Without a budget, running a nonprofit is like driving blindfolded – you might struggle to manage funds and meet goals, ultimately impacting your mission. A nonprofit operating budget helps you plan ahead and use your resources to serve your community. This financial roadmap is just one crucial aspect of running a nonprofit successfully.
- Once you have added all of your anticipated revenue and expenses, you can calculate your projected operating profit and projected operating margin.
- For example, if donations are lower than expected, you might reduce discretionary spending or launch a targeted fundraising campaign.
- Based on this statement, CLICK’s board of directors will have to determine specific objectives to achieve this mission.
- This alignment should be evident in both resource allocation and program funding decisions.
- Once you’ve created your nonprofit budget, you’ll be on track to secure financial stability and sustainability for your organization.
Creating a Nonprofit Operating Budget: 4 Best Practices
- Never include a revenue projection that simply fills the gap to cover expenses; that will set the organization up for a budget deficit if the organization fails to hit the “plugged” revenue targets.
- Your annual unrestricted surplus should be sufficient to meet debt obligations, fund depreciation, and add to operating reserves.
- Making a budget is a whole lot easier when you’re not relying on guesswork.
- Board directors should be careful to consider the state of the economy and any unusual or unforeseen financial situations of their contributors.
- It will cover all the expenses required to keep the organization running, from salaries and utilities to technology and insurance.
This work is primarily done by the executive director, using empirical data about expenses and revenue, as well as any new expenditures and funding sources projected for the upcoming year. When estimating fundraising income, don’t forget to look at multi-year trends in your organization’s fundraising. Then, estimate likely gift increases per donor, based on the quality of the relationships. Don’t forget to track restricted and unrestricted funds, and how you are spending them. For example, if you tell your donors that all donations will go directly to program expenses, those are then restricted funds that you need to exclusively use to support programs. Once you’ve created your operating budget, you’ll submit it to the board for approval.
What If I Need Help with Nonprofit Budgeting?
In a zero-budget approach, nonprofits plan their budgets as if they were brand new or from scratch. They start planning with no history to add to the process and the budget is https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ based on future projections rather than historical data. Salaries make a significant part of a nonprofit’s program expenses as no organization can run without staff. The Better Business Bureau’s Charity Accountability Standards mention that nonprofits should spend around 65% of their operating budget on program expenses.
Effective Expense Management
Consider potential changes in your funding sources, program demands, or economic conditions. For each scenario, you should outline specific action plans to maintain financial stability. This proactive strategy enables quick, informed decisions when faced with financial fluctuations, ensuring your nonprofit remains resilient and mission-focused throughout the year. This guide and accompanying spreadsheet template break down the process of understanding true program costs, either through budgeting or financial reports, into several stages. Historic data is the most reliable information you can use for creating a budget. Just be sure that you’re using timely and accurate historic numbers when forecasting future expenses and revenue.
Expected expenses
Direct program costs include staff salaries and benefits, materials and supplies, dedicated facilities, transportation, marketing, participant materials, and essential equipment. This balanced approach to cost management strengthens your organization’s resilience while ensuring resources remain available for mission-critical work. For example, if your year-end campaign consistently brings in 40% of annual donations, accounting services for nonprofit organizations factor this timing into your financial planning.
