In this blog post, we will walk you through the steps to create a robust budget for your nonprofit organization and explore how nonprofit accounting software can be a valuable ally in this endeavor. Generally speaking, there are two ways to organize expenses in your nonprofit’s operating budget. The natural expense method categorizes costs according to the nature of payments made, while the functional expense method categorizes expenditures based on how they further your organization’s mission.
How to Create a Budget Template
Budget-to-actual performance should be reviewed monthly by both management and the Board. Budget-to-actual variances could be a sign of personnel issues, funding problems or poor financial management. It could also be a sign that significant changes in the operating environment have occurred and that the nonprofit budget should be revised.
Allocate indirect (administrative) costs
- They start planning with no history to add to the process and the budget is based on future projections rather than historical data.
- A key component of financial sustainability is the commitment of board and staff to financial management that includes timely review of financial reports and advance planning.
- It publishes detailed annual reports to share its budget allocation and impact with stakeholders.
- Regular performance reviews and cost-benefit analyses help optimize resource allocation and ensure each program advances your mission effectively.
- Focusing on shorter time periods helps break down your monthly activities and account for special events or one-time costs.
- You must have one to guide your path and to show funders your operations described in numbers.
Organize your contributed income by source, e.g., individuals, foundations, corporations, net of special events, and any other income sources that might be relevant to your nonprofit. You’d then use those numbers in your budget (e.g. if you allocated a 50% chance to a $10,000 grant – you’d use $5,000 in your budget). Every accounting system has a chart of accounts which classifies the sources of revenue and the types of expenses you incur. Use the same categories in your budget to easily generate financial reports to funders and others. To get a true picture of the cost to operate your nonprofit, include in-kind donations (materials, services, etc.) and volunteer labor in your budget. Remember, transparency and accountability are key when it comes to managing finances in a nonprofit setting.
Categories
Here are some tips and tools to help ease the pain of building your next budget. For more skill development, coaching and tools, check out StriveTogether’s upcoming courses. A thoughtful budget is not restricted to being an operational tool, it’s a statement of accountability, a roadmap for growth, and a catalyst for change. Learn from the variances and incorporate the lessons learned into the next budget. Without a budget, you can find yourself in deep water, fast, with more money going out than coming in.
Bring it all together for review
Let’s look at some of the best practices for managing your organization’s budget effectively. Many nonprofits strategically select their fiscal year to align with their operational rhythm. You need to know how much is coming in, where it’s going, and whether you’re staying on track. This is more than just numbers—it’s a guide to keeping your mission on point.
Accounting & Finance
Trust me, it will make your life easier and it shows you’re serious about your nonprofit and its future. If you want your new nonprofit to grow successfully and fulfill its mission, a budget is not optional. Overall, good budget planning requires knowledgeable board directors, a solid planning process and the https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ tools to complete the job successfully. We strive to provide nonprofit leaders with useful resources, tips, and tools that you can use at your organization. We’d love to hear your feedback about this content and anything else you would like to see more of from NFF.
While you should consider everything, be as realistic as you can in setting revenue projections. While it might be less than ideal to underspend when your organization has the capacity to spend more, it’s far worse to overestimate fundraising or grants and end up scrambling to cover costs. Start with your known fixed costs like rent, utilities, salaries and insurance. Create a list of “nice to haves” you can add into your budget if you have projected funds left over after your necessary expenses are covered. Nonprofits often rely on unpredictable funding streams such as donations, grants, and seasonal fundraising campaigns.
Organizations should determine Top Benefits of Accounting Services for Nonprofit Organizations You Should Know how much cash is readily available to cover unexpected expenses or revenue shortfalls. A healthy reserve fund can provide a buffer during tough times, allowing nonprofits to maintain operations without resorting to drastic measures such as layoffs or program cuts. A good nonprofit budget provides a framework for financial accountability. It demonstrates the organization’s financial health and responsible use of funds, which is essential for maintaining the trust of the board, donors, and other stakeholders.