Creating an Organizational Budget for Nonprofits

budget nonprofit accounting nonprofits Feb 21, 2023
Organizational Budget for Nonprofits

Creating an organizational budget for nonprofits is a great, proactive way to gain a deeper understanding of your cash flow and set your nonprofit on a path for continued financial success. 

Due to the fact that reliable revenue streams can be scarce in the world of nonprofits, being prepared will go a long way in helping you feel confident and ready for whatever financial curveballs you may face. 

In order to create a budget that is specifically tailored to your nonprofit and its needs, there are some key steps to take and metrics to analyze along the way. 

Let’s take a look at the steps you can take to ensure your budget is optimized for your organization’s financial needs.

Steps for Creating an Organizational Budget

Step One: Establish Objectives

Before you start creating your budget, take some time to determine what your organization’s overall financial goals and objectives are. 

During this step, you can also sort your goals and objectives into short and long-term; this can be a helpful way to focus on what your budget needs to include or take into consideration at any given time. 

Overall, you are asking yourself where you hope to be in the future and considering what steps you can take to get your organization there.

Step Two: Analyze Your Current Financial Position

For this step, you are only going to focus on the present state of your finances. 

Review income, expenses, and other pertinent information from last year to refresh yourself on your nonprofit’s current financial position. Use what you find to inform your decisions as you create your budget. 

Step Three: Identify Revenue Sources

Analyze current sources of revenue, such as:

  • Grants
  • Donations
  • Membership fees
  • Endowments

Use last year’s records to gauge how much money you could realistically expect to receive from these sources for the year ahead. 

If you are expecting to add any new sources of revenue, be sure to include those as well. Although you will not have any financial data on these new revenue sources, it is still a good idea to have them accounted for in your budget. 

Even though you won’t have previous financial information on these sources, you can still include them in your plans and revisit them once you have more data. 

Step Four: Determine Expenses

Calculate all expenses you expect for your nonprofit for the upcoming year. Include personnel, operational, and administrative expenses when you do your evaluation. The closer you can predict your actual expenses here, the better your budget will be for meeting your financial goals.

In addition to looking at expected expenses, take time to reflect on areas where you may have under or overspent in the previous year. Do you have any new or big expenses coming in the year ahead? Include all of this in your expense evaluation.

Step Five: Tie it All Together

Now that you have analyzed your current financial position, expected revenue sources, and expenses, you can use this information to create a budget that best suits your nonprofit’s needs and overall mission. 

Although it takes considerable work to get to this point, no two nonprofits will be the same across all metrics, so it is imperative that the work is put in to create an ideal budget for you.

Step Six: Monitor and Adjust

Once your budget is done and put into practice, it is time to monitor how well it is working for you. 

If your budget is working well, great! However, there may be times when your budget is not working as intended. If this happens, don’t fret. Instead, take some time to make adjustments where needed within your budget. 

Budgets are an ever-evolving document; improvements can always be made when you have more data and practical experience to build off of. Overall, as you monitor your budget, ask yourself if the goals you set are still attainable and if these goals are still actively leading your nonprofit in the right direction.

Partner With an Accountant Who Specializes in Building Organizational Budgets for Nonprofits

Having a well-planned organizational budget is vital to the short and long-term financial health of your nonprofit. 

A budget allows you to take a proactive approach to your finances and pivot when necessary to meet the needs and goals of your organization. 

The steps listed above give you a method to create a budget that is best for you. However, if you would like assistance creating a budget or have any questions about the process, consider contacting Morris Verdonk Accounting. With over twenty years of experience working closely with nonprofits, we feel that we are qualified to work with you to create your optimal budget and assist with any other financial challenges you may face. 

Contact us to schedule a personal consultation or reach out with questions. Whatever it is, we will be happy to help. We look forward to working with you. ` 

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