and it should help to further your nonprofit’s goals and objectives. Revenue may not stream in as expected and large, unexpected expenses can creep up. With proper budget planning, The Key Benefits of Accounting Services for Nonprofit Organizations nonprofits can easily reap the benefits of good budgeting. Technology is an important tool for responsible budgeting for nonprofits. A budget is a guide that can help a nonprofit plan for the future as well as assess its current financial health.