A nonprofit budget is more than a spending plan. It's how your board, funders, and leadership agree on what the organization will do in the year ahead and how it will pay for it. A good budget also makes audits, grant reporting, and board meetings easier.
Begin with the programs and priorities for the year, not last year's numbers. What will you deliver, expand, or wind down? The budget should fund the plan, not the other way around.
List every expected source and how confident you are in each:
Budget pending grants and new campaigns cautiously. It's easier to add spending mid-year than to cut it.
Donor-restricted money can only be spent on the purpose or time period the donor set. Track it separately so you know how much unrestricted money actually funds operations, and so restricted grants are spent as intended.
Organize expenses into program services, management and general, and fundraising. This matches how you report on Form 990 and in audited financial statements, and it shows funders how much goes directly to your mission.
Rent, staff time, and technology often support more than one program. Use a consistent allocation method, such as staff time or square footage, and apply it the same way all year.
Include a contribution to operating reserves and a contingency line. Many organizations aim for three to six months of operating expenses in reserve over time.
Present the budget with clear assumptions: which revenue is secured, which is projected, and what happens if a major source falls short. Board approval should be documented in the minutes.
A budget only works if you check it. Review budget-to-actual reports monthly, explain big variances, and update the forecast when assumptions change. Share a summary with the board at each meeting.
FirmKey helps nonprofits with budgeting, board reporting, and fractional CFO support. Talk to us about your next budget cycle.