How to Create a Nonprofit Operating Budget
Sorting through your operating budget is probably not high on your favorite parts about running a nonprofit. However, it is integral to running a successful operation. With the busy holiday season still months away, now is the perfect time to take a closer look at your nonprofit’s finances.
With over a decade of experience in the business and nonprofit world, I’ve cultivated a deep well of insight on budgeting. Follow along for tips and tricks for your nonprofit’s operating budget.
Tip #1: Start by defining the operating budget.
Let’s begin with the basics.
For a nonprofit, the operating budget is the organization’s plan for the future. It shows how much revenue your operation plans on bringing in and how you plan on spending it. Using your mission statement as the guiding light, your operating budget guides your organization to fulfilling both its financial and philanthropic goals.
A well-thought out operating budget will:
Tell future donors how much good you plan on doing with their dollars
Inform your board members of your progress
Focus your concentration on your short- and long-term goals
Tip #2: Use your past to define your future.
Budgeting is a future-forward endeavor. Management of your current finances starts with taking a look at your nonprofit’s past performance. Collect the last five years worth of your operation’s finances from your accountant.
Next step - analyze your data. Identify the trends in your past financial history. Ask yourself:
What worked?
What didn’t?
How well did your organization stick to its old budget?
Where do you have room to improve?
Tip #3: Break it down.
Your nonprofit’s operating budget should be broken down into its revenues and expenses:
Revenues. This is all of the incoming funds you have from donations, endowments, sales, grants, etc. Each type of revenue should be separated out into its own line on the operating budget. Check out my article on grant management for some more info on revenues.
Expenses. This is how you are spending your revenues. Just like revenues, each kind should have its own line on the budgeting sheet. Some examples of expenses are staff salaries, supplies, office rent, marketing materials, and accounting services.
Throughout the year, make sure you are tagging each of your inflows and outflows as their appropriate category to make structuring your operating budget easier later in the year. As your accountant, I can help you sort through the different kinds of revenues and expenses your nonprofit has and create a template that you can use year after year.
Tip #4: Get input from all levels.
Of all the tips, this may be the most underutilized on the list. It’s a guarantee you’ll be getting input from your board, but what about the rest of your crew?
It’s worthwhile to get many perspectives when going through the budgeting process. Some lower level staff or volunteers may have some keen insights that upper management may be too macro-focused to see. Take advantage of your big quarterly meetings to gather input from these unlikely sources.
Be warned - this kind of hands-on budgeting can require careful handling. Your nonprofit’s operating budget, though, could improve greatly with a diverse range of perspectives.
Tip #5: In-Kind Donations Count
In-kind donations are any kind of donation other than cash. Some common in-kind donations you may be already tracking:
Clothing
Furniture
Supplies
Perishable goods
Some in-kind donations you may be forgetting:
Advertising
Volunteer hours
Copyrights
Consulting
I see a lot of nonprofits skimp on making sure their in-kind donations are properly accounted for. As your accountant, I have two big tips for these non-cash contributions:
Write everything down. Keep detailed records of all types of donations, even if you don’t think they may amount to much. For example, you may not think to record the one hour a week the little old lady stops by to volunteer because she never asks you to sign off on her hours. But if she comes every week for an hour and volunteer hours are valued on your books at $25/hour, that’s $1,300 in labor expenses you are saving.
Push for more. Make it one of your organization's goals to attract in-kind donations of all kinds. If you can get 10 little old ladies to volunteer each week, that $1,300 a year jumps up to $13,000!
Tip #6: Stay the course.
The last tip: stick to your nonprofit’s operating budget. This might seem like a no-brainer, but you’d be surprised how often organizations blow their meticulously planned budget. Being sure to keep on top of the management of your finances will make sure your nonprofit is long-lasting.
Two fast tips to staying the course:
Over-budget your expenses
Under-budget your revenues
