How to Calculate an Operating Budget for a Non-Profit Organization? Chron com

Identify opportunities, threats, and emerging trends likely to influence your activities (both internal and external to your organization). Finally, get clear on and name the goals, organizational values, and priorities that you want to have reflected in this year’s budget. Be sure to include all the payments that have gone toward your mission programs—including international payments.

This category may include cell phones, internet, electricity, water, and other utilities for daily operations. If your nonprofit needs TV streaming, how to calculate operating budget nonprofit cable, or satellite service, include that here too. This category includes things like educational materials, workshops, and conferences.

What Are the Basic Elements of a Nonprofit Budget

When determining how to allocate funds, it is important to consider the organization’s overall goals and objectives. For example, if the goal is to increase access to services, then a greater proportion of funds should be allocated to program expenses. Alternatively, if the goal is to increase donor support, then a greater proportion of funds should be allocated to fundraising expenses. This may involve allocating funds to specific activities or programs that are aligned with the organization’s goals, as well as ensuring that there is enough money allocated to cover the organization’s fixed costs.

An effective operating budget ensures that nonprofits allocate their resources wisely, prioritize their activities, and stay on course toward their goals. A common misconception about nonprofit budgeting is that because nonprofits by definition can’t turn a profit, their operating budgets always have to break even. It can help you organize revenue and expenses, track performance, and make data-driven decisions to support your mission and your organization’s financial sustainability. In nonprofit budgets, around 35% of your expense budget should be used for administrative expenses (overhead) and the other 65% for program expenses. Among your annual projected expenses, include fixed expenses like rent and loan repayments as well as variable expenses like marketing and fundraising costs.

Figure out your expenses

For example, if one of the organization’s goals is to increase its funding from grants, then the budget may need to include funds for research on potential grantors and for writing and submitting grant proposals. The “what and why” of having operating reserves are intertwined and fundamental. Sometimes referred to as a rainy-day fund, operating reserves can provide shelter from a storm in the form of financial resilience and flexibility. Your nonprofit finance team also leverages KPIs to define financial success, measure the health of your nonprofit, and manage your financial standing. Also, because certain grants will be restricted to certain program areas (rather than general operating support), organize the budget so that each program area’s cost is easy to eyeball. Then you can advise your grant writers what areas need more (or less) funding so that grant prospecting is more efficient.

• Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.
• In fact, healthy nonprofits will do this to help fund 3-6 months of operating reserves.
• This category includes all the costs of hiring and retaining staff—including salaries, payroll taxes, health insurance, retirement contributions, and other benefits.
• Articulate the main purpose of your budget and think about a structure that will best support that purpose.
• Allocating funds and prioritizing spending are both part of accounting services for nonprofits.
• While no two nonprofits are exactly alike, there are some best practices that all organizations should use when building their annual operating budgets.
• Award-winning online accounting software designed for small business owners and accountants.