The modern economy and the ever-evolving world have affected how we conduct our daily operations. Nonprofit organizations are not an exception. As a result, they have no option other than to find sure-fire ways of managing and enhancing their operations. All nonprofit organizations aim to achieve sustainability and stability to roll out their programs and functions effectively. For them to accomplish this, they must ensure effective budgeting.
Nonprofit organizations play a vital role in society—often geared toward improving the lives and livelihoods of people. However, to succeed in this quest for a better society, they must get their budgeting right. Unfortunately, these organizations often operate on limited resources and inadequate and unpredictable finances. Even worse, nonprofits solely depend on particular sources to fund their operations.
However, having a suitable nonprofit budget template can help nonprofit organizations to formulate an adequate budget regardless of their inadequate resources. A nonprofit organization should also consider its goals and objectives when creating a budget.
A nonprofit operating budget is a financial tool that breaks down a nonprofit organization’s expenditures. It also highlights the nonprofit’s operating expenses and overhead costs. The operating budget caters to all the nonprofit’s operations over 12 months. Building a nonprofit operating budget requires adequate planning. Remember that it helps to oversee and track all the organization’s operations and programs for the whole year. As a result, it becomes effortless for organizations to compare their current performance against their expectations and plans.
Importance of Having It
Budgeting acts as a guide for any organization that wants to execute its plans and achieve its goals. This sound financial tool best describes the nonprofit’s plans and indicates its annual expectations. One clear takeaway is that budgeting is critical in tracking your goals which may help organizations intervene early to avoid the worst.
Besides, budgeting allows organizations to get their priorities right, ensuring that they give more weight to those more critical to their goals. So without a budget, nonprofits may find it pretty challenging to run their activities successfully.
Here is the importance of nonprofit budgeting:
- Helps to focus on goals: Nonprofits must develop their plans before seeking funding from various sources. If they overlook strategic budgeting, their nonprofits may fail to meet their goals and expectations. A budget is also essential because it keeps nonprofits’ expenses within the correct limits, enables them to keep costs in tandem with their revenues, and helps them to put their limited resources into profitable use.
- Make your board members happy: If there is one thing that board members dislike, it has to be discussions about finances. So spare them by ensuring that you have an excellent, easy-to-understand nonprofit budget. Nonprofits with effective budgeting often hold productive meetings because they aren’t confused about the existing plans and programs.
- Keep your donors informed: The world is changing, and so are today’s donors—they want to know how nonprofits spend their money. The moment they detect any wastage and mismanagement, they may not support your course again. It’s, therefore, necessary to have an updated budget that donors can access to understand how you’re using the money.
Nonprofit v/s Capital Budget
A nonprofit’s operating budget represents the organization’s plans and upcoming year’s financial activities. It also highlights their expected income and sources of revenue and expenditure. It’s an essential financial tool for organizations that want to accomplish their mission. Therefore, it should align with the organization’s strategic plan to help achieve its goals and objectives.
On the other hand, the capital budget caters to projects that directly affect the organization’s planned operations. These projects may include construction and other mega projects whose funding may stretch into another financial year.
What to Include in a Nonprofit Budget Template?
Nonprofit organizations use various ways to create their budgeting to run their operations effectively and efficiently. Fortunately, there are different budgeting templates available online. You can also create your nonprofit budget template. However, those who cannot access these templates can also use a simple spreadsheet to help them budget.
A nonprofit budget template provides two sections for your revenues and expenses depending on your organization’s needs and goals. It gives you a broader idea of what you want to include in both areas.
Creating revenue is a critical aspect of any nonprofit organization that wants to withstand the test of time. Some of the organization’s operations depend on funding from their income over time. It also provides an effective way to balance your earnings and expenditure. Therefore, when including these details in your nonprofit budget template, you must be aware of your revenue based on your sources.
Any organization that wants to achieve stability should outline its sources of revenue as follows:
- Monthly donations
- Revenue and sources
- General donations
- Miscellaneous revenue
- Events revenue
- Grants revenue
- Corporate revenue
Nonprofit organizations have various operations to run over a fiscal year. When including expenses in your nonprofit budget template, you must consider all your planned operations and how much you need to accomplish your goals. That means you have to spend money to finance projects, run your activities and pay your staff.
A nonprofit template should be able to capture these essential things quickly and without causing any confusion during board meetings. Remember that nonprofits have to use the money to achieve their mission—that’s why they should have a proper plan for their spending and activities. An effective nonprofit budget template should include the organization’s expenses, including:
- Staff expenses such as salaries, benefits, taxes, etc
- Facilities expenses include rent, mortgages, repairs, utilities, and more
- Program dissemination expenses like materials, supplies, equipment, activities, and events
- Administrative costs including software, printing, internet, phone, materials
- Marketing expenses
- Board education and travel expenses
- Volunteer education expenses
Your organization should adopt an effective nonprofit budget template to help you highlight revenues and expenses easily to ensure continual stability.
Note: Considerations for evaluating a nonprofit budget
Revenues and expenses are the two most critical aspects of any nonprofit budget. Many subcategories fall under either of these two components. The most important thing is to be careful when assessing your revenue sources and expenses. Consider the current state of the economy and unforeseen financial situations of your contributors. Also, ensure to be thoughtful about how you spend the money.
Nonprofit Budget Templates
Nonprofit budgeting can be tricky because it involves many aspects requiring utmost attention. But not when you have an effective nonprofit budget template at your disposal. This website offers you free nonprofit budget templates to guide your budgeting journey. You can access these templates here.
Our main goal is to make your nonprofit operations a success. You can also access a premium nonprofit budget template through an online system.
Effective Practices for a Nonprofit Budget
Remember that an ever-evolving world requires nonprofits to think of the best ways of creating a realistic nonprofit budget template. For nonprofits to develop adequate funding for all their operations and activities, they must follow effective practices, including:
Start early and design a process
Nonprofit budgeting is such a daunting task for beginners and experienced persons alike. It’s necessary to put more time into it to allow you to find the relevant data and discuss it with your board before you include it in your nonprofit budget template. The budgeting process should begin within a couple of months to avoid confusion when presenting it to the board members.
Make the context clear
Rushing into budgeting is a failure.Instead, nonprofits should thoroughly assess their current financial and resource maintenance situations to identify strengths and weaknesses. These can then inform your goals, objectives, values, and priorities before putting them on a nonprofit budget template.
Here’s what you need to do:
- Identify opportunities, threats, and emerging trends: These factors can influence your organization’s external and internal operations. Then create clear goals, organizational values, and priorities you want the budget to represent.
- Consider the past few years’ financial trends for all your programs: You should assess whether all the programs are covering their direct costs or contributing to overhead costs.
- Mention the primary purpose: Highlight the purpose of creating the nonbudget template and choose a structure that effectively supports it.
Avoid including assumptions
Nonprofit budgeting should be based on reality instead of assumptions. Consider last year’s statistics and create a list of possible expenses and revenues. However, all your estimates should be realistic—work with real numbers. If it’s your first-time budgeting, you should list sensible expenses to help you know how to generate funds.
Involve other staff as well
Nonprofit budgeting requires input from various organization departments. Involving all the team ensures that you do not forget anything. In addition, it’s an opportunity to invite diverse opinions and considerations.
Write the right amount of detail
Depending on your current financial situation, you should find a suitable nonprofit budget template that accurately reflects your finances. The budget should be precise to help enhance sound decision-making.
All accounting systems have charts that categorize the sources of revenue and expenses. Similarly, your budget should have these categories to help you create financial reports that donors and other partners want to see.
Get your income right
It’s not easy to predict your future revenue. And this makes it challenging to develop a budget. The best way to get it right is by listing your income by source.
Considering your organization’s multi-year fundraising trends is essential when projecting the fundraising income. Based on your relationships with donors, you’re likely to know what gifts to remove or include in your fundraising income projections while making a nonprofit budget template. Also, remember to monitor your restricted and unrestricted funds and how you spend them. For instance, if your organization uses donations as program expenses, they should not be used for other things other than supporting programs.
It will be wise to communicate with your foundation and corporate donors to establish the likelihood of sending gifts before making projections.
Figure out your expenses
Unlike revenues, it’s easy to find an estimate of a nonprofit organization’s expenses. To make it easier, various separate categories of costs make budgeting easier for you. As a result, the nonprofit budget template should be able to reflect considerable costs quickly. Here’s what you need to do:
- Always list all high-level expenses such as staff, occupancy, contractors, and support costs.
- Separate staff expenses from other expenses because they make up 60% to 90% of an organization’s budget.
- Segregate the program from other expenses. Donors and other partners always want to make sense of how much money is there to run your operations vs. executing the functions.
- Consider variable and fixed costs when you’re monitoring your expenses. Fixed costs are always constant and include rent, insurance, loan repayments, etc. On the other hand, variable costs are related to events and often change based on the existing situation.
Prioritize cash flow
Cash flow is a critical aspect of any nonprofit. It’s the money that flows in and out of your organization. If you have a sound cash flow reflection, it will be easier to balance your revenue and expenses.
Importantly, you should understand how cash flows in your organization and go a step further to put up solutions when there are cash flow problems. An organization whose expenses fall within the first months of the year and revenues towards the end of the year may find it challenging to pay off their costs, especially if they don’t have a huge cash surplus. That’s why it’s necessary to balance your organization’s cash flows, expenses, and revenues.
Make operational and capital budgets separately
Nonprofits often have projects in mind. Sometimes these projects may eat up your operating expenses, which may stall some of your organization’s operations. It’s therefore wise to separate the operational budget from your capital budget.
Include non-monetary contributions
Non-monetary contributions should be included in your nonprofit budget template. But some nonprofits deliberately or genuinely forget to incorporate in-kind donations and volunteer hours in their budget. They do not know that these in-kind contributions (Office space, utilities, staff hours, etc.) influence their organization’s output by a significant margin.
Don’t operate on a shoestring budget
Tight budgets can be detrimental to a nonprofit’s sustainability—for instance, closing down. So instead, nonprofit organizations should strive to work on a surplus budget that can support future innovations and staff investment.
Monitor the budget throughout the year
Adequate budgets are based on sound estimates and real numbers. It helps track the budget throughout the year to know where your organization stands financially. However, after intense proposals, discussions, and approvals, people forget the budget they took so long to prepare, resulting in problems.
The essence of a budget is to help you compare your budget projections and actual monthly numbers. You’ll then be able to spot any differences and determine their cause. In case of any deviations from the budget, your organization will know how to address any existing issues, enabling you to manage and run your operations effectively.
Benefits of Budgeting for Nonprofits
Compelling budgeting helps to account for all the organization’s operations, revenues, expenses, and other activities. Donors like monitoring how nonprofits are spending their money before making contributions. In addition, a budget enhances decision-making and planning while demonstrating how cash moves in and out of the organization.
A reasonable budget allows board directors to raise their views regarding its operations and decision-making. Moreover, budgeting helps organizations to minimize expenses while working on maximizing revenue.
Nonprofits will find it difficult to operate in a dynamic and challenging world without effective budgeting. That means they may not be able to serve their purposes and benefit the people in society. The elements of budgeting mentioned in this article are the backbone of nonprofit budgeting. Nonprofit organizations have needs, demands, goals, and more that they meet.
While financial leadership can set you up for success, a reasonable budget can help you thrive during difficult times. It’s just a matter of striking the right balance of all the necessary components in a budget. Note that it’s essential to consider your financial situation to ensure a reasonable budget. Also, it’s required to look for a perfect nonprofit budget template that can accommodate your expenses and revenues.