Ensuring that resources are used efficiently and in alignment with the organization’s goals is essential. Effective expense management plays a central role in this endeavor, enabling nonprofits to maximize the impact of every dollar spent. Another way to determine your operating budget is by splitting up the work. Consult your board, staff, and volunteers to understand what resources they require to effectively fulfill your organization’s mission. Like many businesses, nonprofit organizations often lack the resources and funding to do everything they want.
This helps your nonprofit stay on track with spending and fundraising throughout the year and make data-driven decisions about how to proceed with your initiatives. By adopting these strategies, nonprofit organizations can actively manage their expenses to maximize their impact, preserve donor trust, and uphold their mission and values. Effective expense management is not only about reducing costs but also about investing in activities that drive meaningful change in the communities and causes they serve. In the next section, we will explore revenue strategies that complement effective expense management, enabling nonprofits to thrive. The operating budget is the financial blueprint for a nonprofit organization, guiding its mission, growth, and effectiveness. But what exactly is an operating budget for nonprofits, and why is it so crucial?
What to Include in a Nonprofit Operating Budget
Use the same categories in your budget to easily generate financial reports to funders and others. Create a rough list of these costs and highlight the ones that will apply to the coming fiscal year. Then, add them together with your existing expenses, such as rent, bills, and salaries for your current staff members. Use this estimate to set an overall goal of how much revenue you’ll need to bring in to cover all of your costs for the year.
So, the revenue and expenses listed in your other budgets should line up with the overarching predictions in your operating budget. If a different type of budget overlaps multiple fiscal years, make sure your estimates are recorded in the correct annual operating budget. Revenue diversification requires strategic how to calculate operating budget nonprofit planning, creativity, and a willingness to adapt. In the following section, we will delve into budgeting practices that can aid nonprofits in managing their financial resources effectively. Capital and operating budgets both support the organization’s mission by planning and managing resources.
A CFO’s Guide to Managing Your Nonprofit Operating Budget
It’s not uncommon for this to be one of the biggest expense categories for nonprofits. Depending on the size and structure of your organization, it may account for about 20 to 50 percent of all expenses. It’s important to analyze industry standards when determining the pay rate for specific positions and what benefits to offer.
Capital expenditures are expenses needed to acquire or maintain fixed assets, such as fixing or maintaining buildings, land and cars. Indirect costs, which are also called overhead, include things like utility bills, internet fees and postage. Most importantly, nonprofit budgets should be constructed around the organization’s programs and activities, which will help them stay focused on their goals. The budget paints a clear picture of how much cash is coming in and how much is going out. Budgets form the basis for boards to make better decisions and to avoid making mistakes.
Startup Operating Budget
Your budget will be unique to your organization, but we’ll give you a broad idea of what to include under each section. After creating a nonprofit budget and having it approved, you’ll continue to look at this financial document throughout the year. Once you have added all of your anticipated revenue and expenses, you can calculate your projected operating profit and projected operating margin. Nonprofits should revisit their budgetary goals and projections regularly. Typically, this process should occur at least quarterly, if not more frequently, especially in the face of significant changes. By reviewing and adjusting budgetary goals and projections regularly, nonprofits can ensure they remain aligned with their mission, address emerging needs, and adapt to the evolving landscape.
Reviewing the organization’s past financial performance is another important step in creating a nonprofit budget. This information can provide insights into trends in the organization’s income and expenses, which can be helpful in estimating future income and expenses. This means you’ll want to review your forecasted revenue and expenses against your budget on a regular basis. A forecast simply takes into account what you’ve made and spent to date, so you can adjust your projections accordingly. At least once a month, you should compare your forecast to your budget to ensure you’re on track to fulfill your mission.