One of the best ways to address this is to prioritize your spending based on impact. Allocate more funds to the programs that directly support your mission and scale back on nonessential costs where ever possible. Using financial tools like the expense tracking software that Paybee provides its clients can help identify areas where money can be saved. For example, an animal rescue organization could negotiate bulk discounts for pet food or veterinary supplies to stretch its budget further.

thoughts on “5 Best Practices for Building a Nonprofit Annual Operating Budget (with Template!)”

Once you’ve created your operating budget, you’ll submit it to the board for approval. You will then use the operating budget as a financial management tool to ensure that your revenue and expenses are on track. Good budgeting for nonprofit organizations is critically important to success, as nonprofits typically have stretched resources, fluctuating funding, and/or heavy reliance on specific funding sources. For example, Network for Good is a nonprofit that provides nonprofit fundraising software, often receives donations on behalf of their partner nonprofits, and then passes the donations on to these partners. If we look at their 2018 Form 990, they had $475,384,887 in grants to US nonprofits and 69,269 in grants to foreign nonprofits, for an operating budget of $12,927,177.

Nonprofit operating budgets

Your exact ratios should align with your organization’s size, mission, and growth stage. 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. Even profitable programs can face challenges when The Key Benefits of Accounting Services for Nonprofit Organizations expected revenue arrives months after expenses occur or when donation patterns don’t align with regular operational costs. Mastering cash flow management helps prevent these timing mismatches from disrupting your mission-critical work.

Identify Expenses

The goal is to avoid the “nonprofit starvation cycle” of never having enough to invest resources in infrastructure, or having an overhead that is “too lean” to effectively run the organization. You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow. It’s also very important to the success of your programs that your revenue and expenses estimates are realistic. While there is generally space for hope and dreams in the nonprofit world, when it comes to budgeting – there isn’t.

• Step back and assess your fundraising strategies and how potential changes could affect your expected contributions.
• It should include some typical sources of revenue and expenses, which saves you time on listing everything out.
• Make necessary adjustments to ensure the budget is both realistic and aligned with organizational priorities.
• This article offers actionable insights and tools recommended by experienced grant writers to help boost your submission volume and improve your funding success.
• In contrast, the budget-to-surplus practice is about looking to the future to ensure your organization’s long-term sustainability.
• To help pick out the signal from the noise, we interviewed several seasoned grant professionals.

Step 3: Submit the Proposed Budget to the Board

Creating a nonprofit budget can feel overwhelming, but breaking it into manageable steps can simplify the process and ensure accuracy. Full Suite of Accounting, Payroll and Fund Raising and Fund Accounting applications for nonprofit https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ organizations. Investing in some nonprofit budget software will make keeping up with your budget a breeze.

• This not only helps create a more accurate and comprehensive budget but also ensures buy-in across the board.
• Use this simple resource to help balance your books and reduce your financial worry.
• The expense side of your operating budget will typically be divided between program costs—i.e., any expenditures that directly further your mission—and overhead.
• At this point, the budget committee should have a draft budget ready and do a thorough review of it.
• Including insurance in a nonprofit operating budget helps protect your organization from unexpected financial risks.

• By now, you’ve created a solid foundation for a super-effective nonprofit budget.
• For more information on generating other forms of support, check out Keela’s comprehensive fundraising guide.
• A common mistake is prioritizing program spending without setting aside emergency funds for unexpected challenges.
• Donors expect to know how their donations are helping the organization so boards need to consider how they can communicate this information to donors.
• Some nonprofits also have earned revenue and an analogous process will work for that portion of the revenue side.

In this A-Z guide, you’ll learn the fundamentals of nonprofit budgeting, including key features of what makes for effective budgets. We’ll explore why budgeting is crucial for nonprofits and share 9 proven tips that successful organizations use to maintain financial stability while advancing their mission. Note the months and the sources that bring in more revenue and those that offer less funding.

Every one of these activities is vital to your organization’s impact—and every one needs its own budget to ensure funds are used effectively to accomplish it. Nonprofit organizations face an ever-evolving landscape, where goals, priorities, and external factors can shift. To maintain financial health and ensure that resources are effectively allocated, nonprofits must employ strategies to monitor and adjust their operating budgets.

• The responsibilites of a nonprofit board include a fiduciary duty to oversee and approve the budget.
• If the most you’ve raised is $50,000, don’t put $500,000 down for revenue unless you know EXACTLY where it’s coming from.
• The goal of creating a nonprofit budget is to ensure that the organization has enough money to cover its expenses and reach its financial goals.
• It shows that your „and organization has thoroughly considered the financial aspects of the project.”
• Reviewing the organization’s past financial performance is another important step in creating a nonprofit budget.

Set Costs with Suppliers and Partners

The first is to make sure that all of the expenses are covered by the income of the organization. The second is to make sure that the expenses are in line with the goals of the organization. For example, if the organization is planning to launch a new program, then the budget may need to include funds for start-up costs such as marketing and program development. The budget should be maintained using cash flow forecasting, forecasting revenue and expense, and analyzing expenditures’ effectiveness. The budget should also include an analysis of all short-term, medium-term, and long-term financial forecasts. Board management software is a valuable tool in assisting nonprofits in budget planning.