Financial chart and data with calculator and pen on wooden desk
No matter if you’re just starting out or have been in the nonprofit world for years, a budget is an indispensable tool. It helps you plan expenses, raise funds and start projects ahead of time. A budget also gives you insight into where money goes each month so that decisions can be made with precision.
Creating and managing a budget for your organization can be straightforward, provided you adhere to some fundamental guidelines.
1. Determine Your Goals
Establishing a budget for a non-profit organization is an integral part of running an effective nonprofit. Not only does it help you track expenses and revenues, but it also gives donors insight into where their money goes.
The initial step in creating a nonprofit budget is to define your objectives. While there are various methods of setting objectives, the most efficient one involves following the SMART goal-setting methodology: Specific, Measurable, Achievable, Relevant and Time-Bound.
Next, decide how you will measure your progress against those objectives. You can do this by setting up monthly or quarterly checks, or using data reporting software for email metrics.
Once you have your SMART goals in mind, it’s time to assemble a team to assist in reaching them. This group should include senior staff and board members experienced in nonprofit management; their institutional knowledge can guide your organization toward success.
2. Create a List of Expenses
No matter the size of your nonprofit organization, it’s critical to understand all expenses. Doing this allows for better budgeting and avoid future overspending.
Expenses refer to anything you pay to run your nonprofit, such as salaries, rent, utilities and office supplies. Track these costs carefully each month so that your finances remain accurate over time.
Your organization’s expenses can be divided into subcategories for easier decision-making when planning future projects or fundraising drives.
Staff costs are the major expense for most nonprofit organizations, typically accounting for 18-52% of a nonprofit’s overall budget.
Capacity building investments are another crucial cost to include in your nonprofit’s budget. Doing so shows that your organization values human capital, which may be essential for securing competitive funding sources.
Once you have your list of expenses, create a budget and monitor it throughout the year. Doing this helps your team see how closely budgeted numbers match up with actual expenditures and revenue.
3. Create a List of Revenues
A nonprofit budget is a comprehensive list of revenue and expenses your nonprofit expects to accrue and spend during the fiscal year. It helps you stay on track with goals, assess where finances stand financially, and take necessary actions for successful achievement.
Expenses refer to all expenses your nonprofit organization must pay for operational needs, such as salaries and rent. They also include any costs incurred while running fundraising or marketing campaigns.
Maintaining a list of your nonprofit’s expenses can help you identify opportunities for cost reduction and increased revenue. Begin with an overall estimate of yearly expenditures, then revisit it throughout the year to confirm you remain on track.
4. Create a Budget
Nonprofit budgeting can be a time-consuming and intricate process. That is why it’s essential to take your time and ensure you do it correctly the first time around.
A nonprofit budget is a tool that enables your organization to plan expenses, fundraising, hiring and projects for the year. It also gives board members insight into your organization’s finances and how it’s using available funds.
When creating a budget for your nonprofit organization, there are various options to choose from. Some of the most common are an annual budget, program budget and capital budget.
