By involving staff from various departments in the budgeting process, you get a more accurate and realistic picture of your financial needs. Preparing a real-world budget example for nonprofit organizations can help guide your approach and aid in the decision on whether to use these budgeting methods or another variant. By prioritizing mission-driven spending, you can clearly demonstrate to donors how their contributions directly support your organization’s https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ goals and impact.
Expected expenses
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). The process begins with the decision of which accounting services for nonprofit organizations activities at your organization comprise a program for the purpose of budgets and financial reports. Often, the definition of programs is evident in how your organization delivers services and functions internally. You may already have clearly defined programs, departments, or projects.
How a recession impacts nonprofits: What you need to know
Nonprofit organizations continually grapple with maintaining and improving their operations, especially in today’s volatile economy and a rapidly changing world. They must constantly strive for sustainability, and an essential part of that quest is proper budgeting. Instead of predicting revenue by individual grants or line items, the cutoff method looks at revenue as a whole. To use this method, simply calculate the projected fundraising revenue by multiplying the estimated total amount with the probability estimate. The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.
Understand Your Organization’s Goals
Once the initial budget is drafted, review it with stakeholders to identify potential gaps or misallocations. Make necessary adjustments to ensure the budget is both realistic and aligned with organizational priorities. For example, Doctors Without Borders allocates a significant portion of its budget (over 80%) to direct program expenses, ensuring most donations fund medical care in crisis zones. Pay special attention to periods when multiple large expenses coincide or when income traditionally slows.
Figure out your expenses
A popular methodology for this kind of planning is the S.M.A.R.T model, originally formulated for determining management goals. Clarify who will oversee different aspects of the budget as your project takes shape and outline the processes that will guide them. This budget allocates funds for unplanned or emerging opportunities, such as piloting a new program, investing in innovative technologies, or responding to unexpected needs. In this sense it is the primary source for making informed decisions, assessing funding needs, and communicating financial expectations to your board and stakeholders. This approach establishes trust and openness within the organization, as your employees understand how their input influences the overall financial plan.
No matter what happens with your nonprofit, you never stop needing a budget! Set up your budget so it’s as simple as filling in the blanks come next year. Do what you can to structure your budgets similarly over the years—this will make it easier to compare them side by side as you track your growth. Get an idea of who the granting bodies are, who they typically choose to support, and how much funding they have to offer.
- Test the current market situation and how it’s likely to influence your income.
- Don’t forget to track restricted and unrestricted funds, and how you are spending them.
- Operating budgets are easier to develop because you can estimate the amounts based on the day-to-day costs in your organizational budget from the prior year.
- Streamline budgeting processes and drive positive change with confidence.
- In fact, a survey conducted by Sage found that nonprofits rank budgeting and financial planning as one of their top five internal challenges.
Try BetterWorld’s robust suite of charity & nonprofit fundraising tools for FREE!
- It is good practice to monitor your budget every month and compare predicted numbers to the actual figures to look for differences and understand why they occurred.
- This will allow you to make adjustments as needed to ensure that the organization remains on track to meet its financial goals.
- The process begins with the decision of which activities at your organization comprise a program for the purpose of budgets and financial reports.
- You have to analyze all the financial reports and financial projections of the organization.
- Once finalized you can create the nonprofit budget template in excel to make it easy for you to update next year.
- This alignment helps ensure your spending directly supports your mission and strategic objectives.
Any accounting software can be used to maintain program-based financials, but they each have their own structure and terminology. One benefit of structuring accounting this way is that you can control your chart of accounts – the list of income and expense categories. These two cost centers are important components of understanding true costs and are created in parallel with the programs.
Additionally, including contingency funds for unexpected expenses can provide a safety net that allows organizations to navigate unforeseen challenges without derailing their initiatives. If you’re one of the many nonprofits operating on a tight budget, Givebutter has you covered. Givebutter is a free, modern, all-in-one fundraising platform built with donors in mind. Nonprofit organizations need physical space to conduct their work, including office space and employee parking. Even if you operate within a virtual working environment, you’ll likely have facilities expenses, such as work laptops or technology reimbursement for your team. Staff salaries are often the largest expense for any organization, whether a nonprofit or a small business.
How to Apply Your Nonprofit Budget
It should also include program revenue, demonstrating to potential funders that you have a clear plan for how to obtain funding for the specific project or program. This budget provides a breakdown of your annual projected revenue and expenses. The nonprofit operating budget categorizes revenue by different funding sources. It also divides operating expenses by program and other overhead costs.