The examples, insights, and expert advice in this guide should provide you with the resources you need to craft an effective and compelling budget in your next proposal. This is especially important for nonprofits that rely heavily on grants or fundraising events, which often lead to large, irregular payments instead of a steady revenue stream. Review your spending regularly to ensure it aligns with your strategic goals and keeps your nonprofit financially healthy. 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.

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The two most common methods for allocating indirect costs to programs are percentage of total direct costs and percentage of FTE. The process begins with the decision of which activities at your organization comprise a program for the purpose of budgets and financial reports. Often, the definition of programs is evident in how your organization delivers services and functions internally. Some nonprofits identify every activity or grant as a separate program while others combine many activities under the umbrella term. For budgeting and allocations we suggest that you separate your activities into distinct programs that will provide meaningful insight into the financial model. As an example, an afterschool program may operate in two locations or be funded by three grants.

• Once adopted, nonprofit operating budgets become an essential financial management tool to plan and monitor operations and organizational activities through the year.
• Work to identify potential risks to your operations and create basic contingency plans that can make dealing with problems more straightforward when they occur.
• These calculations may be automated through the accounting system or completed manually.
• This can include covering liability for employees or volunteers, property insurance for buildings and equipment, and insurance for events or activities that your nonprofit hosts.
• The approved budget then serves as a guide for financial activity in the months ahead.
• The cost of return envelopes to be included in a fundraising mailing would be assigned directly to fundraising.
• We’ll explore why budgeting is crucial for nonprofits and share 9 proven tips that successful organizations use to maintain financial stability while advancing their mission.

Step 3: Involve the right people

Use the same categories in your budget to easily generate financial reports to funders and others. According to the Nonprofit Impact Matter report 97% have budgets of less than $5 million per year. While 92% operate with less than $1 million a year and 88% spend less than $ yearly. Remember that your budget is a living document that requires regular review and adjustments.

Create a Replicable Process

Once adopted, nonprofit operating budgets become an essential financial management tool to plan and monitor operations and organizational activities through the year. Nonprofit organizations face an ever-evolving landscape, where goals, priorities, and external factors can shift. To maintain financial health and ensure that resources are effectively allocated, nonprofits must employ strategies to monitor and adjust their operating budgets. This process is essential for adapting to changing circumstances and maximizing the impact of their mission-driven activities. Revenue diversification requires strategic planning, creativity, and a willingness to adapt.

Bottom-up budgeting starts with the people who know the details best—your team. Such changes could include the addition of new funding sources or new restrictions dictated by existing donors. It is most useful for nonprofits that want to avoid unnecessary expenditures or when they need to adapt to significant changes in their operating environment. This approach ensures that resources are allocated more strategically and efficiently. That is exactly why non-profit budgeting is much more sensitive and should be done with proper care and information.

Adequate research and realistic cost estimation

For example, program managers can offer details about anticipated costs, while financial officers can provide an overview of past income trends. But, there’s a place in the nonprofit universe for a surplus in the budgets too. They can mean the difference between surviving a rough patch and being forced to close down. Having extra cash can help stabilize your nonprofit and absorb an unexpected delay in receiving funds, a shortfall in revenue for a special event, or unbudgeted expenses.

A good budget for non-profit organizations balances program delivery with operational sustainability. Rather than focusing on specific dollar amounts, aim to maintain program spending at 65-75% of your budget, with adequate allocation for administrative costs (15-20%) and fundraising (10-15%). Your exact ratios should align with your organization’s size, mission, and growth stage. A budget for non-profit organizations must balance multiple priorities while maintaining clarity and usability. Several key features distinguish effective nonprofit budgets from basic financial plans.

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Things like utility, bills, office supplies, and software subscriptions may seem minor on their own, but when combined they can create significant overhead costs that eat into your budget. These check-ins also help https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ your team adapt to unexpected changes, like program roadblocks or additional funding needs, so your budget stays relevant and effective. This will also show you which funding sources are most reliable, especially true of recurring donations and multi-year grants.

When including travel in your nonprofit operating budget, think about plane tickets, lodgings, car rentals, Uber fees, and/or driving mileage. While the goal is to maximize resources and achieve mission-driven objectives, nonprofits often encounter significant challenges in their financial planning. Below, we explore the major challenges of a nonprofit budget proposal and provide real-world examples of how organizations have successfully addressed them. When estimating fundraising income, don’t forget to look at multi-year trends in your organization’s fundraising. Then, estimate likely gift increases per donor, based on the quality of the relationships.