Variable costs are directly tied to events, increasing or decreasing and changing with each situation. Since you have some control over these expenses, this is where a lot of decision-making will happen. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. This can provide a baseline for future budgeting, allowing you to tweak as needed for your goals rather than starting from scratch.
Creating an Effective Nonprofit Operating Budget in 6 Steps: A Comprehensive Guide
Understanding the true, full cost of delivering various programs and services in the community is a critical piece of the management puzzle. If this is the first time you’re reviewing your own nonprofit financial ratios, you can use the calculations you found here as a starting point for your organization. However, when you’re able to interpret these numbers and use them to strengthen your financial strategy, your nonprofit can become more financially healthy and leverage additional funds for faster growth.
Nonprofit Ratios: How to Use Them and What They Measure
In order to be as effective as possible with your nonprofit budget, you need to be strategic about how you use your money. The first step in creating a nonprofit budget is to determine the organization’s financial goals and objectives. This will help to ensure that the budget is aligned with the organization’s overall strategy and that resources are being allocated in a way that supports the achievement of these goals. For the purposes of this article, we’ll focus primarily on operating budgets because of their central role in nonprofit finance. Additionally, remember that any budget that covers a specific aspect of your nonprofit’s spending and fundraising should align with your operating budget. To ensure that your nonprofit is adequately funded, be sure to set a separate budget for each department within your overall financial plan.
Create a Replicable Process
- This guide is designed to help nonprofits of all sizes master the art of budgeting.
- Creating a budget for your nonprofit organization is an important step in ensuring your financial success.
- This foresight allows you to plan proactively rather than reacting to cash crunches.
- Variable costs, like program supplies, event expenses, and part-time staff hours, offer flexibility when funding fluctuates or new opportunities arise.
- It’s crucial that the budget be centered around the primary goals and objectives of the organization.
Not only do the key budget components vary depending on your mission and structure, but there may also be differences in the budgeting method used by different nonprofits. Unlike standard budgeting, your priority as a nonprofit is to consider project goals from the perspective of donors and stakeholders rather than generating profits. Because nonprofit revenue streams can be unpredictable, and it’s easy to prioritize program funding over internal needs. Organize your information using an Excel spreadsheet to make it easy to edit and read the information. So be prepared for those moments when you may have to adjust your estimated annual operating budget. Some organizations don’t like to include miscellaneous income such as interest income in their budget, because it is not a dependable revenue stream.
Evaluate your organization’s financial health 🔎
Use the same categories in your budget to easily generate financial reports to funders and others. Monitoring your revenue and expenses should ideally become a part of your nonprofit’s organizational culture, something everyone is aware of and contributes to. Mark the events in everyone’s calendars, so that it becomes easier to repeat the process each year. 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. While you should consider everything, be as realistic as you can in setting revenue projections. While it might be less than ideal to underspend when your organization has the capacity to spend more, it’s far worse to overestimate fundraising or grants and end up scrambling to cover costs.
Strategic resilience for mission-driven organizations
- Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership.
- These programs often have templates that you can use, which can make the process of creating a budget much easier.
- Other activities may require periodic or ongoing subsidy from fundraising or other program areas.
- Diversify your income sources whenever possible to reduce dependency on a single stream of revenue when possible.
- Creating a budget for non-profit organizations often involves following historical patterns—budgeting based on last year’s numbers with minor adjustments.
Expenditures may include events, meetings, publications and other programs largely used to benefit members. Let’s identify your starting point for creating a budget and a few tips and tricks along the way. A nonprofit budget template is a fillable document that simplifies your budgeting. It should include some typical sources of revenue and expenses, which saves you time on listing everything out. If any of the sources don’t apply to you, you can just delete them—likewise, you can add anything https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ that’s missing.
- “We get to help shape the leaders of tomorrow. I want that future to be bright.”
- Above all, a budget for non-profit organizations must remain flexible enough to adapt to changing circumstances while maintaining fiscal responsibility.
- Another 18% have a budget between $50,000 and $100,000 – so they’re operating on two shoestrings instead of one.
- Contact us today to learn more about how we can help your organization unlock its full potential by getting its budget on track.
- In both cases, a sound budget is important for financial sustainability and provides a guide for financial health and sustainability.
Administrative Expense Ratio
If your nonprofit relies heavily on grant funding, this budget outlines program costs to meet grantor specifications, including fund-matching requirements. Calculating your nonprofit’s overhead ratio is as simple as dividing the total overhead costs by the total amount of monthly income. A percentage higher than this might indicate spending that’s disproportionate to the amount of money a group can raise. A spreadsheet or a table is a helpful format for an operating budget so that you can track income, itemize expenses, and make easy calculations.
Align Your Operating Budget With Your Nonprofit’s Other Budgets
If we look at their 2018 Form 990, they had $475,384,887 in grants to US nonprofits and 69,269 in grants to foreign nonprofits, for an operating budget of $12,927,177. This shows the importance of operating budgets, because a $13 million organization is very different than a $475 million organization. Many nonprofits struggle with unpredictable fundraising cycles, relying on short-term grants, annual campaigns, and event-based revenue streams. This reactive approach leaves organizations vulnerable to economic shifts, grant expirations, and donor fatigue. Your nonprofit may be feeling this stress right now, given the uncertainty in federal… Each of these budgets is smaller in scope than your annual operating budget, which covers all of your organization’s activities.