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A Quick Guide to Building Your Nonprofit Budget

As a nonprofit, one of the hardest obstacles you will face is not receiving enough funding to do the things you want to do. But, if you have a solid budget that you stick to, you can get through the low points until funding picks up again.

Unlike a business, you aren’t trying to increase profit margins or meet sales goals. Your bottom line isn’t about making money. It’s about calculating the costs it will take for your organization to achieve its goals.

That’s why practicing good budgeting techniques is crucial to accomplishing your mission with any level of funding.

With this article, we’ll address why you need a budget, what the benefits are, how you should build your plan, and decide on which type of budget works for your nonprofit.

Why You Need a Budget

The purpose of your budget is about planning your goals. If you want your nonprofit to achieve its mission, you must know the steps you’re going to take to get there. By solidifying your goals, you can set aside money for events and outreach to further your mission or increase your funding. By budgeting correctly, you can maximize your nonprofit’s potential while preparing for possible roadblocks ahead.

The Benefits of Budgeting

  • Trust & Transparency – Having your budget outlined for the year can help gain trust from your donors and from your board. This gives them an opportunity to look over what you plan on accomplishing over the next twelve months. If you want, you can even have board members offer advice on what they would like to see done for the upcoming year. Either way, the more transparent your budget is, the more trust you gain.
  • Motivation – If you want people to get excited about your nonprofit’s mission, you need to have events planned ahead of time. This shows that you’re trying to branch out to a broader audience and that your mission is important to you. The more people understand that, the more they’ll be inclined to help. Once you decide on events, however, you need to set aside funds beforehand, so you know you can afford them.
  • Goal Setting – If you want to expand your nonprofit or reach a larger audience, you need to know where you are heading. By defining what goals you want to reach, you create a level of expectation. You will know what goals you are working toward, and how you can achieve them. This helps keep your nonprofit on track and focused.

Build a Plan That Works for Your Organization

Before deciding on a budget, your organization needs to prepare itself by tackling these crucial steps.

  • Plan Your Year – Starting out, you should have an idea in mind of what your organization will look like in the future. Don’t start with big ideas, but, rather, start with one big idea and lay out a plan that incrementally brings you closer to accomplishing it over the course of the year. With a smaller nonprofit, there are a lot of goals you probably want to meet. Take it slow but have an idea of how you will get there. Rome wasn’t built in a day, so give yourself some space and outline how you will systematically reach your goals. If you can’t meet your goals by the end of the year, you can always roll it over into the next.
  • Define Expenses – After establishing your plan, now you need to get into the financial side of things. You have to question your plan to see if it’s affordable. If you need to increase the time it takes for you to afford your goals, then set small goals that incrementally work toward accomplishing your mission from one year to the next.
  • Set Department Limits – Each department offers something important to your organization, but you need to calculate how much funding you dispense to each one. If you want to increase the number of fundraisers you do, then you’ll need to set aside more money for that. If you want to boost your social media, then you would add more to your marketing budget. Either way, set a budget limit and keep to it so each department doesn’t go over their limit.

Discover a Budget That Works for You

These types of budgets can give you an action plan for designing the right type of budget for your organization.

Incremental Budget
This is more of a conservative approach to budgeting that’s also the easiest to implement. With an incremental budget, you make small changes based on your budget from the previous year. Depending on whether you have a loss or a gain, you will either add a little to your budget or cut some.

Zero-Based Budget
Unlike an incremental budget, a zero-based-budget can take some time to implement. Essentially, this budget works by starting at zero and then mapping out what your expenses will be from the start of the year to the end of the year.

Income-Based Budget
With this budget, you establish how much funding you think you can bring in then determine the expenses you will have throughout the year. You will want to find a balance between them, so you never spend more than you intend.

Surplus Budget
This budget works best if you happen to have some money left over at the end of the year that you can store for future projects, pay off debts or put into savings. This type of budget is easy to implement but is normally used in tandem with another budget.

Implementing More Than One Budget
Not every organization limits itself to one budget. In many cases, nonprofits use two types of budgeting techniques. You might find that having a zero-based budget is good to use with a surplus budget. Or, you might find that even an incremental budget and a zero-based budget work well together. Either way, the type of budget you choose should be based around a solid plan.

Conclusion

If you want your organization to be successful, then you need to start with a budget. The right budget begins with plotting out your organization’s expenses and setting goals for you to accomplish. With all that preparation in place, you can build your organization up and create a stronger nonprofit.

Budget, Financial Planning