When it comes to making a budget for your nonprofit, it can seem like there is little to guide you. This can be especially true for new nonprofits whose budget is more like a best guess than a best estimate. If you are in this position, don’t panic… making a budget is often more art than science.

In this podcast, I talk with Rick Sluetaris who is a co-director at Open Connections in Pennsylvania. When he first started working there they had an income of $300,000 but no budget. No one was tracking where the money came from or where it went. When it came to giving employee raises or buying equipment it was simply a matter of seeing if the bank account could cover the cost.

Rick talks about the steps they took to create a budget and start tracking their finances. This gave Open Connections an annual budget with guidelines to help them spend money relevant to their goals.

Creating your Budget

If you have been tracking your income and expenses then you are off to a good start. This will make it easier to project what will be needed in the months and years ahead. If you haven’t been tracking your finance (or if this is your first year) then your projected budget really is just a best guess.

Income

Income for a nonprofit comes in the form of grants, gifts/donations, product sales, service fees, endowments and/or membership fees. This is usually the easiest part of the budget to create. Just calculate what you took in last year and project it forward a year. The trick is to be conservative.

If you had $10,000 in donations then it is likely you can reach that number again (unless you have had staff/volunteer turnover or have suffered a loss of reputation). So it would be reasonable to expect $10,000 to $11,000 in donations in the new budget. Like I said, be conservative, a 2-5% increase is usually a safe number. It is easier to meet and exceed conservative estimates and helps you plan realistic expenditures.

Keep projecting your income in a similar fashion for each line item. Take the known amounts and adjust them according to your best prediciton of the future. Obviously, new or expiring grants can have a significant impact on your bottom line. So be sure to account for these dramatic increases (or decreases) in your income.

If this is your first year budget and you have no numbers to work with, then do your best to come up with honest and conservative “guestimates” of your income.

Expenses

This is where tracking is really important. An honest budget is a tracked budget. Your expenses will include utilities, maintenance, office supplies, salaries, insurance, equipment, rent/lease, etc. Even if you are a sole social-entrepreneur paying for everything out of pocket, you still need to track these expenses. It is important to know a realistic cost on what it takes run your nonprofit.

Your expenses should be adjust for inflation, so adding an extra 2-3% is pretty common practice.

Once you have your list of projected incomes and expenses created it is time to figure out your net income.

Net Income

This is pretty simple math. Your gross income is all of your total income. Let’s say $20,000. That may be a great number unless your total expenses is $30,000. In this case you would be operating at a loss. Your net income (gross income minus gross expenses) would be -$10,000.

Don’t panic if you have a negative net income. If the difference is only a few thousand dollars you can go back and adjust some of your income and expenses to try to narrow this gap. If this is your first year in existence, then it may mean running your nonprofit at a loss for the first several years until your income can catch up with your expenses.

Remember, You’re Rembrandt

Creating a budget can be fun. It is useful to see the financial health of your organization. And it takes just as much creativity to make a budget as it does basic math. Just remember, a budget is a living document and should be visited several times throughout the year. It is not written in stone. If you see that you need to increase an expenses due to fuel prices, then make the necessary adjustments to cover this new increase (either increase a revenue item, or cut an expense).

So get out your paint brush (and calculator). It is time to make your budget.

Resources

Open Connections: openconnections.org

Tech Soup: techsoup.org

Tech Soup Canada: techsoupcanada.ca

WaveApps Accounting Software Overview: nonprofitally.com/nonprofit-accounting-app

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4 Comments
  1. Fredline 2 years ago

    Hi Steve,
    I just start a nonprofit corporation in the state of FL, a month ago. It is established to change the lives of people in Haiti. I am very new to all the processes and business languages of nonprofit. I got books from the library that really help me get started. I am glad I find your videos on YouTube and your website. I want to thank you for taking the time to help others like me.

    I am in the process of filing an application for small charitable fundraising approval. The money we will receive or collect will be used to help children in Haiti go to school, also we will assist with medical needs and nutrition. Since most of the fund raised will be sending to Haiti is there different guidelines.

    I also went to chase to get information on opening a bank account for the organization and I was told since we are going to send money to a different country we might not be approved to open an account. I know exit several nonprofit in that genre either helping Haiti or other foreign countries, that’s mean it should not be impossible for us.

    I will appreciate any help or advice that you might have. Thank you.

    • Author
      Steve 2 years ago

      Hey, sorry for the delayed reply. You will have to get a business bank account. Most banks will have accounts specifically for nonprofits. I am not an expert about sending money to over seas causes, so not sure how it gets set up. Will you be sending money directly to organizations, churches and/or people in Haiti? I think knowing how you plan to deliver the money, and in what form, will help clarify how it is done.

      Also, don’t hesitate to contact other organizations that do similar work in the world. Typically you will find they are very open to helping. Good luck.

  2. FLOMO MAIWO 2 years ago

    I AM IN THE PROCESS OF DEVELOPING A NONPROFIT ORGANIZATION. I AM A YOUNG LIBERIAN FROM (WEST AFRICA) PASSIONATE OF EFFECTING CHANGE IN MY COMMUNITY AND SOLVING LOCAL PROBLEMS. WHAT HELP CAN YOU GIVE ME IN HELPING ME ACHIEVE MY GOAL? I ACTUALLY LACK TOO MANY EXPERIENCE AND UNDERSTANDING IN GOING ABOUT THIS BUT MY PASSION ALWAYS PUSHING ME TO THE WALL.

    • Author
      Steve 2 years ago

      Hello, Are you in Liberia? Not sure I know how to start nonprofits in Africa. Or are you in US and want to start one here to help in Liberia?

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