Nonprofit Budgeting 101: 3 Essential Financial Planning Tips

Identify all expenses when creating a nonprofit budget in order to have an accurate financial picture of the organization. This will help prioritize spending and ensure that the largest expenses are accounted for. A good budget for non-profit organizations balances program delivery with operational sustainability.

Risks of not budgeting 😦

The overall budget includes the organization budget and all the program budgets. These budgets are living documents that can be updated periodically throughout the year. Often, a budget narrative must be completed, explaining the line-item budget for program, project, and specific grant funds. For example, instead of just listing “technology,” the narrative would explain what’s included in this category and why it is essential for the organization’s mission. For instance, three new laptops might be needed to replace three that can no longer be repaired and are crucial for staff work in the field. Your organization’s accountant or bookkeeper is instrumental in the budgeting process.

Step 1: Choosing the Right Nonprofit Budget Software

In fact, a survey conducted by Sage found that nonprofits rank budgeting and The Key Benefits of Accounting Services for Nonprofit Organizations financial planning as one of their top five internal challenges. The best way to ensure your budget is accurate and actionable is to have expert nonprofit financial professionals create it for you—like our team at Jitasa. We work exclusively with nonprofits, so we understand the unique complexities of your organization’s financial situation and can use our experience to develop tailored solutions for your needs. Ultimately, remember that your budget should categorize revenue by different funding sources and your expenses by program vs. overhead costs. Whether you’re providing housing, healthcare, or meals for your community, these expenses are crucial to achieving your nonprofit’s goals. One key reason many nonprofits struggle when it comes to accounting and finances is their failure to treat their organization as a business.

• Make sure your budget clearly outlines the key components needed to sustain operations, so all stakeholders understand how financial resources are being managed.
• This may involve making adjustments based on changes in the organization’s operations or financial situation.
• To clear up any confusion surrounding these resources, we’ll begin by answering some common questions about nonprofit budgets.
• A budget for non-profit organizations should function as a living document, not a set-and-forget plan.
• For example, some nonprofits list corporate grants with their other grant funding, while others consider them a type of corporate philanthropy.

How to Classify Expenses for Your Operating Budget

Nonprofit accounting software is built specifically for nonprofit budgeting. There are packages for nonprofits and government accounting, so you start with a system designed with your specific income and expense needs in mind. Some offer cloud or browser-based versions, which make it easy for remote employees and auditors to log into the system to perform the work. Many small business software packages seem like they would be a good step up, but these also have several drawbacks.

Expenses

A well-structured nonprofit budget ensures you have the financial resources to achieve your mission and sustain your impact. To ensure that your nonprofit is adequately funded, be sure to set a separate budget for each department within your overall financial plan. By allocating funds to specific programs and initiatives, you can track and manage expenses more effectively and ensure that resources are distributed appropriately. Nonprofit operating budgets typically include expected revenue as well as various expense categories that reflect the organization’s day-to-day activities and operational needs. Here are some common categories found in an annual budget for a nonprofit organization.

While you’ll create your nonprofit’s operating budget from scratch once a year, budgeting shouldn’t be a one-and-done event. Instead, your budget should guide your organization’s spending, fundraising, and reporting throughout the year, so check in with it frequently. The responsibility of creating your operating budget typically falls to your chief financial officer (CFO) or nonprofit controller. These professionals focus on your financial strategy and can use specialized tools to forecast your nonprofit’s cash flows for more effective resource allocation. For the purposes of this article, we’ll focus primarily on operating budgets because of their central role in nonprofit finance.

Step 5: Reviewing and Adjusting the Budget Within the Software

The first step in creating a nonprofit budget is to determine the organization’s financial goals https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and objectives. This will help to ensure that the budget is aligned with the organization’s overall strategy and that resources are being allocated in a way that supports the achievement of these goals. The term “capital budget” might make you think of capital campaigns—the largest fundraising initiatives nonprofits typically run. A nonprofit budget is a financial document that provides an overview of how the organization plans to spend its money.

Get started with a free nonprofit budget template

Set organizational goals before discussing budget numbers with their boards. A budget should be preceded by or accompanied by set organizational goals, which will help nonprofits understand the financial implications of their proposals. It is important for nonprofits to keep numbers in context, by referring back to goals endorsed by their boards. A nonprofit budget should be revisited and adjusted monthly to match actual performance. Changes to the budget should be made in order to stay on track with strategic goals.

• This alignment should be evident in both resource allocation and program funding decisions.
• For example, you may reach out to the new bus company you plan to use for your organization’s summer camp to estimate how much their services will cost.
• This unpredictability can make it difficult to maintain a consistent income flow, leading to challenges in long-term planning and resource allocation.
• Even if you have the perfect idea for a new project, you will still lose out on funding if your grant budget isn’t feasible and in line with the funder’s priorities.
• FDIC insurance is available for funds on deposit through Thread Bank, Member FDIC.

It streamlines the budgeting process, eliminates manual errors, and provides real-time financial insights—empowering your organization to make informed, strategic decisions. Use a budget when creating a nonprofit organization because it will help you plan for the future. The budget will act as a roadmap for your nonprofit, and will help you make decisions about how to allocate your resources. Additionally, the budget will help you track your progress and ensure that you are staying on track to meet your goals. Some accounting software systems allow for “other income” and “other expense” type accounts to be created. These are especially useful to segregate restricted activity from unrestricted, and capital expenses from “ordinary” expenses.