Nonprofits have many more elements to consider, from multiple sources of income to the combination of overhead and program expenses, making the budgeting process even more overwhelming. That’s why we created this guide—as a helpful resource for nonprofits trying to learn more about budgeting and discover best practices for financial planning. Planning Tip – Pair the approval of annual operating budgets with approval of updates to your capital budget. The two actions together will be synergistic, helping to ensure that both short-term and longer-term planning needs are being addressed. A new operating budget is prepared each year while capital budgets are living documents that are updated each year.
Just to be clear, budgets are prepared by the staff of the organization. However, the board offers important thought partnership at the start of the process, and will be responsible for approving the final budget annually. budgeting for nonprofits Going through the process of budgeting requires a balance of hard and soft skills. You may be good at computations, but without patience and attention to details, the budget document will most likely go off-course.
Now that I have the right people and materials gathered, what are best practices for putting an actual budget together?
Board directors should be careful to consider the state of the economy and any unusual or unforeseen financial situations of their contributors. Your annual unrestricted surplus should be sufficient to meet debt obligations, fund depreciation, and add to operating reserves. AAFCPAs recommends a 3-5% surplus operating budget each year, and four to six months of expenses in your operating reserves.
If you are still unsure of how to develop a budget, you can consult with a financial advisor or accountant. They will be able to help you create a budget that meets your needs and ensures that your nonprofit is financially stable. However, if you find it difficult to keep track of your organization’s finances or if you feel that a historical budget is more reflective of your organization’s needs, you may want to stick with that method. However, if you feel that it is more important to have a budget that is easier to create and that reflects past spending patterns, you may want to use a historical budget. At a minimum, you will be creating and reporting on an operating budget. This is a standard accounting report that shows how much was budgeted year to date compared to how much has actually been spent.
Analyzing Your Budget
A pie chart provides a quick breakdown view of your resource allocation (e.g., national marketing, local marketing, public relations, social media, etc.). Use this budget for nonprofit project template to determine where you have room to grow and where you might need to cut back. This fully customizable template also includes a year-total-to-date cell, which enables you to factor in the difference between income and expenditures in order to determine how over or under budget you are. Your budget will be unique to your organization, but we’ll give you a broad idea of what to include under each section. If you have a special project in mind, create a separate budget for it. For example, if you have it in your plan to buy new computers for your staff or to build a new website, create a separate budget for those projects.
With each reporting period, the organization compares actual performance against its plan. Novices at budgeting or new organizations may not have access to these resources. Luckily, in this section, we’ll cover some of the features of effective nonprofit budgets, so that anyone can improve their financial planning. A nonprofit budget is a planning document used to predict expenses and allocate resources for your organization.
Nonprofit Financial + Budgeting Software to Consider
A nonprofit budget template Excel creates is pretty similar to a nonprofit budget template Google Sheets does. For more on start-up and small business budget templates, see “Free Startup Budget Templates” and “Free Small Business Budget Templates”. List program expenses (staff salary, insurance, supplies, fundraising fees, etc.) to see your total nonprofit program expenses vs. your actual revenue. Grant-makers have the potential to contribute large sums to nonprofits and board directors should ensure that they meet the grantor’s requirements to qualify. Donors expect to know how their donations are helping the organization so boards need to consider how they can communicate this information to donors. It typically requires getting income from multiple sources for nonprofits to thrive.
- Even if your nonprofit is just getting started, it’s not too soon to get into Quickbooks or another accounting software that can help you track and analyze all your income and spending.
- You can also use this to compare to your program and overhead needs to understand if you have enough in each type of fund to support your expenses.
- Once the organization’s major sources of income and expenses have been identified, the next step is to estimate the amount of income and expenses for the upcoming budget period.
- When it comes to your nonprofit’s budget, it is extremely important that your team has a clear and accurate understanding of your organization’s income and expenses.
- You would want to update your budget to reflect the difference and possibly allocate that budget amount to another purpose.
- One tip for goal-setting is to look beyond what you want for this year.
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. A well-formulated nonprofit operating budget allows for the best use of limited nonprofit resources and focuses on the primary goals and objectives of the organization. In this article, we’ll discuss what is a nonprofit budget, its importance, 12 best practices, a free template, and more.
It’s important to separate program, administrative, and fundraising expenses. Separating these costs also serve as checks against how your organization is distributing its funds. And whether you’re the CEO of your nonprofit or a new staff member, it’s important to understand how your organization’s budget is structured and contributes to the nonprofit’s operations.
This helps you better understand when you have revenue coming in and expenses going out, on a monthly and yearly basis. Regular nonprofit budgets should be split between expenses and revenues, with expenses split between program, and general and administrative expenses. As a startup nonprofit, you’re already aware that you have initial expenses before you have your real operational expenses. These startup expenses might include the costs involved in crowdfunding, or what you’re hoping the crowdfunding will cover. Other startup costs might include initial costs for branding and logo, equipment, and first staff member salaries. Creating a budget, planning finances for the future, and analyzing financial data will set you apart early on as an organization to funders and partners, and make daily and strategic planning easier.