In this phase of the process, you should also determine how you’ll report and monitor the fund. Who will be responsible for ensuring the operating reserve is properly used and what accountability measures are in place? For example, a nonprofit operating reserve fund may be kept in a segregated bank account and referred to in financial records by a unique name.
Benefits of an Ironclad Budget for Nonprofits
These visible expenses and non-monetary contributions, including volunteer hours, form the foundation of your program budget, but they’re only part of the equation. Creating an accurate budget for non-profit organizations depends on reliable forecasting methods and careful analysis of historical data. Let’s explore some key reasons why budgeting plays such a crucial role in nonprofit success. This alignment helps create more accurate forecasts and smoother cash flow management. For example, many nonprofits found these reserves very important (or regretted not having them) when the COVID-19 pandemic hit in 2020. Use the calculators in this guide to see where your nonprofit stands for these popular ratios.
Best Practices for Building a Nonprofit Annual Operating Budget (with Template!)
This guide and accompanying spreadsheet template break down the process of understanding true program costs, either through budgeting or financial reports, into several stages. Nonprofits often rely on unpredictable funding streams such as donations, grants, and seasonal fundraising campaigns. This unpredictability can make it difficult to maintain a consistent income flow, leading to challenges in long-term planning and resource allocation. For example, a small nonprofit focused on youth development should regularly include volunteers in their budget planning meetings. Their on-the-ground perspective will help forecast realistic program costs and identify cost-saving opportunities.
- With this information in hand, you will create a budget for the following year that will allow you to continue your operations as you are now.
- If this is the first time you’re reviewing your own nonprofit financial ratios, you can use the calculations you found here as a starting point for your organization.
- 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.
- WildApricot is an affordable cloud-based software for small associations, non-profits, state and local chapter organizations.
- An effective operating budget ensures that nonprofits allocate their resources wisely, prioritize their activities, and stay on course toward their goals.
- Talk to an accountant who can help you interpret these ratios and set key performance indicators to improve them for the future.
Bring it all together for review
If you’re spending more than you planned or aren’t making your expected revenue, you can plan another fundraiser or scale back on spending. Nonprofit organizations have several sources of revenue—some of which are more dependable than others. These include traditional income sources like the sale of products and services as well as nonprofit-specific income sources like fundraising and grants. As the video explains, matching gifts offer twice the funding for the time and effort your nonprofit puts into acquiring one gift. To double the amount you raise for your nonprofit operating reserves, look further into accounting services for nonprofit organizations matching gifts and how you can promote them to willing donors. Of those with cash reserves, more than half of them have less than enough to cover 3 months of their operating expenses for the year.
Nonprofit Budget Templates: 3 to use NOW in Google Sheets or Excel
We’re going deep on budgets in this post because we’ve still been getting a lot of questions about budgets after our last post on them. Grab a free copy of this comprehensive guide to developing your business from scratch. Before you go ahead and opt for a credit card for your small business, make sure you know if it’s worth getting one. Talk to an accountant who can help you interpret these ratios and set key performance indicators to improve them for the future. If you are looking for a more transparent and accountable budget, you may want to consider using a zero-based budget.
Nonprofit Budgeting: How to Get Started + Template
Your nonprofit’s burn rate measures the monthly negative cash flows at your nonprofit. Often, burn rate is used by for-profit organizations just getting https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ their start, to measure how much they’re burning through capital before they start seeing positive returns on the business. A program budget focuses on the specific financial requirements of a particular initiative or project. Nonprofits must create program budgets to showcase the direct impact of donations and grants. It will cover all the expenses required to keep the organization running, from salaries and utilities to technology and insurance.
- A budget for non-profit organizations should function as a living document, not a set-and-forget plan.
- If your nonprofit has the financial flexibility to budget for a revenue surplus, do so!
- Many organizations include salary costs in grant proposals and build appropriate overhead into their program budgets.
- The operating reserve ratio measures how long your nonprofit’s operating expenses would be covered just by the amount you have in your reserves.
- It’s a key tool in effectively and efficiently achieving the organization’s stated purpose, and should always align with an organization’s strategic plan.
- Often, the definition of programs is evident in how your organization delivers services and functions internally.
I recommend being even more specific and breaking these categories down further. Include separate line items for corporation grants, foundation grants, state grants, and other. In your organizational budget, you’ll probably several years worth of budgets—maybe the previous fiscal year, the current fiscal year, and the next fiscal year. For the past years, your entries will be the records of how much actual money you spent and received. But for the current and next fiscal year, you can only estimate or project your expenses and income.
Operating Reserves as a Key Indicator of Financial Health
Nonprofit operating reserves should be a top priority in every organization’s budget, but how should you begin building this fund? Let’s take a closer look at the steps your nonprofit can take to create an operating reserves policy and start saving. If you’re a nonprofit leader looking to prepare for the unexpected and establish financial fortitude for your organization, this guide is for you! Let’s take a closer look at how you can prepare for times of need with nonprofit operating reserves. Another organization with which I work has run a deficit this year of more than $200,000, and board members are periodically reminded that it is nothing to be concerned about. Their operations don’t fluctuate wildly from year to year; in this case, the answer lies in the practices that nonprofits follow when revenue is “recognized,” or recorded as revenue.