A strategic plan can be used to gain an understanding of leadership’s priorities, where they will focus time, energy, and resources, and how they will strengthen operations. It’s important to differentiate between the program and other expenses because many donors like to understand the difference between administrative and program costs. It shows donors and partners how many dollars are spent on the nonprofit’s mission versus executing the mission. They charge a small fee for their programs, and the remainder is covered by their generous donors and partners.
- Yes, profit in a charity is perfectly acceptable as long as those profits are used for the nonprofit’s charitable purposes and not for the benefit of the Board or key staff.
- Annual goals are absolutely necessary, but open yourself up to what could be possible five years from now.
- Just to be clear, budgets are prepared by the staff of the organization.
- In both cases, a sound budget is important for financial sustainability and provides a guide for financial health and sustainability.
- Capital budgets are a synergistic complement to annual operating budgets and will help current and future planning.
The committee will need to determine the costs for the upcoming program goals, organizational goals and strategic goals. In determining the income budget, the committee will need to project income based on the current fundraising and revenue activities. 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. Throughout the year, you’ll review these budgets regularly to monitor the process of your various projects, your fundraising success, and your general financial standing. This means your budget isn’t something that you create but never look at again. Instead, it’s a living document that should be at the center of your organization’s financial activities.
Budgeting is the process of planning, organizing, and controlling financial resources and how they are allocated to achieve organizational goals. It’s important to budget because it helps the organization manage its funds in a more effective way. It’s also important to track restricted and unrestricted funds, and how you are spending them. When you are running a fundraising campaign and say that all donations will go directly to program expenses, those are restricted funds that you need to use to support programs. Strategy-Based Budgeting
For a nonprofit budget to be effective and useful, it should be based on your organization’s strategy and goals.
The Finance Department’s primary tool for developing an organization-wide budget is the
Nonprofit Budget Template, a template for budgeting expenses and revenues by program/activity area. Some nonprofits choose to update their budgets mid-year no matter what, which can be helpful. The templates selected in this article are examples to show the variety of budgeting for nonprofits budget templates available for nonprofits. The listings are not intended as endorsements or recommendations of these templates. They have been obtained from sources believed to be reliable at the time of publication. To learn more about annual business budget templates, that can be used across different organizations, see “Free Annual Business Budget Templates”.
Get started for free
The review should include verifying that the budget is able to meet program and organizational goals. Budget planning includes some degree of forecasting and assumptions and boards should thoroughly vet assumptions before finalizing the budget. They should make any final adjustments based on the organization’s goals and its capacity to match income and expenses as closely as possible.
It is good practice to periodically review the budget as well as compare it to the actual cash flow and expenses, to determine whether they are playing out as expected during the course of the year. One of the most important tools for a nonprofit is a cash flow projection. This is the budget of revenues received and expenses paid, broken down monthly to ensure cash will be there when needed.