3 Steps to Create a Sustainable Nonprofit Operating Budget

22 Sep 3 Steps to Create a Sustainable Nonprofit Operating Budget

To keep everything organized, your budget categorizes funds into clear nonprofit budget categories, helping you allocate resources efficiently and maintain financial stability. It indicates which items are subject to specific stipulations—otherwise known as restricted funds—which typically make up the bulk of revenue for nonprofit organizations. By the end, you’ll have the knowledge and tools to build a reliable financial plan with confidence that balances financial constraints with your nonprofit’s ability to carry out its mission. In fact, a survey conducted by Sage found that nonprofits rank budgeting and financial planning as one of their top five internal challenges. Here’s a very basic example—but remember that your organization’s budget might be more complicated than this (or maybe even simpler!). Nonprofits often rely on unpredictable funding streams such as donations, grants, and seasonal fundraising campaigns.

Ready to Take Your Nonprofit Marketing to the Next Level? Book a Free Consultation

Understanding your cash flow is extremely important in order to make assumptions about future spending. Before you create a budget, make sure you have a clear idea of how much you spend (and receive!) on a monthly basis so you can create accurate projections. Rushing the budgeting process could cause errors, which could result in future issues – especially troubling for nonprofits who need to report their finances and budgeting to grantors. In this section, we’ll look at a few key steps you’ll need to create an effective nonprofit budget sample. Nonprofit budgeting formalizes the process of allocating resources to different areas of your organization. It provides a concrete plan that you can use to evaluate your progress and align your team.

Don’t fall into the overhead myth.

• Include costs for board support, strategic planning, and quality assurance.
• For example, capital investments typically take more than one fiscal year to pay off, which must be conveyed when budgeting.
• For example, Doctors Without Borders allocates a significant portion of its budget (over 80%) to direct program expenses, ensuring most donations fund medical care in crisis zones.
• It details the costs your organization will incur and the revenue you expect to receive over a set period of time.
• This allows for a better overview, more speedy addressing of any potential issues, more nimble management of the staff and volunteers, and a more informed everyday decision-making process.

Check out Keela’s guide to nonprofit salaries to understand more about what to pay your team. The budget’s name changes to “operating budget” because the organization may alter the adopted budget throughout the fiscal year. The organization will then operate with a budget that is no longer the exact adopted budget. Nonprofits aim to generate a modest profit to preserve their financial sustainability. Having a carefully thought-out budget is one great way to get your organization going in that direction.

• Once you’ve created your operating budget, you’ll submit it to the board for approval.
• That could mean paying for monthly rent, the lease on an office space, or the mortgage on a recently acquired building.
• If you’re spending more than you planned or aren’t making your expected revenue, you can plan another fundraiser or scale back on spending.
• As previously mentioned, the contingency line is about preparing for the unexpected within the budget year.
• It might depend on how important travel is for your organizational work or how extensively your team is out and about.
• 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.

Report: Success Rates for Different Types of Grants

Typically, this process should occur at least quarterly, if not more frequently, especially in the face of significant changes. By reviewing and adjusting budgetary goals and projections regularly, nonprofits can ensure they remain aligned with their mission, address emerging needs, and adapt to the evolving landscape. You may see many nonprofits start as grassroots organizations, and at that stage it’s reasonable to use spreadsheets to plan budgets. Preparing a real-world budget example for nonprofit organizations can help guide your approach and aid in the decision on whether to use these budgeting methods or another variant. Most nonprofit budgets have columns indicating the period covered, budgeted amounts, actual spending, and the percentage difference from the previous period or year. When creating a nonprofit budget, you’ll typically include key financial details in a structured format.

What Is A Nonprofit Budget?

Most importantly, nonprofit budgets should be constructed around the organization’s programs and activities, which will help them stay focused on their goals. Allocating funds and prioritizing spending are both part of accounting services for nonprofits. Even the best nonprofit budgets aren’t worth much if 5 Main Benefits of Accounting Services for Nonprofit Organizations you don’t have a good way to stay on top of your spending.

Start Using Your CRM the Right Way

• Regular budget reviews on a quarterly or yearly basis are essential to see if you’re hitting your expected benchmarks in both revenue and expenses.
• However, if your organization can budget for a revenue surplus, you should!
• If you’re creating a budget for the first time, create as reasonable a list as possible of expenses.
• Our free courses provide in-depth knowledge on key accounting principles, budgeting strategies, and reporting requirements to help your organization thrive.

It demonstrates your ability to responsibly manage financial resources and provides a roadmap for activities in the upcoming year. Even still, some donors may be unwilling to contribute directly to overhead costs. This phenomenon is known as overhead aversion, and a study on the subject by behavioral economist Uri Gneezy finds that offering overhead-free donation opportunities to smaller donors can help bridge this gap. You’ve got the budgeting basics down, but how do you ensure your budget is ultimately effective? To prepare for anomalies without disrupting operations, you should regularly review and adjust the contingency fund based on your financial situation and any emerging risks.

This sample budget for nonprofits is a template for an organizational budget for a fiscal year. This includes program expenses, staff salaries, an operating budget and other expenditures. Once finalized you can create the nonprofit budget template in excel to make it easy for you to update next year. With so many different revenue sources and expenses, it can be tough to manage your nonprofit budgets. That’s why Relay (that’s us! 👋) helps nonprofits organize cash across multiple checking accounts.

Types of nonprofit budgets

Having an annual nonprofit budget helps you make informed decisions about program funding, staffing, and other operational needs, so you can use your resources effectively and protect your financial stability. It acts as a tool for tracking performance, aligning resources with priorities, and preparing for unexpected changes so your charity can always function even during the tough times. The Nonprofit Annual Budget Template is designed specifically for nonprofits looking to streamline their yearly financial planning. This template allows organizations to clearly outline and monitor annual financial resources and allocations, ensuring that all funding aligns with their operational and programmatic goals. It’s particularly useful for tracking annual income sources, expenses, and for preparing financial reports that support strategic planning and decision-making processes. The Global Giving nonprofit budget template is designed to help nonprofits effectively plan their finances.

Finally, your budget needs to establish a clear connection between the numbers and your goals. With that said, Sarah Lange, a grant consultant, advises grant teams not to https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ undersell themselves either. If there is an activity explained in your narrative that requires funding, it must be a line item in your budget.