Budgeting for Nonprofits

When budgeting, nonprofits sometimes make the mistake of forgetting to account for in-kind donations or volunteer hours. Donors and partners like to see how many dollars are spent on the nonprofit’s mission versus executing the mission. Every accounting system has a chart of accounts which classifies the sources of revenue and the types of expenses you incur. Use the same categories in your budget to easily generate financial reports to funders and others. Nonprofit organizations continually grapple with maintaining and improving their operations, especially in today’s volatile economy and a rapidly changing world.

Ways Nonprofits Can Improve Data Quality and Insights

What this practice says to your stakeholders, both internal and external, is that you know your mission will still be relevant after the fiscal year. Whoever does the grant writing will inevitably need some form of the budget to accompany most applications. Many foundations and most government agencies will have detailed rules about what can and cannot be included in a proposal budget. As with involving the people doing the spending, get the people responsible for soliciting and stewarding donations together and identify the pledged gifts, the probable gifts, and the potential gifts. Limelight’s pricing starts at $1,399 monthly, based on a subscription model.

• It also allows for better communication and transparency with employees who are striving for the same goals.
• Limelight’s ready-to-go financial planning and analysis (FP&A) packages are offered at a one-time, fixed fee.
• These different parties can identify legitimate expenses, needs and potential revenue sources the finance team may be unaware of.
• Creating and managing your nonprofit’s budget probably isn’t a favorite annual task.
• One category to pay close attention to is unfunded (or underfunded) expenses.

out of 10 digitally mature nonprofits hit their goals

If you need assistance, reach out to a nonprofit accounting firm that can take care of this forecasting and reporting for you. Some nonprofits also have earned revenue and an analogous process will work for that portion of the revenue side. Use confidence-level percentages as shown above to budget for the renewal of new versus long-term paying customers and clients. Additionally, utilizing budgeting software can streamline this process, providing real-time insights into financial performance and enabling more accurate forecasting. Funding restrictions often prevent nonprofits from achieving their mission objectives.

• It’s important to be realistic in reviewing income sources and expenses.
• Even if your budget is still performing as planned, you may determine that a small change or adjustment could help your organization exceed its financial performance through the remainder of the year.
• Nonprofits fund employee salaries through diverse revenue streams, including grants, donations, program fees, and earned income.
• Overall, good budget planning requires knowledgeable board directors, a solid planning process and the tools to complete the job successfully.
• Good budgeting for nonprofit organizations is critically important to success, as nonprofits typically have stretched resources, fluctuating funding, and/or heavy reliance on specific funding sources.
• Just be sure that you’re using timely and accurate historic numbers when forecasting future expenses and revenue.

Community Partners Grant Program (Colorado)

Boards also use the operating budget to show projections of various amounts of revenue and their sources. Just as it sounds, an operating budget shows how much you intend to spend on operations for the next year. The https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ approved budget then serves as a guide for financial activity in the months ahead. Budgets should not be written in stone, because the financial position of the nonprofit may change during the year. The most successful organizations dedicate time and effort to thoughtful planning – financially, operationally, and across every aspect of their work.

• Invite supporters to create their own fundraising pages on behalf of your organization.
• Include costs for board support, strategic planning, and quality assurance.
• Let’s look at some of the best practices for managing your organization’s budget effectively.
• This balanced approach to cost management strengthens your organization’s resilience while ensuring resources remain available for mission-critical work.
• It helps prevent your organization from focusing only on total budgeted amounts without considering when the cash will actually be available.

They should be thought of as guidelines for spending and saving rather than rigid, fixed numbers to reach. While some of your actual fundraising campaign goals might be ‘reach’ goals to push your team, it’s best to write more conservative estimates in your budget. That way, you’ll know to keep your predicted expenses low enough that you can still cover them if you fall short of your ‘reach’ goal. Regular audits, detailed financial reporting, and open stakeholder communication are key practices to enhance transparency and build trust. Leveraging software solutions streamlines processes, enhances accuracy, and provides real-time insights into financial performance. Regular budget reviews, ideally quarterly, allow organizations to track progress, identify deviations, and make necessary adjustments.

The opinions and views expressed in this article are solely those of the authors. They do not purport to reflect or imply the opinions or views of Blue Avocado, its publisher, or affiliated organizations. Blue Avocado, its publisher, and affiliated organizations are not liable for website visitors’ use of the content on Blue Avocado nor for visitors’ decisions accounting services for nonprofit organizations about using the Blue Avocado website. As previously mentioned, the contingency line is about preparing for the unexpected within the budget year. In contrast, the budget-to-surplus practice is about looking to the future to ensure your organization’s long-term sustainability.