How to Set a Budget for a Nonprofit Organization

How to set up budgets for nonprofits

Nonprofit budgets are very detailed and include funding from governments, businesses, individuals, and foundations. Cost management is a priority in any nonprofit organization, so the expense budget is an important part of this planning.

Here are some steps to setting a budget for a nonprofit organization:

1-Prepare the budget about 3 months before the budget year begins.

Starting the budget process before this may not work well because things change and those changes need to be incorporated into the budget. Budgets should be done as close to the start of the year as possible, giving enough time for management and accounting to crunch the numbers and provide thoughtful numbers.

two-Print/download Income Statement/Activities Statement

Review the current or prior year’s actual income and expenses as a baseline for the next year. The best approach would be to download the numbers to a spreadsheet, so that the numbers can be changed in that spreadsheet. For example, if the program’s income this year is shown to be $10,000, and management believes that this number will increase by 10% next year, this formula could easily be entered into the spreadsheet.

3-Document the process in detail.

When making decisions about income and expenses, you must have supporting documentation for these decisions. Often when there are large variances between actual/actual and budgeted numbers, management wants to analyze them to make decisions about them. For example, the reasons for an increase in rental spending should be documented, so that if this increase does not occur in reality, this variation can be easily explained.

4-Include all administrators

All managers in the organization must give input on the budget. The board of directors can set the basic numbers, but without input from managers, the budget may not be realistic. Members of management must participate in the budget process and must take responsibility for their areas. For example, the fundraising department should set the numbers for brochures and event planning and take responsibility for them.

5-Create written policies and procedures regarding the budget.

Management must take budget preparation and approval seriously. Typically, a nonprofit organization’s budget is approved by the board of directors or a finance committee. Policies and procedures in this area are crucial to keep the process correct and standard over the years. A policy, for example, could address deadlines for budget approvals and situations in which a budget may need to be reapproved by the board.

(This article is designed to provide authoritative information. The author or publisher is not engaged in rendering legal, accounting, or other professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.) .