Nonprofit Budgeting | What Is A Nonprofit Budget

Nonprofit Budget

Starting a nonprofit organization from the ground up requires that you consider the details of your finances. Thus, creating a nonprofit budget is essential to keep your organization afloat and thriving. Put simply, a nonprofit budget is a detailed list of all your expenses and income sources that ensure the cost of operating the organization will not go above your cash flow.

Many nonprofit owners, however, are at a loss on how and where to start. In this post, we will be elaborating on the importance of budgeting for nonprofits. We will also be discussing strategies for creating a solid nonprofit budgeting plan. Our accounting experts at Numerico can guide you step by step by providing a custom nonprofit budget template that fits your needs.

WHY ARE BUDGETS IMPORTANT FOR NONPROFITS?

Like any other organization, nonprofits need the right amount of cash flow in order to support their cause. It is not as simple as “money in,” “money out.” Although nonprofits are spared the burden of taxes, there are other factors one must consider when creating a specific nonprofit operating budget.

Here are some of the reasons why budgets for nonprofits are important:

  • Determining income that directly helps the cause you support: The heart of any nonprofit is to provide support to social, health, environmental, and other meaningful causes. Having a nonprofit budget gives you a fuller picture of how much money is going to the people, services, and other things you support.
  • Recalibrating: Creating a nonprofit budget template also allows you to improve how you spend your money within the organization. Is there a way to lower operating costs and give more to the causes you support? Is there a way to have other income streams? Such insights allow you to improve your organization, further putting you closer to your nonprofit vision.

Accountability: Supporters of your nonprofit may also desire transparency regarding how you spend your capital. A detailed report will help ease doubts and improve supporters’ confidence that your nonprofit is truly making a difference.

HOW TO MAKE A BUDGET FOR A NONPROFIT ORGANIZATION

How exactly do you create a nonprofit budget for your organization? Below, you will discover nonprofit budget best practices you can apply moving forward.

  • Plan ahead: If you are in the initial stages of launching your nonprofit, planning your budget ahead is key. This process can take several weeks or months, depending on the scale of your nonprofit. Take time to consider how you will get your income and be thorough about all the potential spending you will incur. If you have key stakeholders in your nonprofit, invite them to participate in nonprofit budgeting plans. This is crucial to close any lingering financial loopholes leading up to your launch.
  • Perform a SWOT analysis: Never create your budget based on assumptions. To prevent this, you can perform a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of your nonprofit with a focus on your financial resources. Be specific and honest about the status quo of your income and expenses to create a realistic budget.

Details on income and expenses: Speaking of income and expenses, a solid nonprofit budgeting practice entails organized details around those very aspects. For example, you can sort income based on sources, such as private donors, affiliate companies, or events, thus providing insight into your highest income sources. Being detailed about expenses allows you to minimize or even eliminate unnecessary costs.

Nonprofit Budgeting With Pen, Glasses and Balance Sheet

NONPROFIT BUDGET TEMPLATE

As you create a budget structure for your nonprofit, here are the most important elements to consider:

  • Expected Revenue: Expert accountants can help you create a forecast of your revenue within a certain timeline. Generally, there are two ways to do this: the discount method and the cutoff method. But don’t expect a perfect forecast, as there is always some level of unpredictability in business.
  • Expenses: There are two kinds of expenses in a nonprofit: overhead costs and the finances you use to spend on your programs. Nonprofits should ideally spend more on their programs than on overhead costs.

Total Revenue and Expenses: Every nonprofit budget template should include a computation of the total revenue and expenses incurred within the given timeline. This will help you identify your nonprofit budget surplus for covering future costs.

NUMERICO | YOUR NONPROFIT BUDGET ACCOUNTING EXPERTS | LIVONIA, MI

Creating financial statements for your nonprofit requires proper forecasting, attention to detail, and meeting with key persons to produce accurate results. The nonprofit budget you create will be the basis of your income source and spending limit for the months or years ahead. With such a structure in place, you are sure to meet the financial goals needed for your nonprofit to succeed.

Nonprofit budgeting does not have to occupy your whole time and effort. At Numerico, we handle nonprofit budget accounting so you can focus on decisions that move your organization forward. Get started with us today.

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