Basics Of Nonprofit Budgeting: A Beginners Guide

This includes money from grants, donations, sponsorships, and other programs. Knowing how much money your nonprofit is making can help you better allocate resources. Many nonprofit leaders assume they can’t afford the type of back-office that’s required for effective nonprofit budgeting and comparing budgets vs. actuals.

Understand Your Cash Flow

You may have heard that nonprofits should spend a certain amount on overhead expenses. Known as the overhead myth, the principle that nonprofits must stick to a certain percentage (typically estimated between 15 and 35%) is false. With a proper budget, your nonprofit can stay focused and organized while remaining accountable to the stakeholders who make your work possible. Instead of predicting revenue by individual grants or line items, the cutoff method looks at revenue as a whole. To use this method, simply calculate the projected fundraising revenue by multiplying the estimated total amount with the probability estimate. For example, if you are seeking a $10,000 grant with a 75% chance of being awarded, adjusting the revenue forecast to $7,500 accurately reflects the projected income.

Calculate your nonprofit’s expenses 📊

Use collaborative tools and software to facilitate communication and document sharing among team members. Every organization will have a unique budgeting process based on its current structure and financial status. With a more inclusive and thoughtful budgeting process, you can build a shared understanding among staff, the board, and community members, which will strengthen the connection between budget and mission. We recognize that many nonprofits don’t have the luxury of implementing an ideal budget because of limited funding options. This is especially true if nonprofits have smaller budgets, are led by and serving Black, Indigenous, and other communities of color, have lots of reimbursement contracts, and/or are located in rural areas. Often, limited funding is due to power dynamics in the nonprofit funding sector that are beyond nonprofit leaders’ control, such as lack of access to funders and inadequate resources to cover costs.

• For example, if the main purpose of your budget is compliance – there might be some elements that you need to include in your budget that you otherwise wouldn’t.
• As you go along, don’t be afraid to make changes and adjustments to your budget to better fit the year’s actual numbers.
• Understand what options you have within your fund accounting system to automate your budget and financial reporting processes.
• It’s wise to adjust your budget based on actuals and create an updated projection for the remainder of the year.
• This inclusion boosts transparency, enhances accountability, and promotes a deeper understanding of financial strategies among all stakeholders.
• List all the revenue streams for the upcoming year, including donations, grants, memberships, fundraising income, and other sources.

Strategizing Your Spend: A Guide to Budgeting for Nonprofit Consulting Services

This is because it doesn’t require you to really comb through and evaluate each program and expense individually. Compile your income projections, expense estimates, and resource allocations https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ into a draft budget. Use a spreadsheet or budgeting software to organize the information, making it easier to review and adjust as needed. Fixed costs are expenses that remain constant, such as rent or salaries, while variable costs fluctuate based on activity levels or other factors, such as utilities or event expenses.

• Analyzing previous budget performance provides valuable insights into trends and patterns that can inform future projections.
• Ultimately, remember that your budget should categorize revenue by different funding sources and your expenses by program vs. overhead costs.
• Managing a budget for a nonprofit organization is much like planning a household budget, except that there are generally more sources of income and more categories of expenses.
• Presenting the budget to the board requires thoroughly understanding its elements to address any questions.
• To estimate income, “Feeding Our City” looks at each of their income sources.

Basics of Nonprofit Budgeting: A Beginners Guide

YPTC is not a CPA firm, and provides no attestation services with regard to financial reports. If you’re managing a multiple six- or seven-figure budget, asking a financial expert for help is always a good idea. Our platform is specially designed to be intuitive and easy to use, helping you create, manage, and analyze budgets. It also allows for collaboration with your team and provides real-time reporting capabilities. You should subtract your expenses from your income to understand your net income.