It may also be budgeted for outreach efforts, site visits, or other programs that require travel. When including travel in your nonprofit operating budget, think about plane tickets, lodgings, car rentals, Uber fees, and/or driving mileage. A good budget for non-profit organizations balances program delivery with operational sustainability. Rather than focusing on specific dollar amounts, aim to maintain program spending at 65-75% of your budget, with adequate allocation for administrative costs (15-20%) and fundraising (10-15%). Your exact ratios should align with your organization’s size, mission, and growth stage. A budget for non-profit organizations needs structure without unnecessary complexity.
How to create a nonprofit budget in 5 steps
As you go along, don’t be afraid to make changes and adjustments to your budget to better fit the year’s actual numbers. By making continuous adjustments, you can keep your nonprofit on track to successfully complete another year. But it’s essential that you be realistic, especially when it comes to estimating the upcoming year’s revenue. Nonprofits allocate a significant portion of their budgets to salaries, typically ranging between 35% to 60%, depending on the organization’s size, scope, and operational needs.
Historical Data Analysis
Fixed costs remain constant, such as rent and salaries, while variable costs fluctuate based on activities, like event expenses and marketing campaigns. Remember that effective financial management looks different for every organization. Start with the tips that address your most pressing needs, then gradually incorporate others as your systems mature. Consider staff costs, professional services, technology investments, insurance, and office expenses. Direct program costs include staff salaries and benefits, materials and supplies, dedicated facilities, transportation, marketing, participant materials, and essential equipment. A budget for non-profit organizations must prioritize reserve building through intentional planning and disciplined execution.
Allocate staff salaries, benefits, and taxes
Currencycloud stops safeguarding your funds when the money has been paid out of your account to your beneficiary’s account. For example, if you have a strong fundraising track record and anticipate an 80% chance of achieving the predicted $100,000 revenue goal, the forecasted amount would be $80,000. “Our nonprofit will increase overall contributions by 20% by the end of 2024 through partnerships with local businesses and corporate sponsors.” Unlock the secrets to transforming your business from a job into a profitable, cash-generating machine. While there will inevitably be some assumptions in your budget, try to work with real numbers as much as possible. Use last year’s numbers as a starting place and include any quotes from vendors or partners.
How to Create a Budget for Your Nonprofit Organization with Nonprofit Accounting Software
The third is to make sure that the expenses are affordable and realistic. 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. There is no one-size-fits-all answer to this question, as the steps involved in creating a nonprofit budget will vary depending on the specific organization and its financial situation. List program expenses (staff salary, insurance, supplies, fundraising fees, etc.) to see your total nonprofit program expenses vs. your actual revenue. Before you can develop an accurate budget, you’ll need to gain a clear understanding of the nonprofit’s financial situation. This will require examining your past budgets, current assets and liabilities, cash flow, and fundraising performance.
- When creating a multi-year budget, account for inflation on each line item and over each year.
- For example, a small nonprofit focused on youth development should regularly include volunteers in their budget planning meetings.
- But each budget will include direct costs, those expenses related to the project or program you’re funding, as well as indirect costs that go along with running an organization.
- Variable costs are directly tied to events, increasing or decreasing and changing with each situation.
- Identify the key areas that support your organization’s objectives, such as program delivery, fundraising, staff development, or community outreach.
Step 3: Involve the right people
Within each category, list specific costs such as rent, staff salaries, supplies, and transportation. Decide how much to allocate to each area, always keeping your nonprofit’s goals in mind. Work with this realistic baseline upon which you can create 5 Main Benefits of Accounting Services for Nonprofit Organizations an accurate budget for your nonprofit organization. A well-crafted budget offers a benchmark for evaluating your organization’s financial performance over a specific period.
How Much Does it Cost to Start a Nonprofit?
AAFCPAs recommends a 3-5% surplus operating budget each year, and four to six months of expenses in your operating reserves. 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. When budgeting, nonprofits sometimes make the mistake of forgetting to account for in-kind donations or volunteer hours. Your board members should have a direct role in developing cash flow projections, agreeing on the assumptions to use, and reviewing the projections carefully. Keep in mind the difference between fixed and variable costs when you are tracking expenses.
Learn More About Creating, Monitoring and Revising a Nonprofit Budget
Keep your expenses sorted into categories (fixed and variable), and maintain a budget for capital expenditures that is separate from your operational budget. Rachel Grusin, Project Coordinator for the Legal Aid Society of San Diego, further explains that nonprofits can’t expect to slide in a line item without a clear explanation for why it belongs. He’s quick to remind his clients that a realistic budget is a winning budget. It shows that your “and organization has thoroughly considered the financial aspects of the project.” Elizabeth Morgan Burrows, JD, principal of Burrows Consulting, stresses that you should have a detailed budget that lists each of your expected expenditures for the entirety of your project. That way, the funder has a clear understanding that your https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ nonprofit has the means and manpower to complete the proposed project.
- To help you through the budgeting process we’ll walk you through every line item you might need to include and show you how to create your own nonprofit organization budget template.
- Reliable accounting software makes it easier to generate these insights from your financial data.
- This is a standard accounting report that shows how much was budgeted year to date compared to how much has actually been spent.
- Successful nonprofits prioritize competitive compensation to attract and retain talented staff while maintaining transparent communication with donors about staffing costs.
- Your board of directors will see your budget at some point, but it’s important to know how involved they’ll be!
- Plus, if you know exactly where all of your funding comes from, it’s easier to respond to fluctuations in fundraising throughout the year.
- This alignment helps avoid wasting money on activities that won’t advance your mission.
- The nonprofit operating budget categorizes revenue by different funding sources.
- Including insurance in a nonprofit operating budget helps protect your organization from unexpected financial risks.
In this post, I’m going to share how to approach budgeting the right way, and give you an easy strategy to create your first budget. Nonprofit budgeting formalizes the process of allocating resources to different areas of your organization. It provides a concrete plan that you can use to evaluate your progress and align your team. For this reason, it’s important for nonprofit organizations to be flexible and to revise the budget upon the occurrence of significant unplanned events.