Budget for Non-Profit Organizations: Guide for 2025 SBHQ

It is important to monitor the budget throughout the year in order to keep a close https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ eye on your nonprofit’s strategic plan and performance. Comparing budget vs. actual results allows you to stay on top of variances and make changes as needed. Monitoring the budget is important in order to keep track of their strategic plan and how they are performing. Additionally, monitoring the budget allows for adjustments to be made so that the nonprofit can stay on track with their goals. Use a timeline when creating a nonprofit budget so that goals are realistic and time-based.

Develop Income Projections

We look forward to partnering with you on your journey to financial excellence. FastFund Accounting offers a robust, user-friendly platform that caters specifically to the unique needs of nonprofits. 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.

How can I convince my board to invest in budgeting software?

• Once adopted, the operating budget also becomes an essential financial management tool helpful in monitoring ongoing operations and organizational activities throughout the year.
• Creating budgets for your nonprofit programs in addition to an overall budget for your organization can seem like overwhelming tasks.
• When you take the time to organize a clear and consistent financial plan that aligns with your timely goals, there are clear benefits.
• Once you develop your budget, you will have a clear plan for moving forward, shaped by concrete data and strategies.
• Have some questions about budgeting and financial management for nonprofit organizations?

Keep operational and capital expenses separate when creating a nonprofit budget in order to maintain financial health. By doing so, it allows for better tracking of where money is being spent and more accurate budgeting in the future. A nonprofit’s budget sets the bar for the organization’s financial performance.

Key Elements of an Efficient Budget Approval Process

Lastly, it’s rare that nonprofits have unlimited funds, so they need to be realistic and thoughtful about setting restrictions on what they can spend money on. Budgets may be requested by parties involved in financial transactions with the nonprofits, such as banks, or by donors/grantmakers considering a gift to the nonprofit. In a survivable nonprofit, you’ll break even and spend about the amount of revenue you generate. In a financially healthy nonprofit, you’ll have a budget surplus (spend less than you make) to reinvest in your nonprofit or put away in an emergency fund. In a financially struggling nonprofit, you’ll spend more than you earn and have a budget deficit.

• Implementing cash flow projections is a crucial aspect of nonprofit budgeting.
• If you’re creating a budget for the first time, create as reasonable a list as possible of expenses.
• This will allow you to make adjustments as needed to ensure that the organization remains on track to meet its financial goals.
• Monitoring the budget is important in order to keep track of their strategic plan and how they are performing.
• Our free courses provide in-depth knowledge on key accounting principles, budgeting strategies, and reporting requirements to help your organization thrive.

Using historical information is the best starting point to begin your budgeting process. Take the information from prior year actuals and expand upon it, using the takeaways gathered from key employees. By combining historical data with real time assumptions you are in a great place to pull together a first draft of your budget. Fund accounting software allows organizations to create budgets from scratch or use existing templates, import budgets from Microsoft Excel, and use scenarios for effective comparison and analysis.

• For example, if you tell your donors that all donations will go directly to program expenses, those are then restricted funds that you need to exclusively use to support programs.
• Involve your Board, your staff, and your volunteers in creating the budget and reviewing your revenue and expenses.
• Use known values to budget for other related estimates, such as personnel costs.
• Reframing overhead costs as stepping stones to making an impact can help donors understand why not all their funds go directly to programming.

Best Practices for Taking on Debt

Create a list of “nice to haves” you can add into your budget if you have projected funds left over after your necessary expenses are covered. Your budget might include some of these items as well as others not on this list. The goal is to prioritize investments that can make the biggest difference while striving to address others as more resources become available. It’s no secret that nonprofits often operate in unpredictable environments, so your budget should be flexible enough to adapt to growth opportunities and unexpected shortages. Things like utility, bills, office supplies, and software subscriptions may seem minor on their own, but when combined they can create significant overhead costs that eat into your budget. To prepare for anomalies without disrupting operations, you should regularly review and adjust the contingency fund based on your financial situation and any emerging risks.

Nonprofits can manage their budgets effectively by regularly monitoring their financial performance, comparing actual income and expenses to the budget, and making adjustments as needed. They may also involve board members and staff in the budgeting process and ensure clear communication about financial goals and constraints. Due to their funding structure, nonprofits need to be more careful than most businesses with their investments. Most nonprofit organizations fall under the 501(c)(3) IRS designation, which means most of their funding comes from outside sources.

A common mistake is prioritizing program spending without setting aside emergency funds for unexpected challenges. In both cases, the standard advice is to start by reviewing past performance to isolate patterns, such as cyclical trends. For example, your programs may have multiple goals, such as improving the quality of aid while also reaching more beneficiaries. An assessment of your readiness should therefore also consider the external factors and trends shaping the current context, as well as past performance of your programs. Your budget is a recipe for financial health over the forthcoming year, but don’t ignore the health status you expect when closing the current year. Clarify who will oversee different aspects of the budget as your project takes shape and outline the processes that will guide them.

How to Create a Budget for a Nonprofit

Collaborative budgeting facilitates agility by enabling organizations to quickly adjust financial plans in response to changing circumstances, unexpected challenges, and new opportunities. There’s no “right” approach to organizational budgeting—you must find the one that works best for you. Otherwise, you won’t be able to accurately compare budgets from period to period. Keep these benefits at the forefront of your mind as you create your next budget. These might also be helpful reminders for your team if they need motivation to participate in the budget planning process.