Best Practices for a Nonprofit Budget
A nonprofit is no different than any other business in that every organization needs a plan on how to spend their budget. A nonprofit’s budget must be centered around the primary goals and objectives of the organization.
The budget should show how the nonprofit is planning on getting its money and how that funding should be spent on the organization’s programs to achieve its goals and mission. A strong nonprofit budget serves as a powerful tool for success. To make the most of your budget, your nonprofit will need to prioritize its focus. It is important to have a clear idea of what you are working towards and take control of your nonprofit’s finances. Start by building your budgeting skills with these practices.
- Income-Based: Determine how much income you can count on and include only definitive revenue in your budget. Be sure to leave out projections as they can cause budget deficits.
- Incremental: Build your budget from the previous fiscal year. If you choose this method, you will want to consider unspent funding that may have already been reallocated to another campaign.
- Zero-Based: In this model, you start your budget approach with a clean slate. There is no consideration for income or expenses from the previous year. It is important to test several predictions about where funding will come from and how to spend those resources.
- Percentage: The idea behind the percentage approach is to segregate your budget into marketing, communications, and fundraising for a total predicted budget. The Better Business Bureau recommends that nonprofits spend under 35% of their funding on overhead expenses (facility costs, licensing fees, equipment costs, etc.) and spend at least 65% on programs.
- Flat-Dollar: Consider your total budget in this approach. If you use this method, it will cover costs like utilities, rent, taxes, health insurance. You can give your campaigns, marketing, communication, and fundraising a set dollar amount.
If your nonprofit is fortunate enough to acquire donated goods, services, and time, be sure to record these contributions to abide by legal standards. In addition, by documenting these generous contributions in your budget’s revenue, you will get a bigger picture as to what it truly takes to drive your mission. Donations of this nature can include tangible goods (equipment, office furniture and clothing to name a few), intangible goods (advertisements, copyrights, etc.) and services (accounting, printing, consulting, photography).
- Assess the amount of money your organization would have paid for donated goods received.
- Record the hours of professional services donated to your nonprofit and what you would have paid if those services had been contracted.
- Be sure to include your donors and ask them to price their own non-monetary services.
- Analyze the reasons why you might have budget issues, especially if the same one or two seem to be reoccurring concerns.
- Assess which campaigns might need more financial attention.
- Be sure to look at past budgets to make sure that you are staying on track.
- Review balance sheets during each meeting for discrepancies.
- Note any unique, unforeseen circumstances that may have risen, consequently causing a change to budget.
In closure, the importance of a budget for your organization cannot be overlooked. Following these practices can keep you on track and drive the success and mission of your nonprofit organization.
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