12 May Budgeting For Nonprofits: A Guide For Your 2021 Annual Budget

Ask any owner of an organization, and they’ll tell you that budgeting is one of the hardest parts of the job. The difficulties of budgeting are compounded for nonprofits, which must be careful with where they allocate their resources. Whereas a for-profit business is continuously bringing in revenue (as that is the goal of their business), a nonprofit is looking to solve a problem in the world and to help out those in need. So, not only does a nonprofit need to stay true to that mission, but it also needs to smartly allocate its budget to ensure its organization stays up and running and is effective. This makes budgeting tricky.

But we’re here to help. To make your 2021 budget (and beyond) effective and smart, here are 4 budgeting guidelines to follow each year or quarter.

Evaluate (and Update) Your Bookkeeping and Accounting

If you haven’t evaluated your bookkeeping and accounting processes in a while or ever, then that should be your first priority. The key to good budgeting is having a clear picture of what funds are coming in and where those funds are being allocated to.

Messy, inconsistent, or improper accounting and bookkeeping is a surefire way to make your budgeting mistakes.

Here are a few must-haves when it comes to your bookkeeping and accounting processes:

• Record all your transactions as soon as they occur. Whether it’s your rent, utilities, or catering for an event, keep tabs on all your transactions and expenses. This will help you as you budget for the next quarter, and as you can look for potential expenses to trim as well as forecast your future expenses.
• Use nonprofit accounting software. There are plenty of excellent accounting software solutions available. This article from Wild Apricot has a list of 10 nonprofit accounting software tools to take advantage of to make bookkeeping and budget easy.
• Hire an accountant. Sometimes smaller organizations can get away with part-time accountants. But, as you continue to grow and get bigger, having a full-time accountant that is an established part of your team will help keep your bookkeeping and budgeting in order.

Take a Look at Your Income Sources

Thorough bookkeeping is important because it allows you to keep track of your income sources, such as your donations from fundraising campaigns or text-to-give solutions, grants, and income from corporate philanthropy. 

Having an accurate outline of all your income during the quarter will allow you to budget effectively because you know exactly how much funds you have. Then, you can decide how much you can use to carry out your mission and what can be used for operating expenses.

Make a List of Your Expenses

As mentioned earlier, it’s important to keep tabs on your expenses. If you have been accurately keeping track of them, list them all out so you can see them clearly.

Put them into the following categories: expenses you need, expenses you maybe need, expenses you definitely don’t need.

When you put them into these categories, make sure that you do so with as many high-level members of your nonprofit. It’s important to discuss these expenses as a group because this exercise can be subjective. Work together as a group to decide which expense belongs in which category.

Ideally, you’ll plan your new budget around not having any of the “definitely don’t need” expenses while maintaining room for the “must-haves” and some of the “maybe need” expenses.

Analyze Your Budget Year to Year and Look For Ways to Improve

You should examine your budgets throughout the years. This will allow you to see where you have areas to improve. So, in addition to looking at trends in your expenses and income, take a look at how effectively you’ve been hitting your budget and whether or not you’re missing the mark.

For more information on budgeting for nonprofits—especially for new nonprofits—check out this helpful video!

Happy budgeting!