An operating budget is a budget that is used to cover basic day-to-day costs like materials, supplies, rent, utilities, etc. It’s not designed to cover large expenses such as capital projects, i.e buying a building. Like any small business, your nonprofit needs enough cash flow to cover all its operating expenses—paying staff salaries, keeping the lights on, and covering upfront costs for fundraising events. But if you’ve never created a budget or thoroughly reviewed your finances, it can feel overwhelming. To keep your nonprofit on track, we’ll walk you through each line item you might need to include in your nonprofit budget template and show you how to create one tailored to your needs.

Pay Attention to All Your Budgets (eg. Marketing vs. Operating vs. Project budgets)

• If you are looking for a more transparent and accountable budget, you may want to consider using a zero-based budget.
• This can be a more time-consuming and difficult process, but it can also lead to a more accurate and transparent budget.
• FDIC insurance is available for funds on deposit through Thread Bank, Member FDIC.
• This report was designed to be a resource for all nonprofits, so we made downloadable versions of many of the charts and images.

Discover how to get the most out of your nonprofit’s business plan by reading Free Nonprofit Business Plan Templates. For example, based on this review you can determine which projects need to be updated and which areas/departments need to develop new ideas for your organization to reach its goals and move forward with its mission. List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses).

Understanding Net Assets in Nonprofit Organizations: A Guide for Stakeholders

If there’s a significant discrepancy, the organization can then investigate the causes and make necessary adjustments, ensuring financial stability and sustainability. Estimate your organization’s income for the upcoming fiscal year, including grants, donations, membership fees, and any other revenue sources. Be conservative in your projections to avoid overestimating income and facing potential shortfalls later in the year. Budgeting is a crucial part of keeping your organization on track and solvent. This financial management is the way to improve the overall financial health of your nonprofit—even if it isn’t easy, it’s worth heeding to keep your organization alive and thriving.

• The operating budget must be centered around the primary goals and objectives of the organization.
• Use this information to inform future budgeting efforts and improve your organization’s financial management practices.
• With 130+ social impact organizations in the SIF portfolio, the organization is helping to improve lives and build stronger, healthier communities all across Eastern Massachusetts.
• Additionally, when forecasting the coming year’s revenue, it’s best to be cautious in your estimates so you’ll be more likely to have the funding you need to achieve your goals, no matter what external circumstances occur.
• Let’s look at some of the best practices for managing your organization’s budget effectively.

Political campaign activities

A standard rule of thumb is to include a 3-5% bonus and benefits/tax costs at a rate of 25-30% of each employee’s salary. Minimizing line items allows you to be flexible in allocating funds throughout the year. While this might be challenging (and often messy!) process, it is a great way to bring in and unite various perspectives, creating a budget that reflects the priorities of everyone in your organization. Before you look at program expenses, set a meeting with executive directors to get clear on what you need to focus on so you can budget accordingly. Make sure you set aside enough time to gather information and discuss various elements of the budget. It demonstrates your ability to responsibly manage financial resources and provides a roadmap for activities in the upcoming year.

Also, creating an effective program-based budget requires clear definitions, consistent cost allocation methods, and regular impact assessment. Involve stakeholders in the process, maintain flexible adjustment processes, and establish strong documentation standards. This rigorous approach ensures each dollar actively contributes to your nonprofit’s mission and helps eliminate legacy costs that no longer serve your current goals. 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.

You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow. One of the most important tools for a nonprofit is a cash flow projection. This is the budget of revenues received and expenses paid, broken down monthly to ensure accounting services for nonprofit organizations cash will be there when needed.