Some budgets include a “budget narrative” explaining why each budget item is needed and how it will be used. Generally speaking, there are two ways to organize expenses in your nonprofit’s operating budget. Although considering natural expenses is helpful during the planning process, your final budget should use functional expense categorization to match your financial reports. If your nonprofit has the financial flexibility to budget for a revenue surplus, do so! When your predicted income exceeds your projected expenses, you’ll be more prepared to course correct if you incur unexpected costs or some revenue sources fall short of your goals. Plus, you can use any funding you don’t spend to build your organization’s reserve funds, which contribute to long-term sustainability.

Start Early and Follow a Set Process

• It details the costs your organization will incur and the revenue you expect to receive over a set period of time.
• You also want to pay close attention to different budgets within your nonprofit’s plan.
• A budget for non-profit organizations needs structure without unnecessary complexity.
• List expenses in the high-level categories of staff, contractors, occupancy, and support expenses (which include all other program and operating expenses).
• Once your costs are set, you know precisely what numbers you can expect to work with.

A budget for non-profit organizations often faces scrutiny over administrative expenses. While many funders and donors focus on program expenses, sustainable nonprofit organizations need appropriate investment in core operations. A budget for non-profit organizations becomes more effective when broken down by program expenses. Program-based budgeting helps you understand the true cost of each initiative, measure actual performance, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and make informed decisions about resource allocation.

Fundraising

• For a non-profit organization, donations and grants are may the only way to meet the expenses that they face in helping others.
• The purpose of budgeting for nonprofit organizations is for it to reflect your realistic financial goals and plans for the upcoming year.
• This can be based on the amount of money you need to raise to cover your expenses, or it can be a specific dollar amount that you would like to raise.
• While each of the previous tips offers specific guidance for your nonprofit budget, bringing them together into a cohesive financial management system takes careful orchestration.
• Budget projections for both the income and the expenses must be achievable.

Organizations seeking major scale expansion have adopted NFF’s scenario planning resources to model the financial impact of growth and secure necessary funding. These examples highlight the versatility and adaptability of NFF’s approach. The process of building a nonprofit operating budget is fundamentally a planning process. Once adopted, the operating budget also becomes an essential financial management tool helpful in monitoring ongoing operations and organizational activities throughout the year. With each reporting period, the organization compares actual performance against its plan. It is an important financial tool to manage the expenses and revenue of an organization.

Candid (Foundation Center) Budget Templates

Help stakeholders understand that effective administration actually multiplies the impact of their program investments. Direct program costs include staff salaries and accounting services for nonprofit organizations benefits, materials and supplies, dedicated facilities, transportation, marketing, participant materials, and essential equipment. While familiar, this approach might keep you from spotting opportunities for significant improvements. A fresh perspective comes from starting each fiscal year with a new comprehensive budget.

How to create a nonprofit budget template

• To ensure that all expenses are accounted for, it is helpful to create a budget template that can be used on an annual or monthly basis.
• Involve stakeholders in the process, maintain flexible adjustment processes, and establish strong documentation standards.
• You need to know how your nonprofit’s cash flows and what to do if the cash doesn’t flow.
• Do you have a story to share or tips for developing a nonprofit budget?
• Under the heading of expenses, boards need to focus expenditures on their programs and activities.
• First, the budget must clearly align with the organization’s mission and strategic objectives.

In fact, some estimates suggest that your payroll will account for 18-52% of your total budget. In recent years, charitable giving from individuals has skyrocketed to a remarkable $500B per year. But even with these staggering numbers, many nonprofits—particularly small- to mid-sized organizations—are still underfunded.