Nonprofit Budgets: How to Get Started Nonprofit Finance Fund

When determining how to allocate funds, it is important to consider the organization’s overall goals and objectives. For example, if the The Key Benefits of Accounting Services for Nonprofit Organizations goal is to increase access to services, then a greater proportion of funds should be allocated to program expenses. Alternatively, if the goal is to increase donor support, then a greater proportion of funds should be allocated to fundraising expenses. Budgeting is the process of planning, organizing, and controlling financial resources and how they are allocated to achieve organizational goals. It’s important to budget because it helps the organization manage its funds in a more effective way.

What Should Be Included In a Nonprofit Budget

• Since it impacts every department of your nonprofit, consider all stakeholders while creating the budget.
• Donors and partners like to see how many dollars are spent on the nonprofit’s mission versus executing the mission.
• Create a list of “nice to haves” you can add into your budget if you have projected funds left over after your necessary expenses are covered.
• The budgeting module integrates seamlessly with other modules in the software, allowing for a holistic approach to budgeting.
• Each of these budgeting methods provides you with a template and process for getting started.
• The budget also plays a key role in forcing organizations to prioritize their activities so as to determine those that are most critical for fulfilling their mission.
• When creating your nonprofit operating budget, use the past as a benchmark for your expectations and goals in the coming year.

Your budget template should serve as both a planning tool and a monitoring system. Beyond basic income and expense tracking, build in space for context and analysis. Note funding restrictions, timing considerations, and progress toward goals. The first step is understanding true program costs across both hidden and obvious or necessary expenses. A budget for non-profit organizations must accurately reflect all costs. This rigorous approach ensures each dollar actively contributes to your nonprofit’s mission and helps eliminate legacy costs that no longer serve your current goals.

Review draft budget

As an example, an afterschool program may operate in two locations or be funded by three grants. If the program operates with similar goals, measures, costs, and staff, we’d suggest that these be grouped as a single program. Propel Nonprofits developed this guide and spreadsheet template to help nonprofits implement program-based budgeting and financial reporting. You can find a glossary of terms in our resource library and below, a list of articles and resources for more in-depth discussion or technical guidance on this topic. The accompanying spreadsheet template may be used for a one-time analysis project or to implement ongoing program-based budgeting and financial management practices.

Step 6: Figure out your cash flow projection

• Use last year’s actual numbers as a starting place and get quotes from vendors for new or expanded expenses.
• Identify strengths to build upon as well as problem areas that may need to be addressed or improved.
• There are two primary ways that a nonprofit organization can choose to budget its finances – historical budgeting and zero-based budgeting.
• In a financially healthy nonprofit, you’ll have a budget surplus (spend less than you make) to reinvest in your nonprofit or put away in an emergency fund.
• Elizabeth Male is director of marketing and communication at StriveTogether.
• While it’s often most useful to categorize revenue by source to keep your nonprofit’s fundraising on track, the most effective way to organize expenses is usually by function.

Many nonprofits strategically select their fiscal year to align with their operational rhythm. You need to know how much is coming in, where it’s going, and whether you’re staying on track. This is more than just numbers—it’s a guide to keeping your mission on point.

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This will increase engagement within your organization and allow your team to better understand your nonprofit’s financial health. These tips will guide you through budgeting basics, and recommend new ways to stay on top of your finances, like supplementing your marketing budget with the Google Ad Grant. Let’s get started by defining what a nonprofit budget is and why it’s important. Tip #8 Separate operations expenses from capital, equipment, and special projects. If you’re planning on purchasing a vehicle, renovating a facility, or have some other special project in mind, create a separate budget just for that. Consider outsourcing your back office to a bookkeeping, accounting, and CFO services provider with extensive experience in the nonprofit sector.

Often, the definition of programs is evident in how your organization delivers services and functions internally. You may already have clearly defined programs, departments, or projects. Some nonprofits identify every activity or grant as a separate program while others combine many activities under the umbrella term. For budgeting and allocations we suggest that you separate your activities into distinct programs that will provide meaningful insight into the financial model.

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 reality, the meaning of “nonprofit” is simply that your organization has to reinvest all of its funding into its mission rather than paying investors or shareholders. The responsibility of creating your operating budget typically falls to your chief financial officer (CFO) or nonprofit controller. These professionals focus on your financial strategy and can use specialized tools to forecast your nonprofit’s cash flows for more effective resource allocation.

How to create a nonprofit operating budget

Donors and partners like to see how many dollars are spent on the nonprofit’s mission versus executing the mission. List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses). If you’re creating a budget for the first time, create as reasonable a list as possible of expenses. Then, assess your best and worst-case scenarios for generating funding. 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).