Grab a free copy of this comprehensive guide to developing your business from scratch. Before you go ahead and opt for a credit card for your small The Key Benefits of Accounting Services for Nonprofit Organizations business, make sure you know if it’s worth getting one. Clear policies about when and how to use reserves help prevent impulsive spending while ensuring funds remain available for genuine needs.
What to Include in a Nonprofit Operating Budget
For example, Network for Good is a nonprofit that provides nonprofit fundraising software, often receives donations on behalf of their partner nonprofits, and then passes the donations on to these partners. If we look at their 2018 Form 990, they had $475,384,887 in grants to US nonprofits and 69,269 in grants to foreign nonprofits, for an operating budget of $12,927,177. This shows the importance of operating budgets, because a $13 million organization is very different than a $475 million organization. Without the hard work of determining cash flow and capital allocation, charitable missions are only ideas.
The expenses section
AAFCPAs recommends a 3-5% surplus operating budget each year, and four to six months of expenses in your operating reserves. Many nonprofits seem to not only operate on shoestring budgets but are also proud of it. Some nonprofit leaders may even be reluctant to show a surplus in their books, fearing the perception that they are not putting their resources to good use. When budgeting, nonprofits sometimes make the mistake of forgetting to account for in-kind donations or volunteer hours. It’s also useful to look at the financial trends for your programs over the past few years, and assess if each program is covering its direct costs, or contributing to overhead. After creating a nonprofit budget and having it approved, you’ll continue to look at this financial document throughout the year.
Plan your month-by-month budgeting.
- It allows you to track various income sources, categorize expenses, and compare current figures with previous years.
- Additionally, the facilities category covers utilities—such as water, electric, gas, Internet, and trash/recycling—and upkeep for the building, parking and landscaping.
- Likewise, a computer that is still working might not have enough memory, storage capacity, or computing power to handle new software and computing tasks.
- This category may include cell phones, internet, electricity, water, and other utilities for daily operations.
Note that some revenue sources bridge multiple categories and can be organized in different ways. For example, some nonprofits list corporate grants with their other grant funding, while others consider them a type of corporate philanthropy. It will cover all the expenses required to keep the organization running, from salaries and utilities to technology and insurance. Involve board members, department heads, program managers, and financial officers. Each stakeholder provides unique insights into the organization’s priorities and operational needs.
This audit will determine if the previous year’s resources were managed appropriately and inform the following year’s budget. The planning of an operating budget begins up to half a year before the budget will be implemented. Some confusion occurs when differentiating short-term and long-term objectives. This confusion brings us to a point where we need to differentiate between capital budgeting and operating budgeting.