Nonprofit organizations are created for the public good. There is a need and a passion to make a difference, a true impact. But making an impact requires dollars and a plan to raise those dollars. How your nonprofit creates both its annual budget and individual program budgets is very important to the success of the organization.
A basic budget includes revenue streams and operating expenses. A balanced budget, where your revenue and expenses zero-out, is a standard best practice. If your budget is not balanced, then notes of explanation should be included. Some funders want a basic budget with broad categories, others may request a detailed budget with subcategories.
Programs offered by your organization should have individualized budgets. This is especially important when working with funds restricted by the donor. Program budgets must match your fundraising narratives. Revenue and expenditures must balance.
Another important consideration is your overhead expenses, also referred to as administrative costs. I’ve written previously on overhead rates, but a general rule is admin costs should be forty percent or less of your overall budget. Foundation funders often use this rate as a measure of organizational effectiveness.
The best guide to allocating expenses is the IRS Form 990, Section IX, Statement of Functional Expenses. Here’s a link https://www.irs.gov/pub/irs-pdf/f990.pdf.
This section includes four columns:
(A) Total Expenses
(B) Program Service Expenses
(C) Management and General Expenses
(D) Fundraising Expenses
A well-planned budget reassures donors, both individuals and foundations, that your organization is a good steward of their contributions. Overall, having well-defined budgets tell a good story about your organization.
Does your budget support your work and the story you wish to tell?
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching and fundraising services for our nonprofit clients. We specialize in startup and smaller nonprofits because we understand your challenges. Please contact us for more information.