A nonprofit budget is a financial plan that estimates your organization's income and expenses over a specific period—usually a year. A well-prepared budget helps guide decision-making, tracks performance, and demonstrates financial transparency to stakeholders. Here’s how to create, manage, and get your budget approved to ensure your nonprofit’s success.
Step 1: Set Financial Goals and Forecast Income
Before diving into specific numbers, outline your nonprofit's goals for the year. Identify the programs, events, and initiatives you’ll need funding for, and forecast your income sources. Common income sources include:
Donations and Grants: Expected revenue from individuals, corporations, and foundations.
Program Service Revenue: Income from program fees or services.
Fundraising Events: Anticipated revenue from planned events.
Other Sources: Miscellaneous revenue like interest or rental income.
Be conservative with income estimates to avoid shortfalls and ensure realistic expectations.
Step 2: Estimate Expenses by Category
List all the expenses required to operate your nonprofit and accomplish your goals. Typical expense categories include:
Program Expenses: Direct costs associated with your programs.
Administrative/Overhead Expenses: Costs like rent, utilities, and office supplies.
Fundraising Expenses: Costs for events, campaigns, and other fundraising efforts.
Marketing and Outreach: Advertising and promotional activities.
Break down expenses as granularly as possible to identify any areas for potential savings.
Step 3: Calculate Your Net Income or Loss
Subtract your estimated expenses from your projected income. This will show whether you anticipate a surplus (positive net income) or a deficit (negative net income). If you’re projecting a deficit, consider adjusting spending, seeking additional income, or implementing cost-saving measures.
Step 4: Review with Key Stakeholders and Refine
Involve relevant team members in reviewing the budget to ensure accuracy and get input on program priorities and cost estimates. For instance:
Program Directors can verify specific program costs.
Fundraising Team can provide insights on expected fundraising revenue.
This collaboration fosters a shared understanding of financial goals and resource allocation.
Step 5: Present to the Board for Approval
Once the budget draft is finalized, present it to your Board of Directors. A board-approved budget is crucial because:
Legal Responsibility: The board is legally responsible for overseeing the organization’s financial health.
Accountability and Transparency: Approval from the board demonstrates commitment to transparency and careful financial planning.
Decision-Making Tool: A board-approved budget becomes a guiding document for spending decisions throughout the year.
The board may have questions, so be prepared to explain the reasoning behind income forecasts and expense allocations.
Step 6: Monitor and Adjust Throughout the Year
Creating the budget is only the first step. Throughout the year, compare actual income and expenses to the budgeted amounts and adjust as needed. Many nonprofits review their budgets monthly or quarterly, allowing them to respond to unanticipated changes.
Additional Resources
Creating a budget can feel overwhelming, especially if it’s your first time. To help simplify the process, Instant Nonprofit is offering a free nonprofit budget template that you can download here. This template will guide you through each of the steps above and help you customize the budget to fit your organization’s unique needs.