Financial management can be a daunting task for any organization, and that’s especially true for small nonprofits without a dedicated finance department. Adding everything that goes into budgeting to this mix can quickly become overwhelming. At the end of the budgeting process, you should have a detailed financial plan outlining the organization’s revenues and expenses.
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- 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).
- Evaluate current financial health by analyzing the current year-end forecast, current budget variances, and balance sheet strength.
- They start with salaries (and their other expenses) and this tells them how much they have to raise next year in order to cover their expenses.
- Relay is an online banking and money management platform that can help you (and your team members) avoid overspending, get clear on income, and simplify financial management.
- I also try to get year-to-date financial results for the current year plus projections to year end, if available.
- The capital budget may include projects which will have ongoing effects on operations.
Additionally, determine a timeline that ensures approval prior to the fiscal year-end. Gathering this information before the budget process begins will help you create a more realistic and accurate budget. Successfully implementing a budget for non-profit organizations requires systematic effort. Ensure your process includes appropriate approval steps for different types of changes while maintaining enough flexibility to respond quickly when needed. A budget for non-profit organizations should function as a living document, not a set-and-forget plan. Remember that underfunding these areas often leads to inefficiency and reduced impact over time.
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. Creating an effective nonprofit budget requires thoughtful preparation and collaboration. By combining historical financial data, realistic projections, and strategic alignment with organizational goals, your budget can become a powerful tool for sustainable impact. While each of the previous tips offers specific guidance for your nonprofit budget, bringing them together into a cohesive financial management system takes careful orchestration.
How to Create a Budget for a Nonprofit
For example, if the main purpose of your budget is compliance – there might be some elements that you need to include in your budget that you otherwise wouldn’t. Propel Nonprofits video about depreciation, which can be confusing but is an accounting concept we can all understand. Beginning from when the Board of Directors needs to approve the final budget, work backwards to set internal deadlines for preliminary drafts.
Estimate And Categorize Expenses
A positive number shows a balanced or surplus budget, while a negative one shows a deficit. Once you have the numbers, conduct regular reviews and review your budget by the board of directors to make any changes. It’s time to decide what programs and activities you want to allocate resources to that year.
What can a nonprofit spend money on?
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. Make sure that you clearly determine the roles and decision-making processes that will yield the most effective information gathering, analysis, and decision making.
Our tool lets you collaborate seamlessly across departments, syncs with your favorite accounting systems, and provides real-time insights. Indirect costs are the costs of shared resources such as office utilities, telephone, or bookkeeping services that are used by all. A budget is aguidethat can help a nonprofit plan for the future as well as assess its current financial health. In addition to listing your revenue sources, be sure to make note of how much of your funds are considered restricted and which portion of your funds is considered unrestricted. Start by collecting financial information for your nonprofit organization.
- Nonprofits allocate a significant portion of their budgets to salaries, typically ranging between 35% to 60%, depending on the organization’s size, scope, and operational needs.
- In some organizations this may be revenue, or it may be expenses like salaries and rent.
- However, the budget should be high-level enough so as to not be cluttered and overwhelming.
- Most teams need five to six months for a thoughtful, strategic budgeting process.
Your exact ratios should align with your organization’s size, mission, and growth stage. A budget for non-profit organizations becomes more effective when broken down by program expenses. Program-based budgeting helps you understand the true cost of each initiative, measure actual performance, and make informed decisions about resource allocation. Our platform is an intuitive, cloud-based budgeting software that makes creating your nonprofit budget effortless.
Identify Key Stakeholders
You will want to account for the impact of inflation (which should normally be around 2% annually but, as we’ve recently observed, can fluctuate significantly). 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.
This budget template is designed to help nonprofits quickly and accurately estimate operating expenses while creating a plan to reach their goals in the new year. Every nonprofit is unique, so 10 steps to creating a nonprofit budget feel free to adjust the categories and templates to fit your needs. This example shows the estimated expenses and revenues of a nonprofit organization that runs community programs. The organization has planned to spend $102,500 on operations and projects (expenses) and expects to raise $135,500 through donations, fundraising events, and program fees (revenues). You may want to create both types of budgets to help your team stay on track and avoid overspending.