10 Steps to Creating an Effective Nonprofit Budget

Aligning your revenue and expenses during the budget process helps you avoid cash flow issues throughout the year. This may include donations, grants, fundraising events, government funding, and even small affiliate programs through your local grocery store. Again, it’s important to review how these revenue streams have performed in the past and understand how they might change this year.

Monitor and Manage Cash Flow

But, there’s a place in the nonprofit universe for a surplus in the budgets too. They can mean the difference between surviving a rough patch and being forced to close down. Having extra cash can help stabilize your nonprofit and absorb an unexpected delay in receiving funds, a shortfall in revenue for a special event, or unbudgeted expenses. You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow. Before starting with what is, essentially, a future-oriented process – clarify the present context. Evaluate current financial health by analyzing the current year-end forecast, current budget variances, and balance sheet strength.

How to Create a Nonprofit Budget: A Step-by-Step Guide Including Excel Templates

This accountability—which is at the heart of all nonprofit accounting activities—is essential for instilling trust in all of these individuals and being able to fund your mission for years to come. In reality, the meaning of “nonprofit” is simply that your organization has to reinvest all of its funding into its mission rather than paying investors or shareholders. If you’ve created a budget for your household before, you probably averaged your expenses, calculated your income, and determined how much you could save for the future. Nonprofit budgeting follows a similar process, except you’re projecting revenue and expenses for your entire organization.

Board of Director Training Materials

Earned Income – includes income where you provide a service or product in exchange for money. Contributed Income  – includes income that is donated or granted to your organization. Here are some questions to start with (a full list of questions to ask yourself can be found in my budgeting masterclass, which you can purchase HERE). Maybe you only serve youth but you have a nutrition program, and a separate college prep program.

• List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses).
• This will help ensure that your estimates are accurate and that you’re on track to reach your financial goals.
• Put simply, revenue is the money you bring in from normal business operations.
• A nonprofit operating budget reflects the organization’s planned financial activities, showing how much it will spend on operations.
• If you’ve created a budget for your household before, you probably averaged your expenses, calculated your income, and determined how much you could save for the future.
• If you have a special project in mind, create a separate budget for it.

Nonprofit Storytelling Guide: Tips & Examples

The benefit is that you now have better information for discussions about priorities and how resources are used. This process is most valuable when a nonprofit can understand both the full cost of delivering programs and the amount and type of income that relates to those programs. Leaders can use this information to analyze the financial model of programs individually and as part of the whole. In this step you will identify Accounting Services for Nonprofits: Benefits and How to Choose the Right Provider which income items are connected to specific program areas and what income can be directed at the organization’s discretion.

Without a solid financial plan, the journey toward fulfilling your mission can quickly veer off course, jeopardizing the impact you want to create. 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. At the same time, balancing mission-driven initiatives with responsible financial management https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ is key to ensuring your nonprofit’s long-term sustainability. It indicates which items are subject to specific stipulations—otherwise known as restricted funds—which typically make up the bulk of revenue for nonprofit organizations. By the end, you’ll have the knowledge and tools to build a reliable financial plan with confidence that balances financial constraints with your nonprofit’s ability to carry out its mission.

• This allows you to keep a close eye on your strategic plan for the year and where how your nonprofit is actually performing.
• Relay is an online banking and money management platform that can help you (and your team members) avoid overspending, get clear on income, and simplify financial management.
• Beyond basic income and expense tracking, build in space for context and analysis.
• Once you have your program activities defined and a list of needs for the program, it’s time to get quotes and estimates for each line item you plan to include in your nonprofit’s first budget.
• With top-down budgeting, you can ensure all departments and programs in your organization are working towards the same goal.
• For example, some nonprofits list corporate grants with their other grant funding, while others consider them a type of corporate philanthropy.