A CFOs Guide to Managing Your Nonprofit Operating Budget

We hope that you will be able to use this resource to understand the concepts and steps and to implement this valuable process at your nonprofit. When an expense is clearly and exclusively incurred for a specific program area or cost center, we simply assign the expense to that program area or cost center. Examples might include materials purchased specifically for a tutoring program or the cost of an evaluation consultant to document the results of a preschool program. Administration and fundraising may have direct expenses assigned to them as well. The cost of return envelopes to be included in a fundraising mailing would be assigned directly to fundraising.

FAQ 1: What’s the difference between an operating budget and a capital budget?

For nonprofits like yours, financial planning is critical for effective fundraising and development. From tech founder to nonprofit CFO and fundraiser, Stephen King brings a unique combination of vision, foresight, and experience to help nonprofits maximize their cash flow and operational efficiency. He’s been a dedicated board member of many nonprofit organizations – including seven years working for Amnesty International USA – where he was the Director of Development and Chief Financial Officer.

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  • That way, the funder has a clear understanding that your nonprofit has the means and manpower to complete the proposed project.
  • It should be reviewed and revised regularly (at least quarterly) to reflect actual performance and adapt to changing circumstances.
  • The capital budget may include projects which will have ongoing effects on operations.
  • As mentioned above, each nonprofit is unique and operates within a specific industry, whether it be education, the arts, environmental sustainability, or food, housing and energy assistance.
  • Equally important are the variable costs, including salaries, program expenses, and administrative overheads, which fluctuate in response to your nonprofit’s activities and strategic decisions.
  • One benefit of structuring accounting this way is that you can control your chart of accounts – the list of income and expense categories.

Remember, aligning your budget with your strategic goals is not a one-time task but an ongoing process. As the needs and expectations of donors and beneficiaries evolve, so too must your approach to budgeting. By embracing these practices, nonprofits can ensure a more robust financial future while efficiently advancing their mission. It delineates anticipated revenue streams and expenditures, ensuring preparedness for the fiscal year.

What Is A Nonprofit Budget and Why Is It Important?

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. If you’re creating a budget for the first time, create as reasonable a list as possible of expenses. It’s also useful to look at the financial trends for your programs over the past few years, and assess if each program is covering its direct costs, or contributing to overhead. Give yourself enough time to gather the necessary information and data, to think through and discuss the various elements of the budget, and to put it down on paper (or in Excel). Nonprofit organizations continually grapple with maintaining and improving their operations, especially in today’s volatile economy and a rapidly changing world.

Offers additional insights on best practices for running cost-efficient fundraising operations. Subtract your total costs (amount spent) The Key Benefits of Accounting Services for Nonprofit Organizations from your total return (amount raised). The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit. BoardSource, a nonprofit board leadership and educational corporation, did a survey in 2000 and found that the average size of nonprofit boards, not including churches, was 17 directors.

A popular rule of thumb is to ensure that at least 65% of total resources go to program costs, such as materials, rentals, and operations, while overheads never account for more than 35% of resources. A well-organized nonprofit budget makes all the difference in your effort to align financial resources with your mission. Program-specific budgets detail the income and expenses related to a specific initiative, such as a youth mentoring program, a community food bank, or an educational campaign. Zero-based budgeting requires your financial planners to evaluate each expense based on current needs, starting from scratch for each new budgeting period. Below is a basic nonprofit operating budget example to show how these components typically come together. Most nonprofit budgets have columns indicating the period covered, budgeted amounts, actual spending, and the percentage difference from the previous period or year.

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