Creating a Nonprofit Operating Budget: 4 Best Practices

One of the crucial areas is fundraising and marketing expenses, which often make up a significant portion of nonprofit organization expenses. It is essential for nonprofits to direct a smart share of their available budget toward crafting effective campaigns to engage donors. Operating expenses for a accounting services for nonprofit organizations charity nonprofit include all the running costs required to sustain and expand services that directly support the mission.

• Then, you can use any leftover revenue to build your nonprofit’s reserve funds.
• However, if you find it difficult to keep track of your organization’s finances or if you feel that a historical budget is more reflective of your organization’s needs, you may want to stick with that method.
• Still, be careful — don’t allow yourself or your managers to think you have an extra 1% to spend on this event or that project.
• Understanding these figures is part of robust nonprofit financial management and nonprofit budget planning.
• If we look at their 2018 Form 990, they had $475,384,887 in grants to US nonprofits and 69,269 in grants to foreign nonprofits, for an operating budget of $12,927,177.
• However, these funds can be used for all travel related to your organization, whether it be attending conferences, presenting at events, or going out of town to promote a fundraising campaign.
• If your nonprofit can operate remotely, you may be able to save a considerable amount of money in this category.

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This category can help your organization cover unexpected repairs, unplanned staff meals, and other odds and ends. Having a miscellaneous budget line offers flexibility in your budget, helping you cover unforeseen costs as they arise. Overall, good budget planning requires knowledgeable board directors, a solid planning process and the tools to complete the job successfully. Your budget will be unique to your organization, but we’ll give you a broad idea of what to include under each section. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Regular budget reviews on a quarterly or yearly basis are essential to see if you’re hitting your expected benchmarks in both revenue and expenses.

• Consider segregating staff expenses as it usually comprises anywhere from 60% to 90% of an organization’s budget.
• The committee will need to determine the costs for the upcoming program goals, organizational goals and strategic goals.
• Efficient management of office supplies and utilities is another key operating expense.
• Use this estimate to set an overall goal of how much revenue you’ll need to bring in to cover all of your costs for the year.
• By optimizing budget management, nonprofits can allocate resources more efficiently, enhance transparency and accountability, and focus their efforts where they matter most.
• Each nonprofit organization has its mission, set of programs, corresponding financial framework, and, importantly, an operating budget.

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Now, think about how that promise can create new student opportunities while enhancing the entire local economy. 4 Ways to Decide On Your Annual Nonprofit Fundraising Events When you sit down with your team… If you make any assumptions (and you probably will) while creating your budget, be sure to make note of those assumptions. Perhaps some guesses will be little less educated than the other numbers on your budget, so adjust your numbers if needed.

What is the difference between an Operating Budget vs. a Capital Budget?

• One key to writing strong grant applications is being clear about how you’ll use the funding you’re requesting.
• Blackbaud Financial Edge NXT®️ delivers intuitive cloud fund accounting software designed specifically to meet the needs of nonprofits and tax-exempt organizations.
• Besides the different types of budgets, there are also fundamental approaches to strategic budgeting.
• However, nonprofit revenue often comes from other forms of support such as donations, grants, and different types of contributions.
• If you are still unsure of how to develop a budget, you can consult with a financial advisor or accountant.
• After the organization’s income and expenses have been estimated, the next step is to create a budget that allocates the organization’s resources in a way that supports its financial goals and objectives.

Propel Nonprofits developed this guide and spreadsheet template to help nonprofits implement program-based budgeting and financial reporting. This resource is an overview of the concepts and management decisions needed to calculate the true costs of activities for a nonprofit and also a how-to guide for the accompanying spreadsheet template. 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.

Capital budgets

However, you’ll also have variable expenses that change each year and may be more difficult to forecast. For instance, the costs of program materials and necessary transportation will likely shift over time. If your nonprofit relies heavily on grant funding, this budget outlines program costs to meet grantor specifications, including fund-matching requirements. When creating a nonprofit budget, you’ll typically include key financial details in a structured format. To keep everything organized, your budget categorizes funds into clear nonprofit budget categories, helping you allocate resources efficiently and maintain financial stability.

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• The first is to make sure that all of the expenses are covered by the income of the organization.
• A nonprofit project budget shows you what you have to gain without accidentally dipping into your operational expenses.
• In nonprofit budgets, around 35% of your expense budget should be used for administrative expenses (overhead) and the other 65% for program expenses.
• Unlike businesses that often follow the calendar year, nonprofits might choose different fiscal year periods to match grant deadlines, accommodate seasonal fundraising patterns, or sync with program calendars.
• Operating budgets reflects the organization’s planned financial activities for the year ahead, showing how much revenue it expects from which sources and how much it will spend on operations.
• Are you currently working on creating a budget for your nonprofit organization?
• Bookkeeping, donor management systems, and communication tools can represent 5-10% of the overall budget.

You should also create an initial timeline for the project so you can check in on your spending and fundraising as it progresses. For nonprofits like yours, financial planning is critical for effective fundraising and development. However, this doesn’t mean that your nonprofit’s overhead spending can go unchecked or should be prioritized over program expenditures.

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When your organization is not in line with the budget, you should look at “why,” and what factors you can control or change. This is where the budget becomes an effective management and operations tool for your organization. This allows for a better overview, more speedy addressing of any potential issues, more nimble management of the staff and volunteers, and a more informed https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ everyday decision-making process. 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.

Now that we’ve covered why you need a budget and what one looks like let’s unpack a few best practices for optimizing your budget as a nonprofit leader. You’ll learn from and improve on this process through time and effort, but hopefully, these tips save you some time and potentially costly mistakes. Besides the different types of budgets, there are also fundamental approaches to strategic budgeting. Likewise, factor in training and professional development to maintain team effectiveness.

Fund your mission and transform your impact by reading The Ultimate Guide to Nonprofit Fundraising. Whoever does the grant writing will inevitably need some form of the budget to accompany most applications. Many foundations and most government agencies will have detailed rules about what can and cannot be included in a proposal budget. As with involving the people doing the spending, get the people responsible for soliciting and stewarding donations together and identify the pledged gifts, the probable gifts, and the potential gifts. Additionally, think about organizing your budget document to group together expenses and expense areas that are the responsibility of each manager. Whether you select one of these budgets or use a combination, understanding how each is unique is the first step.