Below, we explore the major challenges of a nonprofit budget proposal and provide real-world examples of how organizations have successfully addressed them. This guide is designed to help nonprofits of all sizes master the art of budgeting. We’ll provide a step-by-step process to create an effective budget, offer examples for various budget types, and address common challenges with actionable solutions. You’ll also find downloadable templates to streamline the process and empower your team to hit the ground running.
Staff salaries and benefits
- Every organization’s budget will look slightly different, so make sure you can customize your chosen template to fit your needs and goals.
- 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.
- It’s mandatory for nonprofits to use funds in accordance with their mission.
- After completing the full program-based budget or financial analysis it’s worthwhile to take a fresh look for both accuracy and a gut check.
- You’d then use those numbers in your budget (e.g. if you allocated a 50% chance to a $10,000 grant – you’d use $5,000 in your budget).
Many nonprofits seem to not only operate on shoestring budgets but are also proud of it. Some nonprofit leaders may even be reluctant to show a surplus in their books, fearing the perception that they are not putting their resources to good use. 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).
Compliance Management and Board of Directors’ Role in Compliance and Ethics
- I am trying to determine if my organization qualifies for a software that requires that our “operating budget” be less than $100K.
- In reality, your goal should be to budget for a revenue surplus—where your total revenue outweighs your total expenses.
- Running a nonprofit is a lot like learning to juggle—exciting as the skill is, it’s harder than it looks!
- You can also use industry benchmarks and specific examples to demonstrate responsible resource management.
- Then, add them together with your existing expenses, such as rent, bills, and salaries for your current staff members.
In short, for nonprofits, where every dollar has a purpose, efficient budgeting is highly important. A solid annual operating budget is at the core of an effective nonprofit financial management strategy. The process of building a nonprofit operating budget is fundamentally a planning process. Once adopted, the operating budget also becomes an essential financial management tool helpful in monitoring ongoing operations and organizational activities throughout the year.
How much of a nonprofit budget should be salaries? (
- Driver-based budgeting helps your nonprofit align its financial planning with operational activities, making adjusting to changes and improving decision-making easier.
- To calculate a revenue estimate, you will want to account for expected membership losses and gains, in addition to any rate increases.
- Likewise, factor in training and professional development to maintain team effectiveness.
- A budget for non-profit organizations often faces scrutiny over administrative expenses.
- ❤️ To successfully deliver these programs—without running out of resources—effective nonprofit budgeting is key.
The second meeting of the budget committee should focus on developing a draft of an expense budget and an income budget. The committee will need to determine the costs for the upcoming program goals, organizational goals and strategic goals. In determining the income budget, the https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ committee will need to project income based on the current fundraising and revenue activities.
This is also a crucial step of the process because you’ll be setting your nonprofit’s priorities and goals by determining which get funded and which don’t. Now, take some time to consider where your revenue is headed in the quarters or years ahead. Step back and assess your fundraising strategies and how potential changes could affect your expected contributions. Consider the impact of any grants or sponsorships, including both new ones you may win and current ones that may shrink or dry up. All operating budgets can be broadly split into two categories – revenue and expenses.
Finalize your budget, then review it regularly
Track your burn rate over time so that you can be sure you’re on the right track with your spending habits and not burning through cash too quickly. A negative answer indicates that your organization actually had a cash surplus during that period. Your nonprofit’s burn rate measures the monthly negative cash flows at your nonprofit. Often, burn rate is used by for-profit organizations just getting their start, to measure how much they’re burning through capital before they start seeing positive returns on the business. Your nonprofit operating margin ratio measures your organization’s ability to produce a potential financial surplus. Your nonprofit’s fundraising efficiency ratio shows the amount of money generated in comparison to the amount of money spent to raise it.
