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One benefit of structuring accounting this way is that you can control your chart of accounts – the list of income and expense categories. These two cost centers are important components of understanding true costs and are created in parallel with the programs. By organizing your budget and allocations this way, you’re also setting up the accounting system to track and report the three functional expense categories required on audits and the IRS Form 990. The key components of a nonprofit operating budget include revenue, expenses, and surplus planning. As far as revenues, these numbers are projected over the course of the year and come from sources such as grants, donations, membership fees, or event earnings. This information is very helpful when it comes to deciding on what types of fundraising events to hold and when and help center your expectations.

Step 5: Generate financial reports for transparency

• Nonprofit organizations need to budget enough for these expenses to ensure they can attract and retain qualified staff while remaining financially sustainable.
• As nonprofit revenue generation tends to be highly seasonal, this is an important metric to watch.
• Things like utility, bills, office supplies, and software subscriptions may seem minor on their own, but when combined they can create significant overhead costs that eat into your budget.
• From fluctuating income streams to increasing demand for programs, organizations must plan carefully to navigate financial complexities while maximizing impact.
• The budget should include realistic revenue projections based on historical data and current fundraising capacity.
• In 2023, it allocated 46% of its program budget ($58.2M) for emergency disaster response.
• Ed is a seasoned professional with over 12 years of experience in the Governance space, where he has collaborated with a diverse range of organizations.

Regular nonprofit budget reviews help identify trends, catch potential problems early, and adapt to changing circumstances. Modern accounting software can automate much of this monitoring process, saving time while improving accuracy. A budget for non-profit organizations needs structure without unnecessary complexity. Well-designed budget templates streamline financial management while ensuring you capture all essential information for decision-making and reporting. The first step is understanding true program costs across both hidden and obvious or necessary expenses.

• The calculations provided should not be construed as financial, legal or tax advice.
• It acts as a tool for tracking performance, aligning resources with priorities, and preparing for unexpected changes so your charity can always function even during the tough times.
• Speaking of your board of directors, it’s always good business to include them and other key people in your budgeting process.
• You can keep all the information in one sheet, or break it up into different pages.
• If the program operates with similar goals, measures, costs, and staff, we’d suggest that these be grouped as a single program.
• More and more nonprofits are finding that cloud-based tools solve these issues, often incorporating templates and automated pathways that take a lot of the stress out of budgeting.
• Creating an accurate budget for non-profit organizations depends on reliable forecasting methods and careful analysis of historical data.

Expenses

The Relay Visa Credit Card is issued by Thread Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc and may be used everywhere Visa cards are accepted. FDIC insurance is available for funds on deposit through Thread Bank, Member FDIC. With this approach, you determine the anticipated funding from each fundraising source by multiplying the expected amount with the corresponding probability percentage. Be sure to include all the payments that have gone toward your mission programs—including international payments.

💡 Review the budget regularly

Once you build your spreadsheet, create an operating budget PDF by converting your Excel file to share and collaborate with your team members. You can also learn about other ways to work with PDFs online to simplify teamwork. It’s easy to budget for costs that we foresee in the future, but what about the costs that we don’t plan for? Our advice is to set up a small contingency fund, no more than 10% of the budget, so those costs are accounted for. Nonprofit fundraising, donor management, marketing, operations, community and project management, social media, branding, graphic design, website production. Sage Business Cloud Accounting (formerly Sage One) is an online accounting software that gives you anytime, anywhere access to the most important small business essentials.

Nonprofit Budgeting: Step-by-Step Guide + Free Template

As mentioned at the outset, industry data shows that most nonprofits operate with dangerously low reserves, making this aspect of budgeting crucial. Each tip in this guide offers practical steps to strengthen your organization’s fiscal health while advancing your mission. Let’s look at some of the best practices for managing your organization’s budget effectively. 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.

Balancing Program Vs. Administrative Costs

Monitoring the budget also provides an opportunity for board directors to move money around to allocate https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ it efficiently as their cash flow changes. Nonprofits often rely on unpredictable funding streams such as donations, grants, and seasonal fundraising campaigns. This unpredictability can make it difficult to maintain a consistent income flow, leading to challenges in long-term planning and resource allocation. A program budget focuses on the specific financial requirements of a particular initiative or project. Nonprofits must create program budgets to showcase the direct impact of donations and grants. For example, a small nonprofit focused on youth development should regularly include volunteers in their budget planning meetings.

A nonprofit operating budget is a financial plan that outlines expected income and expenses over a set period, usually one year. This allows you to make accurate decisions about where to allocate your charity’s resources and track its financial performance over time. A budget helps you track your income and expenses, set financial goals, and make sure you’re using your resources in the most effective way possible, essential for successful nonprofit financial management. In this article, we will discuss what should be included in a nonprofit budget, how to create one, and provide a template and example budget to help guide you through the process. The most important financial planning tool at your organization’s disposal is its annual operating budget.

Step 3: Set department budgets

• Ensure your process includes appropriate approval steps for different types of changes while maintaining enough flexibility to respond quickly when needed.
• This method matches the percentage of fundraising expense charged to a program to the percentage of contributed income that program receives.
• A good budget for non-profit organizations balances program delivery with operational sustainability.
• FDIC insurance is available for funds on deposit through Thread Bank, Member FDIC.
• 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 everyday decision-making process.
• Below is a basic nonprofit operating budget example to show how these components typically come together.
• Making a budget is a whole lot easier when you’re not relying on guesswork.

It’s important to budget because it helps the organization manage its funds in a more effective way. Well-developed budgets help your nonprofit be financially transparent with its team, board, supporters, and community at large. 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. This means you’ll want to review your forecasted revenue and expenses against your budget on a regular basis. A forecast simply takes into account what you’ve made and spent to date, so you can adjust your projections accordingly. At least once a month, you should compare your forecast to your budget to ensure you’re on track to fulfill your mission.

Create a budget that allocates the organization’s resources in a way that supports its financial goals and objectives

A nonprofit budget is essentially a financial document which lays out how your nonprofit is planning on spending its money. It’s not so much about setting goals as it is making a plan for how you’ll meet your goals. Creating a budget for non-profit organizations requires balancing mission impact with financial sustainability.