Soapbox Engage Blog

Your nonprofit's mission is the guiding force behind everything your team does. It's your motivation for cultivating donors, managing volunteers, and organizing program activities. However, it can be hard to directly translate your mission into realistic goals and benchmarks to guide your team. For example, you need to set a year-end fundraising goal each year, but there is no exact dollar amount listed in your mission statement.

Your annual operating budget can serve as the interpreter between your mission and your nonprofit's activities. By creating a budget, you can efficiently allocate funds and communicate to your team and community how your organization will use its resources to accomplish your mission. In this guide, we'll walk through how to create your nonprofit's operating budget so you can keep doing good work to further your mission.

Basics of Budgeting for Nonprofits

A nonprofit budget, just like for any other entity, "is a financial planning document that projects your organization's spending and revenue generation for a specified period of time," according to CFO Leverage. It covers all of your activities, including the money it costs to raise money (fundraising software, development team salaries, etc.).

Creating a budget is creating a plan for where and how your nonprofit will direct its resources throughout the fiscal year. Your executive and financial team should develop this document ahead of your fiscal year, and then run it by your board of directors for final approval. A budget is not a "set-it-and-forget-it" document, however. Regularly review it throughout the fiscal period to ensure you're on track, and include it in the agenda of presentations to your board.

It can be helpful to review previous years' budgets or financial records of income and expenses (if no formal budget was created), to get an idea of what's realistic for your organization. Additionally, research peer organizations to determine if your nonprofit's spending and revenue align with the benchmarks of similar organizations.

Alongside your overall budget, you can create sub-budgets to address one specific source of funding (e.g., you might need to draft a grant proposal budget alongside a grant application) or to look at specific activities in more detail (like a program or event budget). However, it's best to start with a comprehensive operating budget first to capture all of your organization's financial data.

Your overall goal when creating a nonprofit budget should be to generate more revenue than you have expenses. Not only does this revenue surplus protect your current cash flow, but it also helps your organization prepare for the future. As a nonprofit, all surplus funds have to be reinvested into your organization (rather than being distributed to shareholders or investors like they would be at a for-profit company). Surplus funds can go into your reserve fund, which provides security in the event of a future financial deficit and flexibility to grow your organization over time.

Nonprofit Expenses

Your nonprofit should tally up all expenses that occur in the course of your fiscal period. For nonprofits, costs typically fall into three categories:

Cost Category	Definition	Examples (at a nonprofit animal shelter)
Program	Directly related to your nonprofit's mission	Veterinary services Pet food Dog beds
Fundraising	Upfront costs of revenue-generating activities	Hiring a fundraising consultant Renting venues for fundraising events Buying fundraising software and tools
Management and general	Administrative expenses for operating	Staff salaries Utility bills for shelter facility General marketing expenses

As a nonprofit, your organization may be eligible for certain discounts and financial incentives. One example of this is the Google Ad Grants program, which can offset costs in your marketing budget. It's worth evaluating your spending in each area to see if there are opportunities for economization.

However, some expenses may be less flexible, like paying your employees or program-specific costs, like veterinary bills for an animal shelter. You want to attract and retain a dedicated team, so slashing your salary budget might not be the best way to support your nonprofit's mission (and taking funding away from critical cause-related initiatives definitely isn't!).

Fundraising and management and general expenses, which are together referred to as overhead, have historically gotten a bad rap in the nonprofit sector. There has been a prevailing idea that any overhead spending is unnecessary, but it's impossible to run a successful nonprofit without management expenses or engage donors effectively without some upfront fundraising costs. Overhead expenses are just as legitimate as program expenses, and your nonprofit will have to figure out the right ratio between the two.

Nonprofit Revenue

Revenue encompasses all of your nonprofit's income for the year. When planning your budget, you need to account for all of your different revenue streams as well. Having multiple sources of nonprofit income is a financial safety net in case one or multiple streams decrease or disappear.

Infinite Giving's guide to diversifying income identifies a few of the following revenue streams:

• Individual giving
• Corporate philanthropy
• Earned income
• Investments
• Grants

When compiling your nonprofit's budget, if you initially use the income from the previous year to project the upcoming year's revenue and it doesn't cover all of your expected expenses, you may need to make some adjustments to your fundraising strategy. This might look like a new campaign to cultivate recurring and major gifts or even evaluating your current fundraising marketing collateral. What might seem like small improvements, like adjusting the wording of donation appeals, can have real impacts on your nonprofit's bottom line.

Implementing a Nonprofit Budget

Your budget, alongside other financial documents and reports, are powerful tools to help your nonprofit achieve your mission. Ultimately, it should reflect your organization's goals and support your long-term financial sustainability.

As situations arise throughout the budgeting period, for example, maybe needs in your community for program services have risen or maybe your online fundraising has been more successful than anticipated, adjust your budget to reflect reality. You can also draft hypothetical short-term budgets to determine what the impact of possible events could be.

It may also be helpful to break down your annual budget into monthly budgets for implementation. Not all months will look the same, and even if you accounted for seasonal fluctuations in your annual budget (e.g., accommodating the dip in individual giving that often occurs in the summer or noting whether GivingTuesday is in November or December each year), having accurate monthly benchmarks can keep you on track.

Planning out revenue and expenses in your nonprofit budget (and sticking to it!) helps you effectively carry out your mission this year, and also in years to come. A budget gives you the power to make data-driven decisions with the confidence that your nonprofit is financially stable.