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- It's crucial to understand how your nonprofit's budget is structured and how it contributes to the operations, whether you're the CEO or a new staff member. Both for fundraising requests and for managing routine operations, nonprofit startups must budget appropriately and analyze their financial health well.
- Budgeting can assist nonprofits with grant applications, analyzing and tracking financial health, making preparations for a crowdfunding or/and fundraising campaign, identifying financing requirements (and how crowdfunding can help fill in the gaps), and providing their funders with up-to-date financial information.
- You and your accountant will need to work together to create or restructure a successful budget. The budget should include well-defined actions, a clearly defined timeline, and realistic and measurable criteria.
- In a spreadsheet or other bookkeeping system, startups should keep track of their income and expenses. This allows team members at various levels of the startup to see the data; it also grants the freedom to update information when the budget needs to change.
- When creating your nonprofit startup’s budget, give considerable time to the budget preparation process, choose this year’s program activities, calculate the costs involved in all program activities, estimate your revenue for that year, and make the necessary adjustments to ensure that revenue can at least cover the year’s expenses.
As a startup nonprofit, there are several priorities to address on your to-do list. But budgeting for all of your business activities, especially when you're just getting started, might be difficult.
Making a budget, preparing for the future, and evaluating financial data are all things that will make you stand out to funders and partners early on, as well as make daily and strategic planning easier for you.
It's crucial to understand how your nonprofit's budget is structured and how it contributes to its operations, whether you're the CEO or a new staff member. Both for fundraising requests and for managing routine operations, startups must budget appropriately and analyze their financial health well.
Budgeting can assist you in:
- Analyzing and tracking the health of your startup
- Making preparations for a crowdfunding or/and fundraising campaign
- Identifying financing requirements and how crowdfunding can help fill in the gaps
- Grant applications
- Providing funders with up-to-date financial information
What is a Nonprofit Budget?
A nonprofit budget is a planning document that helps your startup forecast spending and allocate resources. It outlines both the costs and revenue that your startup expects to incur and collect over a specified period. Your nonprofit will be creating two primary budgets. These are your operating and capital budgets.
The annual estimated revenue and expenses for a nonprofit organization are broken down into a nonprofit operational budget. It divides your revenue into multiple financing sources, as well as your running expenses into program and overhead costs.
The costs and revenues connected with multi-year, long-term projects are projected in your capital budget. This usually covers capital campaigns and other large spending initiatives related to your nonprofit.
These budgets are what you evaluate regularly throughout the year to keep track of the progress of your various projects, fundraising, and overall financial situation. This implies that your budget isn't just something you make and then forget about. Instead, it's a dynamic document that should guide all of your financial decisions.
Features of Successful Nonprofit Budgets
You can improve your nonprofit startup budget even further. You and your accountant will need to keep certain aspects in mind as you work together to create or restructure a successful budget.
These features include specific actions, a clearly defined timeline, and realistic and measurable criteria. Let's take a closer look at each of these aspects:
Your nonprofit's budget and strategic plan should complement each other. Every line item in your budget should be linked to a clearly defined task that you want to complete.
Each of these tasks should have a budget that is clearly stated so that each activity is defined in detail along with its allocated budget. All of these budgets are combined into a single operational budget for the entire organization.
Your nonprofit, for example, might set a goal of raising $20,000 to build a computer lab at a low-income school. You will need to create a budget that accounts for all of the costs associated with constructing such a computer lab. For example, you should budget for the expense of purchasing laptops, installing effective wifi, and gathering miscellaneous products and services that would be required for such an investment.
Specific Time Period
When you define goals for your nonprofit's strategic or growth plan, you make sure they are SMART goals (specific, measurable, achievable, relevant, and time-bound goals). The aspect of time is the measure we wish to emphasize here. When creating your budget, your nonprofit should keep time in mind.
Nonprofits normally create a single annual budget. However, you should think about when exactly your organization intends to (or is likely to) make money and when you want to check-mark the actions listed in your budget.
Pro tip: Set up check-ins for your team and for getting the budget approved. Set a date and time for the document to be authorized by the board of directors before you actually begin the budgeting process. This makes you more accountable by giving you a deadline to finish the process and having something concrete to show for it.
You should also schedule regular check-ins with your team to ensure that you're staying on track with your budget preparation. Many NGOs conduct a quick monthly check-in, followed by a more in-depth evaluation every quarter.
Realistic and measurable metrics
Outlining realistic and measurable metrics goes hand in hand with defining your nonprofit's budgetary operations. Each expense and revenue source should be linked to a particular monetary amount for each of your activities.
This is especially true when it comes to developing the income side of the budget. The funding for your nonprofit should be specifically linked to several types of revenue collecting.
What to Track In Your Budget?
In a spreadsheet or other bookkeeping system, startups should keep track of their expenses and income -- such as fundraising, donations, or service fees. This allows team members at various levels of the organization to see the data; it also grants the freedom to update information when the budget needs to change.
Upfront Investments/Startup Costs
As a nonprofit, you should be well aware that you'll have some early costs before you'll have any significant operating costs. These initial costs could include the fees of crowdfunding.
There could be other such startup costs, such as branding and logo development, equipment, and the compensation for the founding team/early employees.
It's critical to distinguish between launching expenditures, one-time initial charges, and ongoing expenses. Some starting costs may be rolled into the regular budget, while others may not be necessary for future budgets. Spend the time to dive into the details and understand the differences between these costs.
Nonprofit budgets should be divided into expenses and income, with expenses divided into program, general, and administrative expenses.
In the nonprofit startup world, there is a common misunderstanding that quality and successful nonprofits have low administrative and fundraising costs and spend the majority of their funds on program costs. It's critical to keep the program, administrative, and fundraising costs separate from each other. Separating them also acts as a check on how your organization spends its money.
Because many funders like to understand the distinction between administrative and program expenditures, it's critical to distinguish between the program/project and other expenses of your nonprofit. This helps funders and partners understand how much money is spent on the nonprofit's mission and how exactly the mission is carried out.
The costs directly associated with operating your various programs or projects are known as program expenses. Anything associated with running the programs - including volunteers, employees, equipment, and related expenditures - falls under this category. The costs of a program could also include the costs related to project advertising, staff training, and tours/travel.
This includes donations, service fees, and revenue accumulated from any items sold by your nonprofit.
Tracking your nonprofit's revenues is vital because, when combined with looking at your expenses, it helps you understand your profitability and whether you have enough money to continue operating or if donations or expenses need to be increased or decreased, and if they do, then by how much.
The overall revenue – donations and other sources –minus the total operating expenditures are your profit. Nonprofits, like any other business, should try to generate a healthy amount of profit to stay in business, scale-up, and/or have emergency money on hand.
Another way to keep track of your budget is to keep track of and forecast your cash flow for the year. Tracking financial inflow – revenues and donations – and cash outflow is the best way to achieve this. This helps you better grasp when exactly you have revenue coming in and expenses going out of the startup.
For example, perhaps your primary donor only sends you a large check once a year in January. While the check will cover a significant percentage of your overall expenses, you must ensure that it is distributed fairly throughout the year, or you may not have enough cash to cover your expenses.
Restricted and Unrestricted
It's also crucial to keep track of your restricted and unrestricted cash, as well as how you spend them. When you claim that all donations will go straight to program expenses in a fundraising effort, those are limited funds that must be used to support the smooth functioning of the startup as well.
Service fees could be deemed restricted funds as well. If you conduct a broad fundraising campaign without specifying direct funding, donations are practically unlimited and can be used in any way you like. This distinction is crucial for organizational health, as is maintaining an even balance of both sorts of funding.
Assumptions and Other
It's critical to spell out your assumptions on a spreadsheet or in a separate document when creating a budget. This not only aids you in remembering how you arrived at specific figures, but it also aids any staff member, potential contributor, or advisor looking at the budget to comprehend it.
The number of beneficiaries you're working with, the number of employees you have, and the quantity of supplies or equipment you have could all be factors in your assumptions. It's also vital to keep track of inflation and fringe benefits while preparing a budget, especially if you're planning ahead for several years.
Steps to create your nonprofit startup’s budget
Creating your first budget - for most new charities - involves starting with a blank sheet of paper or a blank screen/spreadsheet.
Here are five steps to help you establish your nonprofit startup’s budget:
Give considerable time to preparing your budget
Building a budget from scratch is not a minor or quick kind of activity, so commit to doing it well the first time. Because your startup is new, you likely don't have a lot of historical data on which to base your estimates. That implies that you'll have to perform a lot of targeted estimating.
Spend a couple of hours looking up prices for supplies, materials, and equipment on the internet or/and get in touch with local vendors. It's best to get at least three quotes for each budget line item so you know that your estimate isn't too low or too high. If you don't give yourself enough time to finish this section, your budget might not be practical or accurate, which won't help you later when you're relying on it to make important financial decisions.
Choose this year's program activities
It's time to start thinking about the programs and services that your nonprofit will offer this year. What major program are you planning to run this year? What kind of materials, equipment, facilities, and employees will you require to run the program? When your nonprofit is first starting out, it's easy to take on more than you can handle. Be realistic about what you can do in the first year, especially if you need to fundraise for the program as fundraising can be a bit slow at first.
Calculate the costs of all program activities
It's time to collect quotes and estimates for each line item once you've defined your program activities and created a list of program needs. To arrive at relatively accurate pricing estimates, directly contact vendors and potential providers.
Let’s say that shelves are a line item that your nonprofit will need for one of its activities/projects. First, do some research to determine what kind of shelves you'll need for commercial use. Then, to see what the going rate is, request estimates from at least three vendors and calculate their average. Make a note of that figure in your budget. This technique should be repeated for each line item in your budget.
There are two parts to every budget: cost and revenue. Now that you've taken care of the expenses, it's time to figure out how much money your nonprofit will make. Begin by estimating any fees for services provided or the program revenue, and then devise a fundraising strategy. This fundraising strategy should be centered around a well-thought-out plan for obtaining the cash you need from the appropriate investors/lenders to finance specific initiatives that you’ve outlined for the future.
Make a list of every fundraising activity - no matter how minor - that you intend to do this year, along with a conservative estimate of how much money you expect to raise from each. If you estimate revenue too optimistically and don't meet your targets - which is always more possible than first-time founders realize - then you'll have trouble paying your bills later in the year.
Make the necessary adjustments
Compare your total revenue to your total costs once you've calculated your total revenue. If revenue does not cover expenses, then either revenue or expenses - or maybe even both - must be adjusted until the totals are at least equal. Again, don't overstate your sales to get a more satisfactory bottom line. Ensure that you can actually raise the number which you put in for fundraising.
Sample budget templates for nonprofit startups (Google Sheets)
- #1 Nonprofit program budget template
- #2 Nonprofit program budget template
- #3 Nonprofit program budget template
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