A nonprofit operating budget is a financial document that provides an overview of how a nonprofit organization is planning to spend its money. It also breaks down the nonprofit’s operating expenses and overall costs. The nonprofit operating budget is essentially the financial reflection of what the nonprofit business expects to achieve over a 12-month period (annual budget). 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.
- Even organizations working with a shoestring budget must think carefully about costs.
- Understanding the true, full cost of delivering various programs and services in the community is a critical piece of the management puzzle.
- List program expenses (staff salary, insurance, supplies, fundraising fees, etc.) to see your total nonprofit program expenses vs. your actual revenue.
- Remember that effective financial management looks different for every organization.
- It will cover all the expenses required to keep the organization running, from salaries and utilities to technology and insurance.
- Budgeting for nonprofit organizations involves unique considerations, especially for trade associations operating under section 501(c)(6) of the Internal Revenue Code.
Cash Flow Primer Video
Creating a budget for a nonprofit organization like a 501(c)(6) involves careful planning and collaboration. To get your budget started, you want to collaborate with key staff to align the budget with the organization’s strategic goals. After completing the full program-based budget or financial analysis 5 Main Benefits of Accounting Services for Nonprofit Organizations it’s worthwhile to take a fresh look for both accuracy and a gut check. Do the formulas, amounts, and financial results match what you expected, or do they surprise you?
How to Calculate a Nonprofit Operating Budget
- The most common basis for allocating fundraising costs is based on percentage of total support received by each program.
- This gives you a bit of wiggle room if your cost estimates came in low or your revenue estimates turned out to be too optimistic.
- Teach team members how to interpret this information and take advantage of the software’s reporting features to simplify their analysis.
- The second meeting of the budget committee should focus on developing a draft of an expense budget and an income budget.
- Additionally, for-profit budgets often have expenses closely linked to revenue, like the cost of goods sold or employee wages.
A budget is a planning tool that reflects an organization’s programs, mission, and strategic plan. A nonprofit budget is more than just a collection of numbers; it’s a strategic blueprint that reflects an organization’s priorities, goals, and mission https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ at a foundational level. It outlines expected income and planned expenses for a specific period, typically a fiscal year, ensuring that resources are allocated efficiently and transparently.
- Similarly, the cost of fundraising is valuable to programs and the final step is to allocate fundraising expenses to each.
- If you’re managing a multiple six- or seven-figure budget, asking a financial expert for help is always a good idea.
- At least once a month, you should compare your forecast to your budget to ensure you’re on track to fulfill your mission.
- They can be one time, recurring, or anything in between—if it costs you, then it’s an expense!
- When creating your nonprofit operating budget, use the past as a benchmark for your expectations and goals in the coming year.
Identify All of your Expenses (that you can!)
Zero-based budgeting, on the other hand, starts from scratch each year, with all expenses being justified anew. This can be a more time-consuming and difficult process, but it can also lead to a more accurate and transparent budget. A cash flow budget is focused on covering big expenses like capital projects or payroll work.
While nonprofits and small businesses differ in many ways, managing your nonprofit’s finances similarly to how you’d run a business is essential for success. Still, creating a solid nonprofit budget is an essential foundation for being a financially healthy organization and having the basis you need to go about advancing your mission. Next, your nonprofit’s revenues and expenses should be forecast for the year based on the information that you gathered in the previous step. Once you’ve established a new nonprofit, one of your first considerations will likely be fundraising. After all, the only way you can fulfill your organization’s mission is if you can bring in the funding you need to support your programs and initiatives. As you track your finances, make the necessary adjustments to your nonprofit budget.
Budgeting allows boards to put limits on certain expenses as necessary and work to increase income sources early when it looks like there may be a shortfall. Monitoring the budget also provides an opportunity for board directors to move money around to allocate it efficiently as their cash flow changes. Good budgeting demonstrates accountability and transparency, which are important issues that donors and grant-makers look for before offering funds. Good budgets assure donors that the nonprofit is actively overseeing the budget process. Revenue may not stream in as expected and large, unexpected expenses can creep up.
Keep your expenses sorted into categories (fixed and variable), and maintain a budget for capital expenditures that is separate from your operational budget. Use known values to budget for other related estimates, such as personnel costs. Create a detailed personnel tab by listing each employee’s base salary for the year and calculating bonuses, benefits and taxes as a percentage of the known salary. A standard rule of thumb is to include a 3-5% bonus and benefits/tax costs at a rate of 25-30% of each employee’s salary. When creating a multi-year budget, account for inflation on each line item and over each year.