For example, if you have it in your plan to buy new computers for your staff or to build a new website, create a separate budget for those projects. 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. Variable costs are directly tied to events, increasing or decreasing and changing with each situation. Since you have some control over these expenses, this is where a lot of decision-making will happen. Consider segregating staff expenses as it usually comprises anywhere from 60% to 90% of an organization’s budget.
Step 2: Think about operating expenses and overhead
A capital budget covers one-time expenses that will take years to fully fund, like major construction projects. Seeing these things side by side gives you the tools to decide how you can best use your resources. Your nonprofit budget is meant to be a flexible document 5 Main Benefits of Accounting Services for Nonprofit Organizations that changes as your circumstances do.
Steps to Create a Sustainable Nonprofit Operating Budget
There’s a lot of advice you’ll hear through the grape vine regrading grant budgets. To help pick out the signal from the noise, we interviewed several seasoned grant professionals. 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. There are several types of grant budgets you might use in a grant proposal. Even if you have the perfect idea for a new project, you will still lose out on funding if your grant budget isn’t feasible and in line with the funder’s priorities. You can keep all the information in one excel sheet, or break it up into different pages.
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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. Understanding nonprofit budgeting is only one part of the equation; accurate accounting practices are equally essential. According to the National Council of Nonprofits, about 8% of 501(c)(3) organizations manage budgets of over $1 million per year. However, most nonprofits are community-based and work with smaller budgets of less than $500,000 annually. Taking the above into consideration, let’s explore a brief example of a nonprofit operating margin calculation. The operating margin will demonstrate the efficiency of the organization’s day-to-day operations.
Resources
- While there will inevitably be some assumptions in your budget, try to work with real numbers as much as possible.
- While program expenses are the core of your organization’s mission, fundraising and administrative costs also need to be properly accounted for to keep the lights on.
- This can be a more time-consuming and difficult process, but it can also lead to a more accurate and transparent budget.
- If any of the sources don’t apply to you, you can just delete them—likewise, you can add anything that’s missing.
- For smaller nonprofits, free or low-cost options like Wave or Mint can provide basic tracking and reporting features.
- While many funders and donors focus on program expenses, sustainable nonprofit organizations need appropriate investment in core operations.
It will cover all the expenses required to keep the organization running, from salaries and utilities to technology and insurance. Most likely, your organization’s executive director will lead the budgeting process, but a nonprofit accountant can also provide support. One key to writing strong grant applications is being clear about how you’ll use the funding you’re requesting.
Distribute the Available Funds
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- Our free courses provide in-depth knowledge on key accounting principles, budgeting strategies, and reporting requirements to help your organization thrive.
- Involve your Board, your staff, and your volunteers in creating the budget and reviewing your revenue and expenses.
- It also helps to use a standard format for budgets as you can compare them and track growth and changes over the years.
- So, whether you’re training service monkeys or supporting the exceptionally tall, you need an operating budget that reflects your organization’s unique needs.
- Most importantly, nonprofit budgets should be constructed around the organization’s programs and activities, which will help them stay focused on their goals.
- List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses).
Our template offers a comprehensive financial overview, covering both revenue and expenses in detail. It allows you to track various income sources, categorize expenses, and compare current figures with previous years. With a centralized platform for creating and managing budgeting, every organization member has clear and direct access to your spending plan. It leads to more effective financial management and decision-making processes. Nonprofits rely on a combination of funding sources such as donations, grants, fundraising events, and more. An effective nonprofit budget prioritizes important things that push your goals forward.
- You can also check out customizable templates to fit the unique needs of your nonprofit.
- This category may include cell phones, internet, electricity, water, and other utilities for daily operations.
- Gather historical financial data, project future revenue sources, and estimate program costs.
- As I hope you now see, a lot goes into determining a nonprofit operating budget.
- Jitasa’s nonprofit budgeting guide defines this resource as ‘a planning document used to predict expenses and allocate resources for your organization.
- Note that some revenue sources bridge multiple categories and can be organized in different ways.
Accounting Software
These templates are specially designed to cater to the unique needs of nonprofits, allowing for detailed income and expenditure projections. https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ Capterra’s Nonprofit Grant Budget Template is designed to aid nonprofits in planning and managing their grant funding effectively. This template allows for precise allocation and tracking of grant funds, ensuring that each dollar is accounted for and spent according to grantor guidelines. It is especially useful for organizations looking to streamline their grant reporting process and enhance transparency with funders. Most financial experts recommend nonprofits maintain cash reserves equal to 3-6 months of operating expenses.
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However, your optimal reserve level depends on factors like funding predictability, program commitments, and growth plans. Start by building toward three months of reserves, then adjust based on your organization’s specific needs and risk factors. Creating an operating budget is more than just a financial exercise, it’s a strategic document that gives your organization the information it needs to achieve its mission with confidence and stability.