How to Create a Nonprofit Operating Budget
If you are a nonprofit organization, your motives are noble.
But good intentions will not spare you from a hellish exercise of budget building.
This article aims to help you with this.
Let’s start from the basics.
What is a nonprofit budget?
An operational budget outlines revenues and expenses a company generates in a year. Simply speaking – that’s all money you get and spend. And accordingly, the budget consists of two categories: revenue and expenses.
To make a nonprofit budget, you have to foresee the revenue. For a for-profit organization, all is clear: they sum up all the money they earn from selling goods and services. The main thing in calculating a nonprofit’s expenses is to separate the percentage spent on donations and the money spent on the charity administration (salaries, utilities, etc.).
With a nonprofit, things are a bit different. There are two ways nonprofits get money from:
– Products and services
– Donations and grants.
Their expenses also fall into categories like staffing, utilities, etc.
When the year ends, a nonprofit ends with a profit or loss. A profit (or a surplus) occurs when you get more money than you spend. The loss (or a deficit) occurs when you spend more than you earn.
To keep your organization up and running, you have to sustain at least a modest surplus as a nonprofit. This will show investors that you are a trusted organization, able to keep the budget balanced.
A working budget is not the only thing to prove your validity. Sometimes, you might also need to employ a business analysis service to find ways to progress like any for-profit organization. But building a budget is a good start.
How to make a nonprofit budget?
To start with a budget, you need research. Here’s a piece of premium advice from Alexa von Tobel, a certified financial planner: “Know all your numbers. Know your net worth. What are your assets? What’s your debt? What does your total financial picture look like?” (TechCrunch)
Start by learning your incomes and expenditures and checking your cash flows.
1. Learn your incomes
Organize your income sources into categories: individuals, corporations, foundations, events, and others. To be more precise, grade these sources according to the level of dependability with A level marking companies most likely to donate. For example, if you are not sure a company will 10 000 USD, you can add 5000 USD to the budget to mark a 50% probability.
Tip: when trying to estimate fundraising income, pay attention to yearly trends. It’s better to exclude gifts that are not likely to repeat.
It is essential to break your incomes into restricted and unrestricted. The restricted ones usually go to a specific program, and you can’t use them for paying salaries on other projects.
Your incomes will include non-monetary contributions. Those can be in-kind contributions like free office space, utilities, parking spaces, and volunteer hours.
That’s a sort of revenue, too: if a volunteer rating at 25 USD/h works ten hours a month for free, you will spare 250 USD, which could be otherwise an expense. With 25% of the US adult population volunteering regularly, non-voluntary contributions may be an essential source of income in any nonprofit, including yours.
Tip: for a proper balance, add volunteer hours and in-kind contributions both as incomes, and expenses, so they cancel each other out.
2. Set your expenses
The main thing in calculating a nonprofit’s expenses is to separate the money spent on the mission and the money spent on the organization (salaries, utilities, etc.)
There are fixed expenses that repeat year after year (rent, insurance, etc.) and the variable ones that depend significantly on the number of events and activities you plan.
Important: Letting the world know about your mission will need money too. Include expenses on the media and website into the budget. To attract attention to your organization, you might also need to invest in marketing and a good UX/UI design like any for-profit business.
If you want to read more about the topic, follow the link: https://mlsdev.com/services/ui-ux-design.
3. Plan the cash flow properly.
When starting a budget, making the periods of income precede or coincide with the periods of expenses is crucial. Otherwise, you won’t have money to pay for your activity.
At the end of the year, the amounts may coincide. But if your spending is planned for March with most incomes expected in October, it’s essential to have a large cash surplus from the previous year or schedule the activities accordingly.
Final lines: can a nonprofit generate income?
Many nonprofit organizations think they should operate on a shoestring budget, as their aim is not about money.
Yet, there is space for surplus in a nonprofit world, and high income can even make charity better. Moreover, generating revenues via different media proves that you do not only do good – you are professional in that.
Author’s bio: Anastasiia Lastovetska is a technology writer at MLSDev, a software development company that builds web & mobile app solutions from scratch. She researches the area of technology to create great content about app development, UX/UI design, tech & business consulting.
