Then, take some time to reflect on and learn from programmatic and financial successes and failures. Monitoring your revenue and expenses should ideally become a part of your nonprofit’s organizational culture, something everyone is aware of and contributes to. Mark the events in everyone’s calendars, so that it becomes easier https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ to repeat the process each year. Historic data is the most reliable information you can use for creating a budget. Just be sure that you’re using timely and accurate historic numbers when forecasting future expenses and revenue.

Steps to Creating a Best Practice Nonprofit Budget

Donors expect to know how their donations are helping the organization so boards need to consider how they can communicate this information to donors. Under the heading of expenses, boards need to focus expenditures on their programs and activities. Expenses include direct costs, such as the cost of hiring new staff, ordering supplies, providing brochures or other publications, ordering supplies and travel. Capital expenditures are expenses needed to acquire or maintain fixed assets, such as fixing or maintaining buildings, land and cars. Indirect costs, which are also called overhead, include things like utility bills, internet fees and postage. It typically requires getting income from multiple sources for nonprofits to thrive.

The Nonprofit Accounting Software Buyers Guide

• Financial planning is vital to an organization’s success and sustainability.
• There’s no “right” approach to organizational budgeting—you must find the one that works best for you.
• Document both findings and planned adjustments to maintain accountability and track progress over time.
• Customize your template based on your organization’s specific needs and reporting requirements.

Budgets should not be written in stone, because the financial position of the nonprofit may change during the year. Like revenue, you’ll predict expenses based on what you’ve spent in different areas in the past. This process is easiest for fixed expenses, which stay constant each year. For example, the rent for your office is likely a fixed expense due to your contract with the building’s management company. However, you’ll also have variable expenses that change each year and may be more difficult to forecast.

Board Orientation

Seeing these things side by side gives you the tools to decide how you can best use your resources. Your nonprofit budget is meant to be a flexible document that changes as your circumstances do. After all, sometimes you have a boost in revenue, or get hit with a pesky unexpected expense. Given that many grant managers look first at the grant proposal budget, you’ll want to ensure it’s well crafted and clearly defined. Driver-based budgeting helps your nonprofit align its financial planning with operational activities, making adjusting to changes and improving decision-making easier.

• Driver-based budgeting helps your nonprofit align its financial planning with operational activities, making adjusting to changes and improving decision-making easier.
• Known as the overhead myth, the principle that nonprofits must stick to a certain percentage (typically estimated between 15 and 35%) is false.
• Assess whether the expense is worthwhile, whether the program is generating an acceptable ROI, and whether you can expect to receive similar donations from your existing donors.
• To help you avoid these pitfalls, here are some essential budgeting best practices to keep your nonprofit financially stable and mission-focused.
• Additionally, explore shared service arrangements with other nonprofits to optimize resources and achieve better results.
• His passion lies in empowering these entities to optimize their operations through the strategic integration of technology, particularly in the realms of Governance, Risk, and Compliance (GRC).

Board Governance and Oversight

• This becomes particularly important when balancing mission-driven goals with fiscal responsibility, whether you’re running a local charity or a growing foundation.
• When in doubt, please consult your lawyer tax, or compliance professional for counsel.
• Regular board meetings are essential for maintaining oversight and fostering open communication among members.
• According to the 2023 M+R Benchmarks Study, nonprofits spent an average of $0.11 on digital advertising for every dollar of online revenue in 2022.
• Use detailed historical data and consult with your nonprofit program managers to develop accurate estimates of expenses and stay on top of underestimating costs.

Keep financial data in a central platform like a nonprofit accounting system to ensure easy access for your team. Teach team members how to interpret this information and take advantage of the software’s reporting features to simplify their analysis. Training staff on compliance issues and ethical standards further strengthens an organization’s risk management framework. By fostering a culture of accountability and vigilance, nonprofits can protect their resources while maintaining public trust. Moreover, adopting best practices in financial reporting can enhance an organization’s credibility.

Regularly publishing financial reports—such as income statements, balance sheets, and cash flow statements—can help demystify the organization’s finances and demonstrate accountability. Your nonprofit’s budget should be the financial reflection of your strategic plan. This means any and all revenue and expenses need to be tied into your organization’s mission and goals. This alignment is accounting services for nonprofit organizations critical as it keeps your organization focused on its main purpose and maximizes resources.