To remain viable, nonprofit organizations must operate with an organizational budget, just as any other type of entity must. The budget will reflect the income the organization expects to earn through the year and how that money will be spent. Having a budget approved by your board of directors provides a fiscal road map for your organization.
Things You'll Need
- Lined paper
- Report of financial activity from prior year
- Estimated income
- Estimated expenditures
Establish your organization's fiscal year. Depending on the nature of funding that your organization receives, the fiscal year may run from January 1 through December 31, July 1 to June 30, or another date that best fits your organization's funding flow. The due date for your tax filings with the IRS will be dependent upon the ending of your fiscal year. Fiscal years should remain the same each year.
Collect all available data on income and expenditures during the previous fiscal year. Use accounting software containing data to create Annual Profit & Loss Statements and Balance Sheets to help you understand your organization's financial position and use of funds.
Use a pencil and paper, or a Microsoft Excel-type spreadsheet to record all of your operating expense categories in one column. For an organization creating its first budget, categories or "operating accounts" may be developed to match the reporting requirements on IRS Tax Form 990, or customized to best meet your financial tracking needs.
Write down all of your income categories in another column. Include all of the types of sources that your organization receives money from. Common income includes grants, donations, pledges, fundraisers and fees for service.
Create A Budget
Review your data to determine the amount of income that each income category brought in during the previous fiscal year. Consider whether you anticipate income sources to increase, decrease or remain consistent. Based on your conclusions, estimate and record a realistic amount that each income category will produce in the upcoming fiscal year.
Evaluate the data for expenditures during the previous fiscal year. Consider annual recurring expenses, expanded or reduced operations and any major purchases. Estimate and record a realistic amount that will be expended in each expense category in the upcoming fiscal year.
Calculate and record the total estimated income and expenditures. Include any anticipated reserves in your income calculation. Be sure that there is not a deficit between your budgeted income and expenses. Operating with a deficit does not allow your organization to build up a reserve, which can be used for emergencies. Ideally, small to mid-size nonprofits should retain a reserve that is equal to 25 percent of their annual operating budget.
Adjust expenditures, if necessary, to eliminate any deficit created by your estimates.
Review the draft budget with the organization's board of directors. Use any feedback to modify the budget to best reflect your organization's financial goals and limitations for the upcoming year. Ask the board to approve the budget. Use the final budget as a guide to spending limitations and income goals to avoid fiscal shortfalls. Compare your budget to actual expenditures and income no less than once each quarter.
- Photo Credit how much? image by Photoeyes from Fotolia.com still life with calculator image by Astroid from Fotolia.com pencil image by AGphotographer from Fotolia.com time of the incomes, time of the expenses. image by firsov from Fotolia.com check in macro image by Alexey Klementiev from Fotolia.com
Job Description for a Nonprofit Operations Manager
The operations manager of a nonprofit organization plays a pivotal role, facilitating efficiency and direction in its financial control, human capital, external...
How to Prepare a Budget Sheet
A budget sheet is an essential tool for creating a personal or household/family budget. Having a budget sheet will help you with...
How to Correct a Prior Year's Retained Earnings
Corrections to prior period retained earnings can result from several factors, such as math errors or incorrect applications of generally accepted accounting...
How to Plan a Non-Profit Organization
Learn how to plan your business for a non-profit organization in this free business startup video from our management expert on non-profit...
Budget Planning for a Non-Profit Organization
Learn about planning the budget for a non-profit organization in this free business startup video from our management expert on non-profit organizations.