Nonprofit Budgeting: Step-by-Step Guide + Free Template

Capital and operating budgets both support the organization’s mission by planning and managing resources. For example, capital investments typically take more than one fiscal year to pay off, which must be conveyed when budgeting. A well-structured nonprofit budget aligns expected financial resources with your organization’s mission and goals, ensuring financial sustainability while maximizing project impact.

Features of an Effective Nonprofit Budget

As a result, they need to evaluate their budget and make cuts while continuing to grow. 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 https://www.bookstime.com/articles/accounting-consulting 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.

Identify Key Stakeholders

These elements work together to create a comprehensive financial framework that supports both day-to-day operations and long-term strategic goals. Above all, a budget for non-profit organizations must remain flexible enough to adapt to changing circumstances while maintaining fiscal responsibility. A budget for non-profit organizations must balance multiple priorities while maintaining clarity and usability. Several key features distinguish effective nonprofit budgets from basic financial plans. Below is an example of a nonprofit budget to give you an idea of what you need to do. This budget includes expected income, expenses, and funding for a small nonprofit organization.

Identify program specific and general income categories

By monitoring cash flow closely, your team can anticipate and plan for periods of lower cash availability. Regularly update budget estimates based on real-time information and feedback from staff involved in program delivery. A popular methodology for this kind of planning is the S.M.A.R.T model, originally formulated for determining management goals. In this method, your nonprofit senior management first develops a high-level budget for the organization. QuickBooks Online is a small business accounting software and app that allows you to manage your business anywhere, anytime. A budget for non-profit organizations should function as a living document, not a set-and-forget plan.

Board management software solutions assist in budgeting for nonprofits

Articulate the main purpose of your budget and think about a structure that will best support that purpose. For example, if the main purpose of your budget is compliance – there might be some elements that you need to include in your budget that you otherwise wouldn’t. For example, if you are seeking a $10,000 grant with a 75% chance of being awarded, adjusting the revenue forecast to $7,500 accurately reflects the projected income.

This becomes particularly important when what are retained earnings balancing mission-driven goals with fiscal responsibility, whether you’re running a local charity or a growing foundation. Without an annual nonprofit budget, you’re essentially operating in the dark. A nonprofit operating budget is a financial plan that outlines expected income and expenses over a set period, usually one year.

What is the difference between an Operating Budget vs. a Capital Budget?

• Direct program costs include staff salaries and benefits, materials and supplies, dedicated facilities, transportation, marketing, participant materials, and essential equipment.
• This will give you an idea of how much money the organization brings in from donations, grants, and other sources of revenue.
• By organizing your budget and allocations this way, you’re also setting up the accounting system to track and report the three functional expense categories required on audits and the IRS Form 990.
• Talk to an accountant who can help you interpret these ratios and set key performance indicators to improve them for the future.
• For example, if you are seeking a $10,000 grant with a 75% chance of being awarded, adjusting the revenue forecast to $7,500 accurately reflects the projected income.

Therefore, it can be helpful to establish these first and figure out what’s left. While the annual budget is your broad-scope budget, you’ll need a separate budget for capital expenditures such as land acquisition and construction projects that take more than one year to complete. Your capital budget will inform your operating budget to ensure you have enough cash for both your short-term and long-term goals. When your organization is planning a campaign or project, you probably start by taking some time to envision what you want the results to look like and set actionable goals to get there. Budgeting is no different, especially because the entire document is based on predictions.

In the next section, we will explore revenue strategies that complement effective expense management, enabling nonprofits to thrive. In this A-Z guide, you’ll learn the fundamentals of nonprofit budgeting, including key features of what makes for effective budgets. We’ll explore why budgeting is crucial for nonprofits and share 9 proven tips that successful organizations use to maintain financial stability while advancing their mission. A well-structured nonprofit budget serves as your organization’s financial planning roadmap, guiding decisions about Accounting for Churches program investments, staffing needs, and growth opportunities.

Estimate your nonprofit’s income 💸

If you explored the calculators on this page, you probably have a list of ratios now in front of you regarding your nonprofit’s financial health. However, it can be challenging to understand exactly what you should do with all of these numbers. If your organization is resting right around zero for this ratio, it means you may not how to calculate operating budget nonprofit have the financial capacity to expand at this moment. However, the higher the ratio, the more your organization can invest back into itself by expanding programming, hiring additional staff, or funding a capacity campaign.