Developing a nonprofit budget: The basics and best practices

Building a nonprofit budget can be intimidating, not only for new projects or organizations but for all nonprofits when the fundraising outlook is uncertain. Yet, a challenging environment makes developing a strong, credible budget even more important. Whether you’re just getting started or putting the final touches on your grant proposal, the resources below can help you refine your budget.

The basics of developing a nonprofit budget

Once you have a grasp of the different types of nonprofit budgets and their building blocks, the process won’t seem intimidating. Here’s how to get started:

The basics of building a nonprofit budget. There are several types of budgets you may need: project proposal budgets, organization-wide operating budgets, capital budgets, cash flow budgets, and opportunity budgets. This article by Melissa Pulis, a former Candid support manager, outlines how to get started, with an emphasis on project proposal budgets. “The good news is that budgets aren’t as complicated as most people fear,” she writes.

The article also points you to additional Candid resources on developing a nonprofit budget, including our free trainings: What do funders look for in grant proposal budgets?, Introduction to project budgets, and Creating a Sound Proposal Budget.

Building a nonprofit budget: 4 steps to get started. One of your first tasks after establishing a nonprofit is to create an annual operating budget. In alignment with your nonprofit’s strategic plan, set financial goals (e.g., covering costs of new programs, onboarding, fundraising, plus existing costs), organize expenses by function (e.g., programs, administrative, fundraising), categorize revenue by source (e.g., individual donations, foundation and government grants, corporate gifts and sponsorships, and earned income, e.g., program and service fees, merchandise sales, membership fees). Then review your forecasted revenue and expenses against your budget on a regular basis.

Tips and best practices for developing a nonprofit budget

But what does an actual budget document look like? It’s helpful to have models from which to work. Here are a few:

Four common grant proposal documents (free samples included). Among the free samples featured in this article are those for grant proposal budgets, which should include sources of income (e.g., grants and other contributions) and anticipated expenses, including direct costs (e.g., staff time, supplies, and evaluation), and indirect costs (e.g., rent, utilities, and marketing). Some budgets include a “budget narrative” explaining why each budget item is needed and how it will be used.

What do funders look for in grant proposal budgets? In this video (and transcript), Tracy Kaufman, an educational programming manager at Candid, explains how demonstrating credibility is one of the most important factors in a grant proposal budget—the section many funders look at first in an application. If your numbers don’t add up or pieces of the project are missing, that can suggest you may not fully understand how the project really works.

Five green flags for funders in your grant proposal. Given that many grant managers look first at the grant proposal budget, you’ll want to ensure it’s well crafted and clearly defined. Funders like to see that potential grantees have a diverse revenue stream, explains David M. Holmes, an educational programming manager at Candid, and Kate Meyers Emery, senior digital communications manager. And use “budget narratives” to explain complex items. For example, for travel expenses, add a note describing specific travel needs and costs; for personnel costs, show the calculation (hourly wage x hours worked on the project for each employee) that leads to that number.

What to avoid when developing a nonprofit budget

Now that you know what a sound, credible nonprofit budget looks like, here are some pitfalls to avoid:

7 red flags for funders in your grant proposal. Candid asked our community: “What red flags do funders look out for when reading a grant proposal?” “Not reading the directions” was the most common response; the next was: “The numbers don’t add up.” It may seem like an obvious red flag, but apparently it happens more often than you’d think. In addition to checking your math, make sure the line items in your budget match the activities described in the broader grant proposal. For example, if you’re requesting funding to host an event, include costs for staffing, catering, rental, promotion, etc.

Do you have a story to share or tips for developing a nonprofit budget? Feel free to share in the comments.

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